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Real Property Companies (RPC), Double tax agreement (DTA), Service tax,…
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Service tax
Taxable services
Group B, threshold RM1.5m
- Operators of restaurants or bars giving f&b
Group G, threshold RM500k
(a)-(i) separated into 2 categories;
1st category, (a)-(f)
- A taxable person offer a taxable services from group (a)-(f), the value of these services shall be combined to compute the threshold
2nd category, (g)-(i)
- The value of taxable services in group (g)-(i) is to be computed separately for determining the threshold
Group A, threshold RM500k
- Provider of accommodation i.e. hotels, inn
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Group I, no threshold
- Forwarding agent to clear goods from custom
Group I, threshold RM500k
Digital service
- Any service delivered/subscribed over the internet or other network which cannot be obtained without the use of IT, and where delivery of the service is essentially automated
Scope;
- Tax to be charged and levied on any digital service provided by foreign registered digital service provider to consumers in Msia
- Service tax: 6% x value of digital service, due at the time when the payment is received
Foreign service provider (FSP)
- Person who is outside Msia providing any digital service to a consumer
- Includes any person who is outside Msia operating an online platform for buying and selling goods or providing services (whether or not such person provides any digital services), and
- Makes transactions for the provision of digital services on behalf of any person
- Achieved turnover of RM500,000 on digital services provided
Consumer
A person who fulfills any two of the following:
- Makes payment for digital services using credit or debit facility provided by any financial institution/co in Msia,or
- acquires digital services using an internet protocol address registered in Msia or an international mobile phone country code assigned to Msia, or
- resides in Msia to assess based on billing address, home address, recipient's country selection
Group relief
Where a co provides any intra group services to another co outside the group of co, then such service provided by the co to the in the same group + to the third party co shall all be treated as taxable service. This is only applicable where the value of services to outside the group is > 5% of the total services provided by the co within 12m
Group relief would still remain applicable if the value of services provided outside the group of co is 5% and below the total value of services provided by the co within a period of 12m
Provision of intra group taxable services (including imported taxable services) under Group G (except employment services and security services) by a co to another co within the same group are not subject to tax
Meaning of within the same group
- One co controls each of the other companies, a co shall be taken to control another co if the first mentioned co holds:
- directly,
- indirectly through subs, or
- together directly/indirectly from subs;
(a) >50% of the share capital of the second mentioned co; or
(b) from 20% - 50% of the share capital of the second mentioned co and the first mentioned co has exercisable power to appoint/remove all or a majo of directors in the BoD in the second mentioned co
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Scope of charge
Charged and levied on;
- any taxable services provided in Msia by a taxable person in carrying on his business, or
- any important taxable service into Msia
B2B
exemption
If a taxable person is registered for the provision of the same taxable service (in Group G mentioned in group relief + advertising services from Group I) as he acquires from a service tax registered supplier, the the taxable person may claim exemption from service tax. Thus, the service tax registered supplier would be exempt from charging service tax.
Disbursement
- Recovery of cost/payment made by registered person on behalf of another party.
- Does not constitute providing taxable services and hence, is not subject to service tax
Criteria:
- Incur expenses on behalf of the client
- The client is the recipient of the services (invoice is in client's name)
- Payment is authorised by the client
- Client knew that the services is made by a third party
- Exact amount is claimed from the client and has no right to alter or add on the value of the services
- Payment is clearly an addtnl to the services made to the client
Reinbursement
- Subject to service tax
Criteria:
- Incur exp as principal
- Client is not the recipient of the services as the invoice is in the principal's name
- Principal is the person responsible to pay for the service
- Payment is not authorised by client
- Client has no knowledge that the service is made by a third party
- Principal has a right to alter or add on the value of the services
- Payment is for the service made to the client
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Withholding tax (WHT)
S.107A
Contract payment
- Contract payments made to a NR contractor in respect of services under a contract
- The WHT is only applicable to the service portion of the contract payments
Service under a contract = performing service in Msia, is in connection with any contract project carried out in Msia.
WHT rates:
- 10% of contract payment to cover the tax which is payable by the NR contractor
- 3% of the contract payment to cover the tax which is payable by employees of the NR contractor
Advanced tax
Tax implication on the 10% tax withheld
- When the NR contractor file his return, he will compute his final tax liability
- If final tax liability > 10% tax withheld = shortfall of tax is to be paid to the DG
- If the final tax liability < 10% tax withheld = refund will be paid to the payer
Tax implication on the 3% tax withheld
- Will be refunded to the NR contractor upon finalization + full settlement of the employee's taxes
- But this will not reduce the tax liability of the NR contractor and will not be shown in its tax computation
Waiver of WHT
- To be requested by the NR contractor
Can request to waive the 10% WHT
i. if the contract project is likely to incur substantial losses, or
ii. if there are adequate unutilised CA and unabsorbed losses to be set off against the profits arising from the contract project, or
iii. if provisions of DTA between Msia and the home treaty country expressly exempt such project
Can request to waive the 3% WHT
i. if all of its employees are R individuals,
ii. if the income of the NR employees are already subjected to STD system
S.109B
Installation fee, technical services & rent of movable property
- The payer pays special classes of income to the NR
Special classes of income (must be derived from Msia) include:
S.4A(i)
- The amount paid to the NR for his or his employee's services in connection with the use of property or rights belonging to the NR, or installation or operation of any P&M purchased from NR in Msia
S.4A(ii)
- The amount paid for advice, assistance or services carried out in Msia rendered in connection with management or administration of any scientific, industrial or commercial undertaking venture, project or scheme; or
S.4A(iii)
- The amount paid on rent of any moveable property, excluding freight charges for ships
a) It is derived from Msia if:
- responsibility for payment of special classes of income lies with the Govt, State govt or local authority,
- the payer is responsible for paying the special classes of income for a YA
- the special classes of income is charged as an exp against any income accruing in or derived from Msia
b) Withholding tax rate is at 10%
- WHT is not applicable if the S.4A income is attributable to a PE business carried on by the NR in Msia via an office, a branch etc.
- This WHT is a final tax
- The payer has to deduct the WHT and pay to the DG within 1m from the date of paying/crediting such fee to the NR
S.4A(ii) advice, assistance or services
Common expenses attracting WHT
- Management or marketing services
- Consultancy services
- Specially-tailored training course
Reimbursement
Out-of-pocket expenses incurred by the payee
- in the course of rendering services to the payer, or
- in respect of the use of any moveable property
which are subsqly reimbursed by the payer
Tax treatment
- Treated as part of the contract value for services rendered or for rent or payments made for the use of movable property
- It is income of the payee under S.4A and is subject to WHT at 10%
Head office day to day routine expenses
[Budget 2019] WHT will be imposed on ordinary daily admin or management services of a routine nature
- by a NR HO to the Msian branch, or
- by a NR parent co to the Msian subs
Disbursement
Out-of-pocket expenses incurred by the payer and paid to the third party on behalf of the payee
- in connection with the service rendered by the payee, or
- in respect of the use of any moveable property
Payer cannot claim back from payee
Tax treatment
- Part of the contract value for services rendered or for rent or payments made for the use of any moveable property
- It is income to the payee under S.4A and is subject to WHT of 10%
Disbursement on hotel accommodation are not included in S.4A income, this exemption is aimed at reducing the cost of services provided by NR
Deposit and advance payment
Non-refundable deposit and advance payment paid to the payee
- for services rendered, or
- in respect of the use of any moveable property
are subject to WHT, if the deposit is refundable, no WHT
If payer has to bear WHT
- The WHT should be computed on the amount paid to NR
- The WHT will not rank for a deduction
S.109
Royalty & interest
- The payer must pay royalty or interest to a NR
- The royalty/interest must be derived from Msia
Royalty
a) It is derived from Msia if:
- responsibility for payment of the royalty lies with the Govt, State govt or a local authority
- the payer is responsible for paying the royalty for a YA, and
- the royalty is charged as an expense against any income accruing in or derived from Msia
b) Withholding tax rate is at 10%
Interest
a) It is derived from Msia if:
- responsibility for payment lies with the Govt, State govt or local authority
- the payer is responsible for paying the interest for a YA, in the case of interest payable on borrowing, the resident has to:
i. employ the borrowing for the production of GI derived from Msia
ii. the borrowing is laid out on asset used in production of GI derived from Msia, or
iii. the borrowing is secured by any property situated in Msia
- the interest is charged as an outgoing or expense against any income derived from Msia
b) Withholding tax rate is at 15%
- WHT is not applicable if the interest or royalty is attributable to a business carried on by the NR in Msia via an office, a branch etc.
- The WHT paid is a final tax/advanced taxation, thus there is no need for the NR to report the royalty/int income in a return to the DG
- The payer has to deduct the WHT and pay to the DG within 1m from the date of paying/crediting such fee to the NR
If WHT is applicable under S.109, S.109B, S.107A, S.109F
Obligation on the payer
- Deduct the WHT at the appropriate rate and pay the deducted WHT to the DG within 1m after paying/crediting such fee to the NR
Tax implication if there is non-compliance
- The gross fee is not deductible under S.39 unless and until both WHT + penalties have been fully paid to the DG
- The amount of WHT which he fails to pay shall be subject to a late payment penalty of 10%
- Both WHT and penalties are a debt due to the govt
- Under the self-assessment system, if payer claims a deduction for expenses that are subjected to WHT in the return form when it has been filed for the relevant YA notwithstanding the WHT has not been paid, the DG is empowered to impose a further 100% penalty under SubS.113(2) of the ITA 1967 for incorrect returns
- A tax collection mechanism to collect tax from non-residents
- DG requires the payer to withhold or deduct tax before making payment to the NR
- DG uses this mechanism to combat tax evasion by the NR
Payer shall be required to:
- deduct the withholding tax upfront
- pay only the net amount to the NR, and
- render an account and remit the amount of tax withheld to the DGIR within 1m after paying or crediting the recipient
S.109F
Guarantee fee, introductory fee & commission
- The payer pays S.4(f) income to the NR
S.4(f) income means
a. the payment is revenue in nature
b. the payment is not under S.4(a)-S.4(e) income and not S.4A income
c. the payment is a miscellaneous income
d. the payment is for an isolated transactions
e. there is an absence of repetition of transactions to indicate the commercial nature of the transaction
- The S.4(f) income is derived from Msia, it is derived from Msia if:
i. responsibility for payment of the S.4(f) income lies with the Govt, State govt or local authority, or
ii. the resident is responsible for paying the S.4(f) income for the YA, and
- the S.4(f) income is charged as an expense against any income accruing in or derived from Msia.
The payment made can be in cash form or in-kind.
- WHT rate at 10%
- WHT is a final tax
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S.109A
- Income of a NR public entertainer (other than co)
- Consists of remuneration or other income in respect of services rendered in Msia
- WHT rate at 15% of the gross amount
Sales tax
Tax administration
Effective date of registration
- The first day of the following month of application for registration, from this date the licensed manufacturer is liable to charge sales tax
Taxable period
- The first taxable period = a period of 2 months commencing from date of registration
- The subsq taxable period shall be a period of two months ending on the last day of any month
Registration period
- A taxable person is liable to register not later than the last day of the month following the end of the month where the total turnover > RM500,000
Submission of return
- Submit SST return (Form SST-02) and pay the sales tax due to the DG not later than the last day of the month following the end of each taxable period
Registration
Voluntary registration
- Manufacturer who sold taxable goods but below the threshold
- A class of person who is exempted from registration
- Manufacturer who manufactured non-taxable goods is not allowed to voluntarily register
Registration of a single taxable person
- Where a business is conducted by diff persons and they are closely linked from financial, economic and organisation aspects, the DG may think the business is artificially separated & direct a registration for a single taxable person
Conditions:
- The persons involved are manufacturing taxable goods
- The entire manufacturing activity is deliberately separated into few parts and the fragmented business is concurrently carried out by 2 or more diff persons
- The turnover threshold shall be achieved based on the aggregated sales of all persons involved
Tax implication:
- The DG shall name all the involved persons in his direction to be taxed as a single taxable person
- A name jointly nominated by the constituent members must be submitted and registered with the DG within 14d after the last person being served the direction from DG
- Any taxable goods manufactured by the constituent member shall be treated as taxable goods manufactured by the single taxable person
- Each constituent member is jointly and severely liable for any sales tax due and payable by the single taxable person
- Any failure by the single taxable person to comply with the Sales Tax Act 2018 is deemed to be a non-compliance
Mandatory registration for manufacturer and sub-contractor who manufacture taxable goods
At the earlier of;
- Historical method; not later than the last day of the month following the end of the month where the total turnover of in that month + the 11 immediate preceding months > RM500,000
- Future method; not later than the last day of the month following the end of the month where the total turnover in that month + the 11 immediate succeeding months > RM500,000
Bad debt
Credit note
ST deduction
- A registered manufacturer may have submitted the ST return to the DG and has duly paid the ST, but the sales amount is subsq reduced resulting to an overpayment of ST
Issuance of credit note
- Sales deduction shall be given if the registered manufacturer issues a credit note which contain the prescribed particulars
Unutilised ST deduction
- To be c/f to the next taxable period and subsq taxable periods, until whole balance has been fully deducted
Debit note
- Issued when the amount previously invoiced is increased due to an addition of sales tax to be paid for any price adjustment
Repayment of sales tax
- When the DG has made a refund for a bad debt to a person + the tax payable is subsq received by the person, the person shall repay to the DG the tax claimed in his SST-02 return in the taxable period in which he receives the payment of the ST from the debtors based on the (A/B) x C formula
Claim on sales tax refund is to be made within 6y from the date of taxable goods is sold
Conditions:
- Sales tax has been paid on an invoice issued by the registered manufacturer
- The unpaid sales tax has been written off in the manufacturer's account as bad debts due to insolvency
- No payment was received for 6m from the date the goods is sold
- Reasonable efforts have been made by manufacturer to recover the debt
If part payment is received, ST is to be refunded based on this formula; (A/B) x C
A = payment received in respect of the sale of such taxable goods
B = sale value of such taxable goods plus sales tax payable on such taxable goods
C = sales tax payable on such taxable goods
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Tax planning
Buy over
Tr. Recv
Disposer
- Sale of TR = sale of asset, not taxable
- Tax planning; transfer good debt to acquirer, retain bad debt and write off to claim deduction since the amount has been taxed as GI before in acquirer
Acquirer
- Purchase of TR = purchase of asset, not deductible
- When the purchase of TR is written off, it is not deductible as the amount was not taxed as GI before in disposer
- It is a write off of an asset
Stocks
Disposer
S35(5) Disposal of stocks
- Gross taxable income = SP
- If disposer has loss + CA b/f, SP = MV
- Higher profit set off by loss + CA
- Higher PC of acquirer give rise to higher deduction for disposer
Acquirer
- If acquirer has loss + CA b/f, SP = cost (avoid higher profit)
- Low PC = low deduction, high profit
- Profit set off by loss + CA b/f in acquirer
Business assets
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Disposer
- Its CA b/f = permanent loss
- Unutilised losses can be c/f for a max of another 7 subsq YAs
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Stamp duty
Payment of stamp duty
Initial payment;
- Payable based on private valuation to expedite the transfer of the property
Add bank guarantee;
- Must be valid for at least 6 months
Valuation by Jabatan Pernilaian dan Perkhidmatan Harta (JPPH)
- The shortfall arising when the final stamp duty > initial payment, must be paid **within 30d from the service of the addtnl assessment.
- If shortfall is not paid within 30d, **collector will claim the bank guarantee from the bank
Penalty for undervaluation
- If final duty i.e. initial payment + bank guarantee > 30% of final tax, penalty of 10% is imposed on the difference
- Charged on instruments i.e. written document
Sale of company shares; 0.3% on every RM1,000 or fractional part
Sales & purchase agreements for purchase of property, duty is imposed on value of consideration or MV, whichever higher, instrument must be stamped within 30d from date of execution
Reliefs from stamp duty
Individuals
Transfer of property between:
- husband & wife; 100% stamp duty exemption,
- parent & child who are citizens; 50% stamp duty exemption
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Companies
S15A Full exemption
- Transfer of property occurs between associated companies
- The purpose of the transfer of property is to achieve greater efficiency in operation
- The co referred to as the transferee co under this section is incorporated in Msia
Withdrawal of S15A if;
- the consideration is wholly/partly provided or received by a non-ssociated co, or
- the property was previously transferred by such a person, or
- the transferor or transferee were to cease to be associated by reason of a change in the percentage of the issued share capital within 3y from date of transfer, or
- the transferee co disposes of the property that it has acquired within 3y from the date of transfer
If any declaration made is untrue, the co will be charged with duty and interest of 6% p.a.
S15 Full exemption
- A new co must be registered within 6m before the issued share capital has been increased
- Existing co transfer either 90% of its share capital or its business taking to the transferee co
- Transferee co must pay at least 90% of the consideration in the form of transferee's shares
Withdrawal of S15 if;
- Any declaration made in the application is found to be untrue
- If the existing co sells the shares in the transferee co within 3y
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A = no. of shares acquired (deemed to be the CA)
B = total no. of shares in the relevant co at the date of acq
C = DV of the RP and/or shares in another RPC owned by the relevant co at the date of acq
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