CPA Group Strengthens its Specialist Tax Team
CPA Group’s taxation services is divided into two (2) major services, namely, Investigation and Audit services, and Tax Compliance services. To enhance the quality of the services that is provided, CPA Group has put up a specialist team, consisting of qualified professionals working in tandem with retired senior IRB members.
Increased vigilance by IRB officials has made it imperative that our taxation team is armed with the required knowledge and connections, needed to achieve the desired outcome.
Special Voluntary Disclosure Program (SVDP)
What is “Special Voluntary Disclosure Program”?
New special voluntary disclosure programme (SVDP) which was announced by the Minister of Finance during the Budget 2019, to encourage taxpayers to voluntarily disclose their previous undeclared income accurately and to settle tax arrears, if any.
SVDP provides taxpayers with an opportunity to report and pay Malaysian tax on undeclared income.
Period of Disclosure?
“3rd November 2018 until 30th June 2019”
What Are The Guarantee?
The IRB will accept the voluntary disclosures in good faith, where a further review will not be made on the information disclosed by the taxpayer.
Things Covered Under This Program
The IRB has issued operational guidelines on the implementation of the SVDP and applies to taxpayer with unreported income under the following act:
Income Tax Act (ITA) and the Petroleum Income Tax Act (PITA);
Real Property Gains Tax Act (RPGTA) for disposal of property or disposal of shares in real property company;
Stamp Act for instruments not stamped after six (6) months from the due date for stamping; and
Where tax audits or tax investigations have commenced.
*All taxpayers (Both Malaysian tax residents and non-residents) are eligible.
SVDP Penalty Rates On Additional Tax
1. Introduction of Malaysia Tax System
Malaysia Tax System
The reason behind this arrangement is to instill the culture of voluntary compliance onto tax payers while reducing the workload of the IRB Department so that more time can be channeled to higher risk areas in order to avoid potentially significant loss of revenue.
A consequent of this system would be stricter IRB enforcement for non- tax compliances, with heavier penalty provisions for tax offenders.
2. Taxation Services
I. Tax Investigation and Audit
(a) Tax Investigation
Investigation case may be selected using various methods such as:
- Risk analysis
- Information from informer
- Review of Income Tax Return
- Intelligence Information
- Information from other law information agencies
The Tax Investigation Process Can Be Summarized As Follows:-
- A Surprise Visit to the taxpayer’s premise by tax officers
- The examination of documents & recording of statements from parties in the premises
- The Finalisation of the tax investigation
- Cases that warrants prosecution will be forwarded to the legal department for further action
Client Advisor Meeting
Examination And Analysis Of Client’s Documents And Records
Preparation of Capital Statement
The ideal situation would be that assets and liabilities would reconcile with profit and income but discrepancies could represent omitted taxable income – unless satisfactory explanations are provided.
At the end of the day the capital statement must be well prepared and supported with an appeal letter to justify the discrepancies found in the records.
1.Why Capital Statement
In larger tax investigation cases, when there is difficulty in obtaining income records for earlier years, IRB may require a so-called capital statement to be prepared.
It is IRB’s systematic way to look for undisclosed income for individual periods using a capital/income/expenditure reconciliation method.
The process is based on the premise that income which has been hidden away will, over time, surface as assets in tangible forms such as landed property, stocks and shares, cars, jewelry etc.
The rationale – when a person accumulates wealth in the course of a year, he either invests it in assets or spends it.
If there is an increase of net worth over the year, this represents taxable income. Consequently, IRB’s formula looks at the person’s increase in net worth over a year. To this, is added expenses, that are not tax deductible, including living expenses.
The result is income for the year, which should have been reported.
Compare this with what was reported and the IRB would have a figure, which represents understated income.
The use of this formula is then repeated over a number of years so that IRB will be able to determine the underestimation of income over those years.
IRB is empowered by case law to make estimates of a taxpayer’s living expenses using all available evidence including third party verification.
In actual practice, the preparation of CAPITAL STATMENT is laborious and time consuming and must be carried out by professional tax accountants.
There would be exhaustive line byline examination of bank statements, financial statements to creditors and other relevant documents evidencing asset purchases or other spending.
A series of balance sheets showing assets and liabilities of a taxpayer on a cash basis at each year end would have to be made.
The ideal situation would be that assets and liabilities would reconcile with profit and income and any discrepancy could represent omitted taxable income – unless there are satisfactory explanation.
At the end of the day the capital statement must be well prepared and supported with an appeal letter to justify any discrepancies found in the records.
3.Need our Services? We offer
- Quick and reliable transfer of your personal financial information into our specially designed system for Capital Statements
- Identifying your taxable income in prepared statements for the years under review
- Identify items which require additional careful inquiry and justification before the submission of the Capital Statement to the IRB
- Meeting and presentation to analyse your Capital Statement
- Liaising ( written & oral ) with IRB on your behalf
- Meetings with IRB , to negotiate and finalise your Capital Statement
- Submission of your Capital Statement to the Inland Revenue Department
- Pre-emptive preparation of periodical or annual capital statements regardless of whether they have been requested by IRB or not.
Liaising (oral & writing) with IRB
Meeting With IRB Officer For Best Possible Outcome
(b) Tax Audit
A taxpayer can be selected for tax audit at any time but it does not necessarily mean that an offence had been committed!
Under the Malaysian Self-Assessment System, the tax audit seeks to encourage voluntary compliance by tax payers.
Thus, your selection could be due to one of the following reasons :-
1.Risk analysis through the computerized system
2.Third Party Information
4.Specific Issues for a certain group of taxpayers
WHY TAX AUDIT ?
IRBM wants to examine your tax return a little more closely and to verify that your income and deductions are accurate.
YEARS OF ASSESSMENT COVERED
–Generally – 1 year
–A period up to 5 years may be extended based on the issues uncovered during an audit.
–The 5 year time limit is not applicable in cases relating to fraud and tax evasion whether intentional or unintentional
1.Do be co-operative, well mannered, fair, honest and act with integrity;
2.Do provide reasonable facilities and assistance to enable the audit officer to carry out his duties such as
(a)Access to information, records, documents, books of accounts in the physical and /or electronic medium and making them available for examination;
(b)Explanation regarding the business, the accounting and information systems
(c)Permission to examine and make copies of records, documents and books of accounts whether in the physical and / or electronic medium;
d)Providing the use of copiers, telephone or other communication equipment, lighting and power, office space, furniture and providing facilities for copying of electronic records onto tapes, disks or diskettes.
3.Don’t obstruct or hinder the audit officer in the exercise of his functions.
4.Don’t obstruct or refuse an audit officer from entering lands, buildings, places and premises to perform his duties.
Tax Agent / Representative
1)Appoint a professional tax agent to handle tax audit cases as the tax agent is required to be fully conversant with tax laws and practices.
2)The conduct of a tax agent is governed by the code of ethics formulated by IRBM based on the principles of integrity, accountability, transparency and social responsibility.
3)Your Tax Agent will give complete and accurate feedback relating to the progress of an audit and advise accordingly on the facts of the audit case;
Involves the examination of the taxpayer’s business records.
A taxpayer will be given notice before a field audit
- Documents are requested & sent by taxpayer to IRBM for checking
- Straightforward issues or tax adjustments
- Easily dealt using correspondence.
- Interview at IRBM’s office if more information required.
- Checking all information on income and expenses and various types of claims made by a taxpayer in his income tax return
The field Audit VOLUNTARY DISCLOSURE AFTER DUE DATE :
1)A taxpayer can appeal against an assessment as a result of a tax audit.
2)The appeal must be made to the Special Commissioners of Income Tax within 30 days after the service of the notice of additional assessment.
Payment Procedure :
(a) Payable to the DGIR through any appointed bank or any Collection Branch of IRBM.
(b) If the taxpayer is unable to make full payment of tax, IRBM may consider the taxpayer’s application for settling the total tax liability by instalments, for a predetermined period.
(c) Application for instalment payment scheme must be submitted to the relevant Branch Director of IRBM for approval.
(d) If taxpayer fails to adhere to the instalment payment scheme agreed upon, late payment penalty on the balance of tax outstanding will be imposed.
(c) Tax Appeal
- Personal reliefs were not given by IRB
- Omission of claims for certain expenses/reliefs
- Errors made during assessment issued by IRB
- Late tax filing by tax payer leading to additional assessment ( more tax ) imposed by IRB
Filing an Appeal
A written tax appeal must be made within 30 days from the date of the notice of assessment to the IRB branch which issued the assessment along with the requirement to fill in IRB’s appeal form (Form Q).
Taxpayer needing more than 30 days to file the appeal need to apply for an extension of time by using Form N.
Tax Appeal Letter
Identifying the types of mistakes (e.g. expense claimed, deductions, and exemptions) and supported by documentary proof.
We will assist and follow up in cases of queries or request for additional information or clarification from IRB.
If the taxpayer is not satisfied with the IRB’s decision, the appeal will be passed and handled by an independent tribunal (Special Commissioners of Income Tax).
II. Tax Compliance
Reduction in the income tax rate based on the percentage of increase in chargeable income as compared to the preceding Year of Assessment (“Y/A”)
at the beginning of the basis period
above RM2.5 million
Tax rate (%)
|Chargeable income as per last year||
|Increase in chargeable income –|
|1||Increase between 5% to 10%||
|2||Increase between 10% to 15%||
|3||Increase between 10% to 20%||
|4||Increase above 20%||
On the downside however, incorrect filing of the tax returns may attract tax audit on your tax account resulting into uncomfortable enquiries and the imposition of enquiries by IRB. Furthermore, there are deadlines to meet and penalties would be imposed on late submission.
Filing your tax returns, making payments and negotiating with the tax authorities need not be a hassle. Our tax professionals would be only too happy to assist you with all your corporate and personal tax needs.
1 January to 31 December. Income tax returns must be filed before 30 April of the following year.
Residency for Income Tax Purposes
Individuals fulfilling these criteria are liable to pay tax
(a) If the individual has been in Malaysia for 182 days in a calendar year.
(b) If an individual has been in Malaysia for less than 182 days in a calendar year, but was in the country for a total of 182 consecutive days linked to days from the year immediately preceding or following that calendar year.
(c) If an individual has been in Malaysia for at least 90 days in a calendar year and in three of the four preceding years.
(d) If an individual is resident in Malaysia in the year following and the three preceding the one being taxed.
(e) People who spend less than 182 days per year in the country are classed as non-residents and are taxed differently.
|Year of Assessment
( “Y/A” )
|Tax Payable (%)||Tax Payable
( RM )
III. Other Tax Services
Other Tax Services
- Application for New Employer Tax file Number upon incorporation of a new company
- Application for New Employee Tax file Number upon incorporation of a new company
- Preparation of tax computation and timely submission of tax returns to IRB
- Preparation and submission of Form E ( Employer’s annual declaration of staff ‘s income )
- Preparation of Form EA ( Employee’s annual income statement for his / her tax filing)
We proactively recommend tax saving strategies to maximize your after-tax income. Businesses and individuals should pay the lowest amount of taxes allowable by law as we continually look for ways to minimize your taxes throughout the year, not just at the end of the year. We will recommend Tax Saving Strategies that help you save.
Annual Tax Budget Updates
IRB, in tandem with the application of these changes, would issue out “public rulings” to guide the public on the correct tax computations.
The public may overlook these important changes, but we do monitor them closely and regularly send our staff to attend various seminars and workshops conducted by IRB and various bodies (e.g. Malaysian Institute of Accountants , Chartered Tax Institute of Malaysia) to ensure that our tax computations are accurate , up to date and in sync with the latest developments.
3. Other Tax Information
I. Tax Incentives
Thinking about applying Tax Incentives to reduce taxable income?
Whether new set-ups, established companies, small and medium sized companies or large and multinational companies, there are numerous of tax incentives that are offered in Malaysia. They differ according to the different industries and change with the annual budget announced by the Government.
- The Malaysian Investment Authority ( MIDA ) has identified a long list of activities and manufactured products which qualifies for either tax incentives.
- This list of “promoted activities” and “promoted activities is under constant review and is updated from time to time to be in line with the latest investment policies of the government. ( Refer to MIDA’s website at http://www.mida.gov.my for a full list )
Pioneer Status & Investment Tax Allowance
- Pioneer Status (PS) – Suitable for projects with shorter gestation period & lower capital expenditure
- Investment Tax Allowance (ITA) – Suitable for projects with longer gestation period & high capital expenditure
Both are mutually exclusive; The investor can only choose to apply for either one or the other
Pioneer Status (5 to 10 Years) –
- Income Tax Exemption of 70%-100% of Statutory Income
- Exemption starts from Day 1 of Production Day ( reaches 30% of its capacity )
- Unabsorbed capital allowances and capital losses can be carried forward and deducted from the post pioneer income.
Investment Tax Allowance (5 to 10 Years) –
- 60 – 100 % Allowance on its qualifying capital expenditure (QCE) . Examples of QCE Factory, plant, machinery or other equipment use for the approved project
- Can offset ITA against 70% of Statutory Income
- Unutilised ITA can be carried forward until fully utilised
Overall Application Flow
What is a Principal Hub?
A Principle Hub is defined as a locally incorporated company that uses Malaysia as its base for managing, controlling and supporting key functions in order to run regional and global businesses operations.
These operations include the centralization of risks management, decision making and strategic business activities into areas such as trading, finance, management and human resources.
It is envisaged that the Principal Hub incentives will replace the existing International Procurement Centre (IPC), Regional Distribution Centre (RDC) and Operational Headquarters (OHQ) incentive schemes, which will be officially phased out.
To this end, Malaysia has specially designed its principal hub to facilitate MNCs to be closer to their customers and supply chains while leveraging on the country’s fiscal and non-fiscal benefits.
How to qualify to be a Principle Hub
(a) Incorporate A Company In Malaysia with Minimum Paid Up Capital > RM2.5 million
(b) Project Minimum Annual Sales of RM300 million ( additional requirement for goods-based applicant company )
(c) Your Principal Hub must serve & control its own network of companies in at least 3 countries outside of Malaysia.
Network Companies refers to related companies or any entity within the group including subsidiaries, branches, joint ventures, franchises or any other company associated to the applicants supply chain and business with contractual agreements.
(d) The Hub must create at least 15 high value jobs, including 3 strategic/management positions.
The minimum monthly salary for high value jobs must be at least RM5K per month and as for key strategic position, RM25K per month.
(e) The Hub must Carry out as a minimum 3 Qualifying services, one of which , must be from the strategic services cluster listed below;
( must select at least one )
|Business Services||Shared Services|
|Regional P&L Business Unit Management||Bid & Tender Management||Treasury & Fund Management||Corporate Training & HR Management|
|Strategic Business Planning & Corporate Development||Project Management||Sales & Marketing||Finance & Accounting|
|Brand / IP Management||Technical Support & Advisory||Business Development||General Administration|
|Corporate Finance Advisory Services||
Strategic Sourcing, Procurement & Distribution
|Information Management & Processing||IT Services|
|Senior Level Talent Acquisition Management||Research, Development & Innovation||Economic / Investment Research Analysis|
Malaysia’s Non-Fiscal Benefits
- Supply Chains streamlined for profits
Principle Hub can increase profit across the value chain due to business process improvements and efficiencies achieved in eliminating duplicative functions across its value chain and a centralized approach to expanding business in the different parts of the world. It Improves operational efficiency, promotes product/service quality, lowers costs and minimise risks.
- Optimizing ,sharing of resources and experience among group companies
The Hub allows better integration and coordination within the group structure to ensure consistency in product and service standards. (Examples: – management, accounting, payroll, logistics, quality control & technology)
- Lower Production & Operational Costs –
Customs Duties exemption on raw materials, components or finished goods brought into government approved locations for production and/or repackaging before final distribution to its customers.
- Greater Exercise of Control
There is no local equity / ownership requirement.
- Greater Flexibility in the Recruitment of Foreign Talent
Employment of expatriate posts is permitted and this will be based on business plan and current policy.
- Improve Cash Flow and Treasury Management
Foreign exchange administration flexibilities allowed in support of business efficiency and competiveness.
Low Corporate Tax Rate extend
Your company may be eligible to enjoy zero to very low special tax rates for a period of 5 years, depending on a 3- tier- system of rates.
The qualifying rate which could be even be prolonged to an extra 5 years subject to certain qualifying conditions.
Your company could belong to either one of these 3 tiers.
|Features||Tier 1||Tier 2||Tier 3|
|3-Tier Tax Rate||0%||5%||10%|
|Years||5||+ 5||5||+ 5||5||+ 5|
High Value Job Creation
Employees with salary of RM5K monthly
At least 50% must be Malaysian by the end of year 3.
Base Commitment +20%
Base Commitment +20%
|Including Key Employees holding strategic/management positions
Min salary of RM25K monthly
|Min Annual Business Spending Required||RM
|Base Commitment +30%||RM5M||Base Commitment
Company is to be the Planning , Control & Reporting Centre for qualifying services
One of these must be from the strategic services
|Regional P&L + 2||Regional P&L +2||Strategic +2|
|Serves & control network companies in at least 3 companies other than Malaysia.||5||4||3|
|Use of Local ancillary services & facilities||Local financial Institutions, logistics, legal and arbitration services, finance & treasury services|
|Trading of Goods annual sales turnover ( this is an additional requirement for goods based applicant company||RM300 Million|
Application Deadline: Until 30th April 2018
Why Iskandar Malaysia
Iskandar Malaysia is an ideal place to set up a Principle Hub due to its strategic location within the Johor Singapore-Indonesia (JSI) Triangle.
Many organizations are also recognizing the potential of Iskandar Malaysia being the perfect location that would allow them to tap into the Singapore / International market which is only about 40-45 minutes’ drive to the Singapore Central Business District and Changi Airport.
Changi Airport serves some 100 airlines flying to over 300 cities in about 70 countries and territories worldwide whereas Senai Airport in Iskandar Malaysia serves 5 airlines flying to over 19 destinations and across the continents via KLIA
Iskandar offers state-of-the-art physical infrastructure and a world-class business environment like excellent logistical facilities, cyber cities, and central business administration
EduCity in Nusajaya, Iskandar is home to a myriad of global education institutions that will also bring in academic facilities that will support Principal Hubs in Iskandar Malaysia.
GO SET UP A PRINCIPAL HUB IN ISKANDAR MALAYSIA!
Capital Allowance - Business Asset
- The purpose of capital allowance is to provide a relief for wear and tear of fixed assets for businesses. Some examples are motor vehicles, machines, office equipment’s and furniture.
- Capital allowances comprise an initial allowance and annual allowance and is given for each year until the capital expenditure has been fully written off, unless the fixed asset is sold, scrapped or disposed, in which case a balancing allowance or balancing charge will be calculated
- Initial allowance is fixed at the rate of 20% based on the original cost of the asset at the time when the capital expenditure is incurred.
- However annual allowance is a flat rate given every year based on the original cost of the asset.
- Claims for capital allowance are deducted against adjusted income of the company.
|Type Of Asset||Initial Allowance (%)||Annual Allowance (%)|
|Heavy Machinery / Motor Vehicle||20||20|
|Plant and Machinery||20||14|
|Computer and ICT Equipment||20||10|
- Other than a motor vehicle licensed by the appropriate authority for commercial transportation of goods or passengers, the qualifying plant expenditure incurred for 2nd hand vehicles shall be restricted to a maximum of RM50,000 only.
- The restricted amount for qualifying plant expenditure for non-commercial motor vehicles, has increased to RM100,000 on condition that the motor vehicle bought is a new motor vehicle, and the on the road purchase price does not exceed RM150,000. ( For more than RM150k, the restricted amount is RM50k )
Capital Allowance - Automation Expenditure
Manufacturing Companies that incurs automation expenditure are eligible for additional capital allowance under the following criteria :
1. The company has been operating for at least 36 months prior to incurring the capital expenditure in the relevant year of assessments
2. Automation equipment must be
- used directly in the manufacturing activities
- Able to increase productivity e.g. reducing man hours, reducing workers and increasing volume of output
- Using more advance technology than current ones
- Verified by SIRIM
- Approved by MIDA
|Type of Industries||Description||Capital Allowance|
|High labour intensive||oRubber products
|200% is allowed on the first RM4 million expenditure incurred from Y/A 2015 until Y/A 2017|
|Others||200% on first RM2 million incurred from Y/A 2015 to Y/A 2020|
Industrial Building Allowances
Tax incentives are given at the rates of 10% and 3% respectively for initial and annual allowances respectively. However higher rates are available for certain types of expenditures.
What is an industrial building?
It is important to understand the full statutory meaning of the phrase “industrial building” to ensure that this incentive would not overlooked by investors and clients alike.
In actual fact the term “industrial building” not only refers to qualified buildings in use for industrial purposes but also encompasses a broad category of approved assets. The scope of eligibility has widened to include many other types of assets and buildings due to the government’s effort to promote selected types of industrial or commercial activity.
However it has been specifically provided that these are not industrial buildings:
- Dwelling house
- Retail Shop
|Building for storage of goods for export, or storage of imported goods to be processed and distributed or re-exported.||The annual allowance is 10% for 10 consecutive years|
|Buildings for research and development activities|
|Hotels registered with the Ministry of Tourism.||Initial Allowance of 10% and annual allowance of 3% on both constructed and purchased building.
10% annual allowance will be given on building for accommodating non-managerial, non-administrative and non-clerical employees.
|Airport.||Capital expenditure incurred include construction, reconstruction, extension, improvement or purchase of any building runaway or ancillary structures|
|Motor racing circuit approved by the Minister|
|Licensed private hospitals, old folk’s homes, schools, colleges and training centers.||If there are no written laws relating to registration or licensing, approval must be sought by the Director General of Inland Revenue after consultation with the Director General of Health.
The annual allowance is 10% for 10 consecutive years
|Buildings used for approved service projects in relation to transportation, communications, utilities or any other sub-sector approved by the Minister for the purposes of Schedule 7B of the Income Tax Act 1967|
|Buildings that are occupied by approved MSC Status Companies. This eligibility applies only to new buildings that have not been occupied by any company before 2006 and does not apply to buildings provided as living accommodation||The annual allowance is 10% for 10 consecutive years|
|Buildings occupied by Bio Nexus Status Company
A company which is engaged in the business of life sciences (Biology, medicine, anthropology or ecology)
|The annual allowance is 10% for 10 consecutive years|
|Plant & Machinery treated as building.
When the capital expenditure incurred on preparing, cutting, tunneling or levelling land in order to provide a site for the installation of plant or machinery is more than 75% of itself,
|The total capital expenditure incurred is treated as qualifying building expenditure and Qualifying Plant Expenditure is zero.|
|Buildings on farms for the purpose of poultry farming, animal farming, inland fishing industry.|
|A building used as a Kindergarten approved by the Ministry of Education.|