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Headline Verdana BoldDeloitte TaxMax – The 43rd seriesPersonal Income Tax HighlightsAng Weina & Chee Ying Cheng l 22 November 2017by Deloitte Tax Academy

© 2017 Deloitte Tax Services Sdn Bhd 2Personal Income Tax Highlights

Highlights of 2018 Budget

2018 Budget affecting individual

Tax exemption:Women

returning toworkforce aftercareer break

Tax Relief PeriodExtension:

SSPN

Changes toindividualtax rate

Tax Exemption:Rental income

1MalaysiaRetirementScheme –

Increase Ingovernmentcontribution

2018Budget

proposal


Individual income tax rate


0

5

10

15

20

25

30

35

40

45

45 45

39.6

35 35

30 3028

2524

22

17

Individual tax rate comparatives


Changes to individual income tax rate


Finance (No. 2) Bill 2017

Proposed amendment to Schedule 1, Part 1 Paragraph 1 to the IncomeTax Act

• The marginal tax rates for three chargeable income bands to be restructured as follows:

• Effective: Year of Assessment(YA) 2018 and subsequent YAs

Gross income(RM)*

Chargeableincome (RM)

Current tax rate– up to YA 2017

(%)

Proposed taxrate – wef YA

2018(%)

Estimated taxsavings (RM)

35,001 - 50,000 20,001 - 35,000 5 3 300

50,001 - 65,000 35,001 - 50,000 10 8 600

65,001 - 85,000 50,001 - 70,000 16 14 1,000


Changes to individual income tax rate


Implications

• Intention: to increase the disposable income of M40.

− Will increased disposable income be sufficient to cover increasing cost of living?

• Steep rise in tax rate for RM70,000 – RM100,000 tax band

• Non-resident tax rate remains at 28%

Chargeable income(RM)

Current tax rate -2017(%)

Proposed taxrate – 2018

(%)

Estimated taxsavings (RM)

5,001 - 20,000 1 1 -

20,001 - 35,000 5 3 300

35,001 - 50,000 10 8 600

50,001 - 70,000 16 14 1,000

70,001 - 100,000 21 21 1,000

100,001 – 250,000 24 24 1,000

250,001 – 400,000 24.5 24.5 1,000

400,001 – 600,000 25 25 1,000

600,001 – 1,000,000 26 26 1,000

Exceeding 1,000,000 28 28


Tax relief period extension

Net savings in the nationaleducation savings scheme (SSPN)


Tax relief period extension: SSPN contribution


Tax relief up to

RM6,000 for net

savings in the

National Education

Savings Scheme

(SSPN) from YA

2012 until YA 2017.

It is proposed that the said income tax reliefof up to RM6,000 for net savings in theSSPN be extended for another 3 years.

Proposed legislation

Years of assessment 2018 to 2020

Effective

Implication

To encourage savings to finance tertiary education of children


Tax exemption: Rentalincome


Tax exemption on rental income


Net rental incomereceived by a residentindividual is taxable atprogressive tax ratesranging from 0% to28%.

50% income taxexemption on rentalincome received byMalaysian residentindividuals

Rental income received notexceeding RM2,000 per monthfor each residential home;

The residential home must berented under a legal tenancyagreement;

Tax exemption available for aperiod of maximum 3consecutive YAs (effective fromYA 2018 to YA 2020)

Current legislation Proposed Conditions

Clarifications required :

• Whether the exemption is given on gross or net rental income ?


Women returning toworkforce


Tax exemption on earnings for women returning to workforce


Clarification from

TalenCorp :

https://www.talentcorp.com.

my/careercomeback

−Must be a Malaysian citizen;

−Has min 3 years of workingexperience

−Has not been employedor engaged on full timebusiness during thecareer break

Proposed legislation

Personal tax exemptionon employment incomeup to maximum of 12consecutive months tobe provided to womenwho return to theworkforce after a careerbreak.

Criteria

−Career break for at least two

years on 27 October 2017

− Application must be submitted to

TalentCorp from 1 Jan 2018 to 31

Dec 2019

Effective date

−Year of assessment 2018 to

2020


Tax exemption on earnings for women returning to workforce


Type of Grants Resourcing Grant Retention Grant

Description For companies that implement orenhance a programme or campaignto recruit women returnees

For employers who recruit and retainwomen returnees for more than sixmonths.

Grant period Implementation must be between1st January 2017 – 31stDecember 2017 by the employers.

On boarding of women returnee(s) mustbe between 1st January 2017 until31st December 2017.

Grant amount The grant co-funds 75% of the costincurred to run the programme upto RM100,000.00 per applicant(employer) per year

The grant amount is equivalent to areturnee’s one-month salary (up toRM100,000 per employer per year

Submission period Application must be made by 31stDecember 2017.

To submit application after the womenreturnee(s) has been retained/retainedfor more than six (6) months by theemployer but not later than 1st July2018.

There are 2 grants provided by TalentCorp to employers : https://www.talentcorp.com.my/grants

Point to note :• Eligible applicant may claim one (1) or both grants amounting up to a maximum of

RM100,000 per grant.• To submit application to: [email protected]


1Malaysia RetirementScheme


Increase in Government contribution towards 1MalaysiaRetirement Scheme


Current legislation Proposed

• 1Malaysia Retirement Scheme is

governed by Employees Provident

Fund (“EPF”)

• The scheme is applicable to self-

employed Malaysian citizens

without fixed income

• Current government contribution

at 10%, subject to a maximum of

RM120 per year

• Government contribution will

increase from 10% to 15%,

subject to a maximum of RM250

per year.

• This new contribution rate will be

for a 5-year period (i.e., from

2018 to 2022)

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All services are provided through the individual country practices, their subsidiaries and affiliates which are separate and independent legal entities.

About Deloitte in MalaysiaIn Malaysia, services are provided by Deloitte Tax Services Sdn Bhd and its affiliates.

This communication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms, or their related entities (collectively, the “Deloitte Network”)is, by means of this communication, rendering professional advice or services. Before making any decision or taking any action that may affect your finances or your business, youshould consult a qualified professional adviser. No entity in the Deloitte Network shall be responsible for any loss whatsoever sustained by any person who relies on thiscommunication.

© 2017 Deloitte Tax Services Sdn Bhd

Deloitte TaxMax – The 43rd seriesOne bold step in the right directionSim Kwang Gek and Stephanie Low l 22 November 2017By Deloitte Tax Academy

One bold step in the right direction© 2017 Deloitte Tax Services Sdn Bhd 2

Corporate Tax


Earning strippingrules to replacethin capitalisation rules


History

Thin capitalisation rules (TCR) in Malaysia

2009TCR introducedunder Section140A of IncomeTax Act 1967 butthe rules for itsimplementationwas notgazetted.

2011Implementationpostponed to31.12.2012.




Appendix 30 to the 2018 Budget Speech

Earning stripping rules

“… Under the Earning Stripping Rules (ESR), the interest deduction on loansbetween related companies within the same group will be limited to aratio determined by a country’s tax authority, ranging from 10% to 30% ofthe company’s profit before tax, either using the Earning Before Interestand Taxes (EBIT) or the Earning Before Interest, Taxes, Depreciationand Amortisation (EBITDA).”

Effective date to implement ESR: 1 January 2019(TCR will be repealed with effect from 1 January 2018)


Comparison between OECD’s recommendations and ESR rulesannounced in the 2018 Budget Speech


OECD’s recommendations (bestpractices)

ESR rules in 2018 Budget Speech

• Cover debt financing arrangementsentered into with related parties andthird parties

• ESR rules announced only cover loansbetween related companies within thesame group

• Interest limitation rule should directlylimit the level of interest expense thatan entity may deduct for tax purposes(as opposed to limiting the amount ofthe debt with respect to which an entitymay claim interest deductions)

• ESR rules announced appear to limitthe amount of interest deductiondirectly

• Interest limitation rule should generallyapply to an entity’s net interestexpense

• Unclear whether ESR rules wouldapply to net interest expense or grossinterest expense

• Interest deduction should be limited toa ratio of earnings (EBIT or EBITDA)

• ESR rules limit interest deductionbased on a ratio of EBIT or EBITDA

• Under the fixed ratio rule, interestdeduction should be limited to 10% -30% of EBIT or EBITDA

• Interest deduction is to be limited to10% - 30% of EBIT or EBITDA



Supposed that for its ESR, Malaysia adopts the fixed ratio rulebased on EBITDA and net interest expense:

Step 1 – Calculate Tax EBIDTA

• Calculate Tax EBITDA:Tax EBITDA = Taxable income + Capital allowance (i.e. tax depreciation) +Net interest expense deducted in arriving at the taxable income

Step 2 – Apply fixed ratio

• Apply the fixed ratio to Tax EBITDAe.g. 10% of Tax EBITDA

Step 3 – Compare

• Compare amount in Step 2 (e.g. 10% of Tax EBITDA)with net interest expense deductible.



Example A: Interest expense fully deductible against businessincome before ESR (i.e. loan used wholly for business purposes)

Income statement

Interest expense RM

Payable and due to be paid to the holding company 1,500,000

Tax computation (YA2019) – Before ESR

RM RM

Net profit before tax 2,000,000

Less: Interest income (500,000) 1,500,000

Add: Non-deductible expenses

Depreciation 600,000

Entertainment expenses 50,000 650,000

Adjusted business income 2,150,000

Less: Capital allowances (400,000)

Statutory business income 1,750,000

Add: Gross interest income 500,000

Aggregate / chargeableincome

2,250,000

RM

Chargeable income 2,250,000

Add: Capitalallowance

400,000

Add: Interest expense 1,500,000

Less: Interest income (500,000)

Tax EBITDA 3,650,000

Net interest expense(RM1,500,000 –RM500,000)

1,000,000

10% of Tax EBITDA (365,000)

Interest expensenot deductibleunder ESR

635,000



Example B: Interest expense partially restricted under businesssource (i.e. loan used partially for non-business purposes)

Balance sheet

Investment andlending

RM

Investment in shares 5,000,000

Loan to relatedcompany

10,000,000

15,000,000

Interest bearing loan

Loan from holdingcompany

25,000,000

Income statement

Interest expense RM

Payable and due to bepaid to holdingcompany

1,500,000

Tax computation (YA2019) – Before ESR

RM RM

Net profit before tax 2,000,000

Less: Interest income (500,000) 1,500,000

Add: Non-deductible expenses

Depreciation 600,000

Entertainment expenses 50,000

Interest expense(restricted)

900,000 1,550,000

Adjusted business income 3,050,000

Less: Capital allowances (400,000)

Statutory business income 2,650,000

Add: Gross interest income 500,000

Less: Interest expense (500,000)

Statutory interest income -

Aggregate / chargeable income 2,650,000



Example B: Possible workings to compute interest disallowed under ESRMethod 1: Apply ESR and then followed by interest restrictionMethod 2: Apply interest restriction then followed by ESR

Method 1: Method 2:

Chargeable income 2,250,000 2,650,000

Add: Capital allowance deducted in arriving at chargeableincome

400,000 400,000

Add: Interest expense deducted in arriving at chargeableincome

1,500,000 1,100,000

Less: Interest income (500,000) (500,000)

Tax EBITDA 3,650,000 3,650,000

Net interest expense (Interest expense – Interest income) 1,000,000 600,000

10% of Tax EBITDA (365,000) (365,000)

Interest expense not deductible under ESR 635,000 235,000

Add: Interest expense not deductible under interestrestriction

19,000 400,000

Total interest expense not deductible 654,000 635,000

(RM1,500,000 –RM635,000) x 15/25

– RM500,000RM900,000 – RM500,000


Current provisions on disallowance of interest expense:


Withholdingtax not

remitted

Interestdue to be

paid?

Interestrestriction

Transferpricing


Accelerated capitalallowance for purchase ofICT equipment and softwareand software development


Accelerated capital allowance for purchase of ICT equipment andsoftware

• A resident who incurred capital expenditure in relation to the purchase(includes installation) of ICT equipment for the purpose of his businesscan claim capital allowances at the following rates:

a) Initial allowance – 20%b) Annual allowance – 80%

Income Tax (Accelerated Capital Allowance) (ICT equipment) Rules[PU(A)217/2014]

ICT equipment include:

• Access control system• Banking systems• Barcode equipment• Bursters / decollators• Cables and connectors• Computer Assisted Design• Computer Assisted Manufacturing• Computer Assisted Engineering• Card readers

• Computers and components• Central Processing Units (CPU)• Storages• Screens• Printers• Scanners / readers• Accessories• Communications and networks• Software systems or software packages



The following do not qualify as plant for the purpose claiming capitalallowances:-

• Payment for developing software such as consulting fees, right to use thesoftware such as licence fee and other incidental charges are not part ofthe cost for the provision of computer software.

Example 20 further provides that payment made for a licence to use software(which appears to be unrelated to software development) is also not regardedas qualifying expenditure incurred for the provision of plant.

Public ruling No. 12/2014 – Paragraph 8.2(ii)



Proposed

Type of qualifying capitalexpenditure

ACA rate Effective date

Expenditure incurred on thepurchase of ICT equipment andcomputer software packages

• Initial allowance =20%

• Annual allowance =20%

Year of assessment2017

Expenditure incurred on thedevelopment of customizedsoftware comprising ofconsultation fee, licensing feeand incidental fee for softwaredevelopment

• Initial allowance =20%

• Annual allowance =20%

Year of assessment2018

Issue to consider

• Expenditure incurred on development of customized software and put to use in

business in YA 2017 – can claim ACA?

• Licensing fee for the use of software that is unrelated to software development -

Claim tax deduction?


Accelerated capitalallowance (ACA) andautomation equipmentallowance (AEA) forautomation equipment usedin qualifying projects


ACA and AEA for qualifying capital expenditure incurred inrelation to automation

Qualifying Company ACA AEA

• Incorporated under Companies Act 2016and resident in Malaysia

Qualifying project forrubber, plastic, wood,furniture and textile

IA = 20%AA = 80%

(Capped at RM4 million)

Other qualifying project

IA = 20%AA = 80%

(Capped at RM2 million)

Qualifying project forrubber, plastic, wood,furniture and textile

100%

(Capped at RM4million)

Other qualifyingproject

100%

(Capped at RM2million)

Can be offset againstup to 70% of statutoryincome, and unutilizedallowance can becarried forward forfuture utilisation

• Engages in manufacturing activity incompliance with Industrial Co-ordinationAct 1975

• Holds a business license issued by therelevant local authority

• Has carried on a qualifying project(modernization / automation ofexisting activity) for at least 36 months

• Incurred qualifying capital expenditure inthe basis periods for

a) YAs 2015-2017 (Rubber, plastic, wood,furniture and textile) – Budget 2015

Budget 2018 – Extension to YA 2020for qualifying project relating torubber, plastic, wood and textile

b) YAs 2015-2020 (Others)

• Apply through MIDA• Budget 2018 - Applications received by

MIDA from 1.1.2018 to 31.12.2020



Income Tax (Exemption) (No. 8) Order 2017 – Other key conditions

• Automation equipment certified by SIRIM

• AEA withdrawn in the year of disposal if automation equipment disposedwithin 5 years from acquisition

• Disposal of automation equipment to related company – qualifying capitalexpenditure deemed to be zero

• Separate source and separate account



Non-application:

Claimedreinvestment

allowance

ClaimedSection 154deductions

Grantedincentives

underPromotion ofInvestments

Act 1986

GrantedSection 127exemptions

Except:

• Capital allowance

• Audit / tax /

company secretary

fees

• ACA for ICT

equipment


New tax incentive fortransformation toIndustry 4.0


New tax incentive for transformation to industry 4.0

Elements ofIndustry 4.0

Big data analytics Autonomousrobots

Internet ofthings

Cybersecurity

Augmentedreality

Additivemanufacturing

Cloudcomputing

Artificialintelligence

ACA and AEA

• On the first RM10 million ofqualifying capitalexpenditure incurred in thebasis periods for YAs 2018 –2020

• Fully claimable in 2 years

Applications received by MIDAfrom 1 January 2018 to31 December 2020.


New requirement to notifychange in accounting period


New Section 21A(3A) under Income Tax Act 1967

New requirement to notify change in accounting period

New accounting period When to notify IRB?

< 12 months 30 days before end of new accounting period

> 12 months 30 days before end of old accounting period following thechange

Effective from: Year of assessment 2019

“Where a company, limited liability partnership, trust body or co-operative society has madeup the accounts of its operations for a period of 12 months ending on a day in a basis year,and has failed to make up its accounts ending on the corresponding day in thefollowing basis year (“hereinafter referred to as “the new accounts”), the company,limited liability partnership, trust body or co-operative society shall notify the DirectorGeneral of such failure in the prescribed form

(a) in the case where the new accounts are made up ending before the corresponding day,thirty days before the end of the new accounts; or

(b) in the case where the new accounts are made up ending after the corresponding day,thirty days before the corresponding day.”



Income Tax Act 1967 – NewSection 2

Double Taxation Agreementbetween Japan and Malaysia

Example: Original accounting period - 1 June 2019 to 31 May 2020 (YA 2020).

a) Change of accounting period to December 2020 (< 12 months)

b) Change of accounting period to August 2021 (> 12 months)

01.06.2019 31.05.2020 31.12.2020

Notify by 1.12.2020

New year endOld year end

01.06.2019 31.05.2020 31.08.2021

Notify by 1.5.2021

31.05.2021

New year endOld year end


Penalties


Offences Penalty Effective date

Failure to notify IRB onchange in accountingperiod

RM200 – RM20,000 or

imprisonment of not

more than 6 months or

both

Coming into operation of

Finance (No. 2) Act 2017

Late submission of taxreturn

3 times of tax payable Year of assessment 2019

Late payment of monthlytax instalments

10% on the amount paidlate

Year of assessment 2019

Underestimation of taxpayable

10% x [(Tax payableless tax estimate) - 30%tax payable]

Year of assessment 2019


Refund for REIT’s unitholders who are tax exempt


Refund for REIT’s unit holders who are tax exempt

Section 109D

What if the unit holderis exempted from taxunder Section 127?

Amendment to Section127(5)

Income distributed byREIT is subject towithholding tax if theREIT is exempt fromincome tax (where itdistributes more than90% of its total income)

Withholding tax is a finaltax in the hands of theunit holders

Current

No provision forwithholding tax refund

Proposed

Withholding tax refund isnow available

Effective: Upon coming into operation of the Finance (No. 2) Act2017


Green Sustainable andResponsible Investments(SRI) sukuk


Green Sustainable Responsible Investments (SRI) sukuk

Current position Proposed amendment

Green SRI sukuk grant to financeexternal review is taxed in the handsof the recipient

Grant is exempted from tax

[Application to be made to SecuritiesCommission (“SC”) from 1 January2018 to 31 December 2020]

Fund managers providingmanagement services for Shariahprinciple fund:-

Exemption on statutory incomederived from business of providingfund management services to thefollowing:-

a)Foreign investorsb)Local investorsc)Business trusts or REIs in Malaysia

by a company

Exemption to fund managers providingmanagement services for SRI Funds(both Shariah principle andconventional)

[Effective from YA 2018 to YA 2020]


Asset held for sale –computation of residualexpenditure


Asset held for sale – computation of residual expenditure

When deemed ceasedto be used?

What is the disposalvalue?

What is the residualexpenditure in thefollowing basisperiod?

In the following basisperiod

• Where the asset issold in the followingbasis period; or

• Where the asset is notsold after the end ofthe following basisperiod

Asset sold in thefollowing basis period

• Market value at theend of the basisperiod such asset isheld for sale or netproceeds of the sale,whichever is greater.

Asset not sold in thefollowing basis period

• Market value of theasset at the end ofthat following basisperiod.

Current

Qualifying expenditure –notional allowance

Proposed

Qualifying expenditure –initial allowance – annualallowance - notionalallowance

Effective from: Cominginto operation of Finance(No. 2) Act 2017



Example:

1.1.2013 Purchase factory for RM1,000,000

1.5.2018 Factory classified as “Asset held forsale”

15.10.2019 Factory sold for RM800,000

Market value• As at 31.12.2018• As at 31.12.2019

RM900,000RM850,000

Capital allowances claimed• As at 31.12.2017 RM250,000

Notional allowance claimed in YA2018

RM30,000

• Deemed ceased to be used in YA 2019• How to compute balancing allowance / balancing charge?



Example:

Disposal in YA 2019 CurrentRM

ProposedRM

Qualifying expenditure 1,000,000 1,000,000

Less: Initial allowance and annual allowanceclaimed

- 250,000

Less: Notional allowance 30,000 30,000

Residual expenditure 970,000 720,000

Disposal value 900,000 900,000

Balancing allowance / (balancing charge) 70,000 (180,000)


Tax incentives


Incentives for private healthcare service providers - CurrentReview of tax incentive for medical tourism

Qualifyingcompany

Qualifying Capital Expenditure (QCE) Type ofincentive

• Locallyincorporated

• LicensedwithMalaysianMinistry ofHealth

• RegisteredwithMalaysianHealthTourismCouncil

Buildinga) cost of purchase or construction of a new building, orb) cost of modification or refurbishment of existingbuilding,

the building being in accordance with the standardsrequired under, and approved and licensed under thePrivate Healthcare Facilities and Services Act 1998.

Medical deviceCost of expenditure for medical device (each costs morethan RM50,000) and verified by the Minister of Health.

“Qualifying project” means:

a) A business of providing private healthcare services ata new private healthcare facility;

b) A project of expansion, modernization orrefurbishment of existing business of providing privatehealthcare services,

which has been approved by the Minister of Health andregistered with the Malaysian Healthcare Travel Council.

Investmenttax allowanceequal to:

100% of QCEincurred for 5years offsetagainst 100%of statutoryincome


Incentives for private healthcare service providers

Review of tax incentive for medical tourism

Conditions

Current

For each year of assessment,

a) Number of health travelers who receivedprivate healthcare services is at least5% of total patients; and

b) At least 5% of gross income ofqualifying company is generated fromhealth travelers.

Proposed

For each year of assessment,

a) At least 10% of total number of patientsreceiving private healthcare services arecomprised of qualified healthcaretravelers;

b) At least 10% of the company’s grossincome is derived from qualifiedhealthcare travelers.

“Health traveler”

a) A non-Malaysian citizen who participates in Malaysia My Second Home program andhis dependents;

b) An expatriate who is a non-Malaysian citizen holding a Malaysian work permit and hisdependents;

c) A non-Malaysian citizen who visits Malaysia.

Application submitted to MIDA up to 31 December 2020.


Review of tax incentive for export of private healthcare services

Qualifying Services Type of incentive

Private healthcare provided to foreignclients, either provided in Malaysia orprovided from Malaysia.

“Foreign client” - a company, apartnership, an organisation or acooperative society which is incorporatedor registered outside Malaysia, or anindividual who is a non-Malaysian citizenand does not hold a Malaysian work permitor an individual who is a non-residentMalaysian citizen living abroad.

Current

Allowance equal to 50% of value ofincreased export of services, set off againstup to 70% of statutory income

Proposed

Allowance equal to 100% of value ofincreased export of services, set off againstup to 70% of statutory income

(Effective: YAs 2018 – 2020)

Conditions

CurrentNone

ProposedFor each year of assessment,

a) At least 10% of total number of patients receiving private healthcareservices are qualified healthcare travelers; and

b) At least 10% of the company’s gross income is derived from qualifiedhealthcare travelers.

(Effective: YAs 2018 to 2020)


Current

Review of tax incentives for venture capital

Venture Capital

Management

Company

(VCMC)

Venture

Company

(VC)

Venture Capital

Company

(VCC)

Income tax exemption on statutoryincome from all sources (exceptinterest from savings / deposits andprofits from Syariah based deposits)for 10 years or the life of the fundestablished for investment in theVC, whichever is shorter.

Condition:

• Registered with SC

• Invest at least 70% of itsinvested funds in VC at the seed,start up or early stage or at least50% in the form of seed capital.

• VCC and VC are not related

Return on investment

Invested funds

Profit sharing

Income tax exemptionon profit sharing

Individual Company

Tax deduction on

amount invested

Individual

Company

With business income


Proposed

Review of tax incentives for venture capital

Venture Capital

Management

Company

(VCMC)

Venture

Company

(VC)

Venture

Capital

Company

(VCC)

Income tax exemption on statutory income fromall sources (except interest from savings / depositsand profits from Syariah based deposits) for 5years or the life of the fund established forinvestment in the VC, whichever is shorter.

Condition relaxed:

VCC to Invest at least 50% of its invested fundsin VC at the seed, start up or early stage and the50% balance is allowed for otherinvestments.

Return on investment

Invested funds

Profit sharing

Income tax exemption on profit sharing(include management fee and performancefee from YA 2018 to YA 2022)

Individual Company

Tax deduction on

amount invested

Individual

Company

Taxdeductionon amountinvestedfrom YA2018 to YA2022(capped atRM20 milper year)

With business income

Effective date:

Applications

received by

Securities

Commission

from 1 January

2018 to 31

December

2018.


Extension of tax incentiveperiod / application period


Extension of tax incentive period / application period

Current Proposal

Incentive for tour operating companies

• 100% income tax exemption on statutory incomederived from business of operating tour packages Tour packages within Malaysia – not less than 1,500

local tourists annually Tour packages to Malaysia – not less than 750

foreign tourists annuallyFrom Year of Assessment 2007 to 2018

Extended to Yearof Assessment2020

Incentive for new 4 and 5 star hotels

• Exemption of 70% / 100% of statutory income for 5years ; or

• Investment tax allowance of 60% / 100% of qualifyingcapital expenditure incurred within 5 years and can beoffset against 70% / 100% of statutory income.

Application submitted to MIDA before 31 December 2018

Application toMIDA extendedto 31 December2020


Extension of tax incentive period / application period

Current Proposal

Principal hub

• Revised guideline issued on 7 July 2017 Applicants are categorized into new and existing

companies Tax exemption in value added income for existing

companies Removal of minimum 70% export condition Regional P/L / Business unit management is a mandatory

activity Annual business spending

Applications submitted to MIDA before 30 April 2018

Application toMIDA extended to31 December2020

Incentive for angel investors

• Exemption from income tax on the amount of investment (inthe form of ordinary shares) made in the investeecompanies

Application can be made to Ministry of Finance (“MOF”) from 1January 2013 to 31 December 2017.

Application to MOFextended to 31December 2020


Other tax incentives


Other tax incentives

Current Proposal

Double deduction on remuneration paid todisabled employees (certified by Departmentof Social Welfare)

Extended to include employment of thoseaffected by accidents / critical illness(certification from the Medical Board ofSOCSO that these employees are able to workwithin their capabilities)

Double deduction on expenses incurred byprivate healthcare companies registered withthe Malaysia Healthcare Travel Council (MHTC)in obtaining certification for quality systemsand standards. In 2016, MOF approved 5certification bodies

• Malaysian Society for Quality of Health –Malaysia

• Joint Commission International – USA• CHKS Accreditation Unit – UK• The Australian Council on Health Care

Standard• Accreditation Canada

Extended to include companies registered withMHTC that provide dental and ambulatoryhealthcare services

Effective: Year of Assessment 2018

Management expenses incurred in connectionwith general business carried out inaccordance with principle of wakalah isallowable

To allow management expenses to bededucted from income of other fee receivable

Effective: Year of Assessment 2018


Real Property Gains Tax

Finance Bill (No.2) 2017


RPGT rate for non-citizen and non-permanent resident

Current: An individual who is not acitizen and not a permanent resident istaxed at:

(a) 30% for disposal within 5 years

(b) 5% for disposal in the 6th yearonwards.

Proposed: The above tax rate shallalso apply to an executor of theestate of a deceased person whois not a citizen and not a permanentresident.

Effective: 1 January 2018


Current RPGT rates – Schedule 5

.Part I• Except where Part II and III applies…..

.Part II• In the case where the disposer is a company….

.Part III• In the case of an individual who is not a citizen and not a

permanent resident….

Changed to:

In the case of a disposer who is not a

citizen and not a permanent resident, or an

executor of the estate of a deceased person

who is not a citizen and not a permanent

resident.


Conditional Contracts

• Disposal Date = Date of approval ifthe conditional contract requiresapproval by the Government or aState Government; or an authorityor committee appointed by theGovernment or a StateGovernment

Current

• The above applies to approval by theGovernment or a StateGovernment only.

• Effective: 1 January 2018

Proposed

What is

Government

or State

Government?


Conditional Contracts

Date ofSPA

EPU approvalobtained

Last day to submit RPGT return

Before proposedchange

After proposedchange

1.1.2018 1.4.2018 31.5.2018 2.3.2018


Disposal of real property by non-citizen and non-permanentresident

Current

• Acquirer is required toretain lower of the wholesum (in money) or 3% ofthe total value of the salesconsideration

Proposed

• Where the disposer is not acitizen and not apermanent resident,acquirer to retain the lowerof whole sum (in money) or7% of the total value of thesales consideration.



Amongst others, the following are treated as a “no gain no loss”:-

“No Gain No Loss” transactions

Current

• Transfer between spouses

• Transfer by an individual / hiswife / jointly with a connectedperson to a company controlledby the said persons for aconsideration consisting ofshares in the company

Proposed

• To only apply to an assetowned by a citizen or jointlyowned by citizens.



Stamp Duty


Extension of stamp duty exemption on abandoned projects

Current Stamp Duty Exemptions:1 January 2013 to 31 December 2017

Rescuing contractor Original house purchaser

Loan agreements to finance the revivalof abandoned housing projects

Loan agreements for additionalfinancing

Transfer of title for land and houses Instrument of transfer for the houses

Effective:

Instruments executed between 1 January 2018 to 31 December 2020

Extended for another three years


Stamp duty exemption for trading of Exchange Traded Funds(ETF) and Structured Warrants (SW)

Current:Contract notes on sale of shares, stocks ormarketable securities stamped at 0.1%and capped at RM200.

Proposed: Contract notes in relation totrading of ETF and SW be exempted.

Effective: ETF and SW contract notesexecuted from 1 January 2018 to 31December 2020


Other Developments


Director’s Liability


Director’s Liability – Section 75A

Notwithstanding anything

contrary to this Act or any

other written law…

A director shall be jointly and

severally liable for such tax or debt

during the period in which that tax

or debt is liable to be paid by the

company



A Director means…

Occupying the position of director (by whatevername called)

Includes any person who is concerned in themanagement of the company's business

AND individually or jointly, directly orindirectly, owns or control ≥20% of ordinary share capital



1.1.2017 1.6.2017

Mr B acquired

25% of

Company X

from Mr A

22.11.2017

Date the Form

JA was served

on Company X

IRB issued notice

of civil

proceeding to

recover

outstanding tax

Polling question:

1)When is tax liable to be paid?

A)15.5.2017

B)1.6.2017

C)22.11.2017

Form JA dated

15.5.2017

issued for YA

2012 to YA

2015

15.5.2017


What can the IRB do?

Director’s Liability

IRB

Recovery by suit

(Section 106)

Bankruptcy – Min amount ofRM50,000

Garnishee – Earnings /Money in bank

Judgment Debtor Summons /Writ of Seizure

Travel Ban

(Section 104)

Winding Up


100% Penalty


100% Penalty with effect from 1 January 2018

The IRB had on 17 April 2017 issued a “Clarification Regarding TheImposition Of 100% Penalty For Failure To Declare Income AndCorrect Information” which will be implemented from 1 January2018.

The IRB is empowered under Section 113(2) to impose amaximum 100% penalty for tax understated for the offence ofdeclaring an incorrect return.

Such measure is meant to elevate the level of voluntary complianceamong taxpayers by dealing with taxpayers who are hardcore taxlaw defaulters.

Will the DGIR impose a

100% penalty every time?

Can the penalty be appealed

on?


Cases on Penalty under Section 113(2)

For the IRB

• Syarikat Ibraco-PerembaSdn Bhd v KPHDN [W01-177-04/2013]

• Syarikat Pukin LadangKelapa Sawit v KPHDN(2012) 6 MLJ 411

• Dr. Zanariah bt Ramli vKPHDN [R1-14-1-2011]

• Sri Binaraya Sdn Bhd vKPHDN [W-01-448-10/2012]

For the taxpayer

• Office Park DevelopmentSdn Bhd v KPHDN (2011) 9MLJ 479

• Piramid Intan Sdn Bhd vKPHDN (2015) 10 MLJ 436

• Pasdec Corporation Sdn Bhdv KPHDN (2016) 12 MLJ 555

• Kyros International Sdn Bhdv KPHDN (2013) 2 MLJ 650


Judicial Review


F Sdn Bhd v. KPHDN (2017) MSTC 30-144

Judicial Review

- Applicant is a contract manufacturerof electronic components and beingpart of a global multinational group,receives a host of regional supportservices.

- IRB conducted a desk and field auditfor YA2000 to YA2005 on 25 May2007.

- After a long drawncorrespondence, the IRB issued aletter on 10 December 2014,informing that Notices ofAssessment for YA2004 to 2006 willbe issued together with penalties.The Taxpayer has 14 days torespond.

- The Taxpayer filed for judicialreview to quash the letter.


F Sdn Bhd v. KPHDN (2017) MSTC 30-144

Judicial Review

Held: High Court dismissed thejudicial review. This was affirmed bythe CoA.

High Court held that, amongst others,the taxpayer failed to showexceptional circumstances for thejudicial review

Judicial review can be used if theApplicant is able to demonstrate:- Clear Lack of Jurisdiction- Failure on the part of the

decision maker to performstatutory duty

- Breach of natural justice- Illegality


Intention of Parliament


CC Sdn Bhd & Anor v. KPHDN (2017) MSTC 10-061

RPGT v Income Tax

- CC Sdn Bhd, with another partner, incorporated andacquired shares in BD Sdn Bhd, a land developmentcompany.

- BD purchased a land in 2004 with the intention todevelop it and had classified the land as CurrentAssets and the expenses were treated as propertydevelopment expenditure.

- CC subsequently disposed off the shares in BD, andthe IRB subjected the gains from the shares to RPGT.

- CC appealed, contending that the gains derivedfrom the disposal of shares in BD should not besubject to RPGT, as BD is not a Real PropertyCompany (RPC).

- Issue: Whether BD is a RPC pursuant to para 34A,Schedule 2 of RPGT Act.


CC Sdn Bhd & Anor v. KPHDN (2017) MSTC 10-061

RPGT v Income Tax

- Para 34A, Schedule 2 of RPGT Act was enacted toprevent a person from acquiring land in the name of acompany and disposing the shares to avoid RPGT.

- Cannot simply apply literal interpretation –intention of Parliament as recorded in Hansard andExplanatory Note to amendment bill should be takeninto account.

- BD is a land development company sinceincorporation and intended to develop the land

- BD has classified the land as Current Assets (neveras Fixed Assets)

- CC only disposed the shares due to differences withits partner

- High Court judgement in Binastra Holdings remainsgood law.

- Court of Appeal judgement should not be reliedupon as no written judgement.

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities.DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. Please seewww.deloitte.com/about to learn more about our global network of member firms.

Deloitte provides audit & assurance, consulting, financial advisory, risk advisory, tax & legal and related services to public and private clients spanning multiple industries. Deloitteserves four out of five Fortune Global 500® companies through a globally connected network of member firms in more than 150 countries and territories bringing world-classcapabilities, insights, and high-quality service to address clients’ most complex business challenges. To learn more about how Deloitte’s approximately 264,000 professionals makean impact that matters, please connect with us on Facebook, LinkedIn, or Twitter

About Deloitte Southeast AsiaDeloitte Southeast Asia Ltd – a member firm of Deloitte Touche Tohmatsu Limited comprising Deloitte practices operating in Brunei, Cambodia, Guam, Indonesia, Lao PDR, Malaysia,Myanmar, Philippines, Singapore, Thailand and Vietnam – was established to deliver measurable value to

the particular demands of increasingly intra-regional and fast growing companies and enterprises.

Comprising approximately 330 partners and 8,000 professionals in 25 office locations, the subsidiaries and affiliates of Deloitte Southeast Asia Ltd combine their technical expertiseand deep industry knowledge to deliver consistent high quality services to companies in the region.



This communication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms, or their related entities (collectively, the “Deloitte Network”)is, by means of this communication, rendering professional advice or services. Before making any decision or taking any action that may affect your finances or your business, youshould consult a qualified professional adviser. No entity in the Deloitte Network shall be responsible for any loss whatsoever sustained by any person who relies on thiscommunication.


Deloitte TaxMax – The 43rd seriesOne bold step in the right directionTan Eng Yew and Senthuran Elalingam l 22 November 2017By Deloitte Tax Academy


Contents

• 2018 Budget announcements

• Recent GST developments

• GST updates


2018 Budget announcements


GST collection


Budget announcements

Key updates Description

Relief from payingGST upon importationof certain goods bycertain personsEffective from 1January 2018

Importation of big ticket items• Companies in the aviation, shipping and oil & gas industries to begranted GST relief for importation of big ticket Items

• List of items and conditions will be stipulated by the MOF

Importation of goods under lease agreements fromcompanies located in a DA• Relief for companies in the oil & gas industry• GST relief on importation of goods under lease from DesignatedAreas

• List of items and conditions will be stipulated by MOF

Handling services rendered to operators of cruise ships• Relief for cruise ship operators• GST relief on handling services acquired (e.g., stevedoring,loading, unloading, and reloading and the inspection of cargo)provided by sea port operators in Malaysia

• Effective date end 31 December 2020



Customs appeal tribunal and GSTappeal tribunal mergerEffective from 1 January 2019

• Customs Appeal Tribunal (CAT) and the GST AppealTribunal (GSTAT) will be merged

• All appeals pertaining to the decision of the DirectorGeneral of Customs be heard by a single Tribunal

Exemption of duty and relief ofGST for air courier parcel

• The de minimis value for GST/duty free import ofgoods (excluding cigarette, tobacco and intoxicatingliquor) via air courier service be increased fromRM500 to RM800

• Only mentioned in speech





Extension of scope of readingmaterials subject to zero rateEffective from 1 January2018

• Reading materials comprising all types of magazinesand comics will be zero rated

GST exemption onmanagement and maintenanceservices of stratified residentialbuildingsEffective from 1 January2018

• The supply of services of management andmaintenance, including recovery of group insurancecost, assessment tax and quit rent, by housingdevelopers are to be treated as exempt supplies

GST relief on constructionservices for school buildingsand places of worship

Effective date:For applications submittedto MOF from 27 October2017

• GST relief to be given on construction services forschool buildings and places of worship financed throughdonations, subject to the conditions:

• Invoice not issued prior to the grant of the relief• Approval under s 44(6) of the Income Tax Act 1967• Approval from Local Authorities, the Ministry ofEducation Malaysia or State Religious Councils

• The school building including hall and sport facilities aredirectly used for teaching and learning purposes

• The construction services contract is signed on or after1 April 2017


Recent GST developments




Joint audits by theauthorities

• IRB and Customs performing joint audits

• Currently limited to companies in the Klang Valley, will beextended nationwide

• Target businesses which fail to file returns, submit Nil returns,fail to remit payments

• Cooperation and sharing of information of companies:o that under declared their corporate income; ando company paying income tax but not paying GST

GST penalties andtravel ban

• Strict imposition of late payment penalties which was enforcedfrom 1 January 2017

• Customs allow appeals on late payment penalties. Appeals mustbe supported by proof of payments and are subject to theapproval of the Director General of Customs

• Implementation of travel ban / restriction on Directors due tooutstanding GST and penalties

• Engagement advised to mitigate ban




GST Public Rulings • Two Public Rulings issued, both dated 1 November 2017 :-o Imposition of Penalty (PR 1/2017)o Supply by healthcare professionals (PR 2/2017)

• Public Rulings will progressively replace the existing DG’sDecisions

• PR for ‘Supply by healthcare professionals’ replaces Item 2,Panel Decision 3/2014

• More to come




Implementation ofelectronic devices– GST“Dongle”

• Mandatory under the GST (Provision of Information)Regulations 2017 effective 1 July 2017

• The implementation of the device has been on a selectivebasis

• To capture GST transaction data from POS systems operatedat retailers

• Supply Customs with real time data and ensure completenessof information supplied to RMCD

• Primarily on Retail (hardware, grocery, bookstore andpharmacy), Entertainment (any business providing services ofentertainment) and Food & Beverages (Restaurants) sectors




Sales tax refund Taxpayer advanced the following points:

(a) Conditions required to be fulfilled. Compliance with the PCAPAct is not one of them.

(b) Whether or not a taxpayer had "profiteered" is to bedetermined by MDTCC and not Customs.

High Court judge found in favour of the Taxpayer

The High Court had effectively set a precedent that the DG isbound by the powers conferred within the GST Act. Cannotencroach into the domain of other governmental bodies in thecourse of administrating GST-related functions.

• Implications on cases pending review by Customs

• How about cases rejected and taxpayers did not appeal


GST updates


GST technical updates

Minister’s Relief 1/2017

• Subject to specific conditions, suppliers are relieved fromcharging GST for services supplied directly in connectionwith goods for export under contracts with their customersthat do not belong in Malaysia

GST on repair chargesunder warranty claims

• A recent announcement by the Customs have provided aconcession to remove GST charges on repair charges underwarranty claims made by local distributor to overseasmanufacturer

• The concession requires an approval and is subject tocertain conditions

New Anti-profiteeringRegulations

• Came into effect on 1 January 2017

• Contrary to earlier indications that non-compliance with theNew Regulations would not constitute an offence, readingthe New Regulations with the Price Control and Anti-profiteering Act 2011 (“PCAP”), non compliance appears toconstitute an offence under the current provisions of thePCAP


Deemed Input TaxCredit (DITC)

• Effective 1 January 2017, insurers are not entitled to claima deemed input tax credit for any cash payments that relateto items that would be considered a blocked expense underthe GST Act (e.g., Medical expenses).

• Although few insurers were claiming DITCs, this furthernarrows the ability to recover a DITC.

Fixed input tax recoveryrate (“FITR”)

• Effective 1 January 2017, the process for assigning an FITRwas changed.

• Previously a rate was issued based on the licence held bythe respective bank; however, this has now been moved toan individual bank rate.

• There has been a significant variance amongst the ratesassigned with some banks receiving rates as low as 5% andmany well below the previously assigned rates of 70% forcommercial banks.

• The new process will require rates to be updated on anannual basis and banks would need to individually submitdata to Customs each year.

GST technical updates


GST Tribunal update

Case statistics

• GST Tribunal disposed 31 appeal cases in 2015 and 76appeal cases in 2016 (a total of 107 cases).

• Statistics show the high prevalence of GST disputes,naturally due to the still developing GST legislation inMalaysia.

Published tribunal cases• Despite the high number of cases disposed by the GSTTribunal, only 9 decisions have been published as at July2017.

Further appeals• Businesses aggrieved with the decision of the GST Tribunalmay appeal to the High Court on a question of law or amixed question of fact and law.

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and theirrelated entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provideservices to clients. Please see www.deloitte.com/about to learn more about our global network of member firms.

Deloitte provides audit & assurance, consulting, financial advisory, risk advisory, tax & legal and related services to public and private clients spanning multipleindustries. Deloitte serves four out of five Fortune Global 500® companies through a globally connected network of member firms in more than 150 countries andterritories bringing world-class capabilities, insights, and high-quality service to address clients’ most complex business challenges. To learn more about howDeloitte’s approximately 264,000 professionals make an impact that matters, please connect with us on Facebook, LinkedIn, or Twitter

About Deloitte Southeast AsiaDeloitte Southeast Asia Ltd – a member firm of Deloitte Touche Tohmatsu Limited comprising Deloitte practices operating in Brunei, Cambodia, Guam, Indonesia,Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam – was established to deliver measurable value to the particular demands of increasinglyintra-regional and fast growing companies and enterprises.

Comprising approximately 330 partners and 8,000 professionals in 25 office locations, the subsidiaries and affiliates of Deloitte Southeast Asia Ltd combine theirtechnical expertise and deep industry knowledge to deliver consistent high quality services to companies in the region.



This communication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms, or their related entities (collectively, the“Deloitte Network”) is, by means of this communication, rendering professional advice or services. Before making any decision or taking any action that may affectyour finances or your business, you should consult a qualified professional adviser. No entity in the Deloitte Network shall be responsible for any loss whatsoeversustained by any person who relies on this communication.


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