taxation for companies (1)

7/31/2019 Taxation for Companies (1)

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a Hindu joint family is resident in Malaysia for the

basis year for a year of assessment if its manager or

karta is resident for that basis year;

a company or a body of persons (not being a Hindu

joint family) carrying on a business or businesses isresident in Malaysia for the basis year for a year of

assessment if at any time during that basis year the

management and control of its business or of any one

of its businesses, as the case may be, are exercised in

Malaysia; and


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any other company or body of persons (not being a

Hindu joint family) is resident in Malaysia for the basis

year for a year of assessment if at any time during that

basis year the management and control of its affairs are

exercised in Malaysia by its directors or othercontrolling authority.


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the profit or loss of a business is adjusted to take

account of or exclude those expenses that are

allowable or prohibited in ascertaining theassessable income for any given period.


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Sec 33 ITA 1967

General provisions:

outgoings and expenses

Wholly and exclusively

Incurred

During that period

In the production of gross income


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Outgoing does not involve any outlay of cash

eg: giving sample of product, losses incurred

by defalcations of employee or robbery

Expenses involve a cash outlay


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Wholly and exclusively incurred in theproduction of gross income


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Not only paid, but also payable or becomingpayable


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Expenditure must be incurred during therelevant period


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The gross income is the first figure to be

considered in a tax computation from which

outgoings and expenses incurred wholly and

exclusively in the production of income are

deducted to arrive at the tax adjusted income

The deductibility of the expenditure is

restricted


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Cost of sales; Manufacturing, trading, administration, selling and

financial expenses;

Expenses incurred in respect of employees

welfare including contributions to the Employees

Provident Fund and other approved funds (subject

to a limit of 19% of each employees remuneration);

A justifiable share of regional office or head officerevenue expenses;


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Expenses for repairs of premises, plant and machineryor fixtures or for the replacement of implements,

utensils or articles employed in producing the income;

Irrecoverable trade debts arising out of the business,

including provisions for specific bad debts whereattempts to collect the debts have failed;

Expenses incurred on replanting crops


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Interest on loans employed in producing income;

Rent payable in respect of any land or building

occupied for the purpose of producing income;

Certain expenditure incurred on prospecting;

Approved scientific research expenditure;

Legal expenses incurred on debt collection and

renewal of lease of premises; and

Insurance premiums


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Expenses (preliminary and pre-operating) incurredprior to commencement of business;

Domestic or private expenses;

Income Tax;

Expenditure or losses of a capital nature;

Remuneration payable to members of the

proprietors family in excess of the commercial value

of their services;


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Lease rental paid in excess of RM50,000 in aggregate

for hire of a non-commercial vehicle (the restrictionthreshold is increased to RM100,000 if the vehicle is

new and its total cost does not exceed RM150,000)

(w.e.f. YA 2002);

Expenses incurred in the provision of entertainment

other than entertainment provided to employees;

Expenditure incurred in the provision of a benefit or

amenity to an employee consisting of leave passagewithin or outside Malaysia;


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Contributions to approved schemes for employees

in excess of 19% of the employees remuneration;

Contributions to non approved schemes; and

Expenditure for which capital allowances (wear and

tear allowance) can be given under the Income TaxAct, 1967.


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Capital allowances can only be set-off against

income of the business to which the capital

expenditure is related. It follows that where capital

allowances cannot be fully absorbed because of an

insufficiency of adjusted income, the unabsorbedcapital allowances can be carried forward

indefinitely to offset future income from that same

business until they have been fully claimed. This set-

off takes priority before setting-off any unabsorbedbusiness losses brought forward from previous years


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Losses suffered in a business, profession orvocation may be set-off against income from other

sources for that assessment year. Where there is

insufficient income to absorb the losses, the

unabsorbed losses can be carried forward indefinitelyfor set-off against future business income, not

necessarily from the same business, until the entire

loss has been utilised. The set-off for business losses

brought forward should be made after the unabsorbedcapital allowances have been utilised


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Under the Income Tax (Deduction of Incorporation

Expenses) Rules, 1974, a company incorporated in

Malaysia on or after 1 January 1973, with an

authorised share capital not exceeding RM250,000 is

permitted to deduct certain incorporation expenses,which are otherwise prohibited by the Income Tax

Act, 1967.


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The type of allowable expenses are:-

Costs of preparing and printing Memorandum and

Articles of Association and the Prospectus including

costs of circulating and advertising the Prospectus; Costs of registering the Company and statutory

documentation including fees and stamp duties

payable thereon;


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Cost of drawing up preliminary contracts andstamp duties thereon;

Cost of printing and stamping debentures, share

certificates and allotment letters; Cost of companys seal; and

Underwriting commission


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A resident company undertaking investment in abusiness venture outside Malaysia and approved by

the Minister of Finance is entitled to deduction

against its aggregate income from all sources for

qualifying pre-operational business expenditure inrespect of:

Conduct of feasibility studies;

Conduct of market research or obtaining ofmarketing information;


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Overseas travelling expenses for purposes of

conducting feasibility studies or market surveys;

and

Accommodation and sustenance expenses for theduration of the overseas trip up to a maximum of

RM400 per day.


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Approved donations are added back in arriving atadjusted income and deducted from aggregate income

in arriving at total income / chargeable income.

Donations made by companies to approved

institutions or organizations is limited to 7% of theaggregate income of the company in the relevant year.

The restriction does not apply to donations made to

government, state government and local authority


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W.e.f YA 2008, the 7% restriction is extended

to body of persons, individuals and a

corporation sole.

From YA 2009, the limit for tax deduction for

companies has been increased from 7% to

10% of the aggregate income.


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The following sums incurred are also given a

deduction under Sec 44(6):

(i) an amount equal to the payment ofzakat

perniagaanwhich is paid in the basis period to an

appropriate religious authority (w.e.f YA 2005)(ii) contributions towards sports activities approved by

the Minister of Finance and sports bodies approved by

the Commissioner of Sports (w.e.f. YA 2007)

(iii) contributions for projects of national interest

approved by the Minister of Finance (w.e.f. YA 2007)


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Company with paid up capital not more than RM2.5

million

On first RM500,000 20% Subsequent Balance 25%

Company with paid up capital more than RM2.5

million 25%

taxation for companies (1)

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