Property development is the business of converting raw land to finished units such as houses, apartments, hotels, condominiums, shopping centres and many more. In Malaysia, property development is a big industry with many players, most of whom are local. The large local developers consist of SP Setia Bhd, IOI Properties Group Bhd and Sime Darby Property Bhd.
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The property sector is probably the most complex sector from the angle of accounting and taxation. There are so many issues involved that it is not possible to list too many here. One of the major ones from the accounting angle is revenue recognition because revenue can be recognized progressively which is in turn dependent on the terms of the property contract entered into by the developer or contractor with the customer. Another issue is the capitalization of borrowing costs in relation to property development activities.
From the tax angle, recognition of profits for property development and construction follow unique tax rules prescribed by the Inland Revenue Board in their PR 1/2009 and 2/2009. It is important to adhere to these rules to avoid any future tax penalties. Due to these rules, tax computations are complex and need to be prepared with care to ensure their accuracy. Insofar as disposals of properties are concerned, one is always faced with the conundrum as to whether the disposal is a trading gain that is subject to income tax or a realization of investment that is subject to real property gains tax. Major tax problems can also occur when property assets are reclassified from one balance sheet category to another.
How can we help?
We have extensive knowledge and experience with property companies and property transactions. As such, in addition to performing a statutory audit, we are able to assist companies in this sector to adopt the correct accounting policies that are appropriate to their circumstances. These policies include those relating to recognition of income, treatment of fees received in advance, treatment of costs capitalised, determination of the stage of completion / work in progress, deferred taxation due to temporary differences, etc. We have also assisted many property companies to be listed on the Bursa Malaysia.
Companies in this sector with operations in many parts of Malaysia and overseas will find that our network of 13 branches in Malaysia and 250 Crowe firms throughout the world can greatly facilitate group audits.
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From the tax angle, we have deep expertise in advising on property transactions, in handling the tax compliance of companies in this sector which are often complex, and in minimizing potential tax liabilities while capitalizing on potential tax opportunities.
In particular, we are very familiar with all aspects of taxes relating to property such as income tax versus real property gains tax on disposal of properties or shares in real property companies, stamp duty, property joint ventures, tax implications on moving of assets from one balance sheet category to another, the use of group relief for tax minimisation, etc.
In the area of tax compliance including preparation of tax computations and complying with all other tax rules, we have a large team of tax professionals who are able to offer a broad range of specialised services to serve our clients. These services include maximising the claims of operating expenses, planning for submission of tax estimates to the tax authorities, advising on withholding tax, resolving grey tax issues, dealing with the tax authorities, etc. Our Indirect Tax division has the relevant experts to advise on Service Tax which may affect companies in this sector when they purchase imported services or if they render taxable services to their group companies or to non-group customers.
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We have a wide variety of specialised consulting services that can assist your corporate growth and enhance your corporate health. You can find more details in the following links:
We are also experienced with transformation plans to assist companies to transform and adapt to the digital economy, restructure to new models of business, exploit opportunities in a changing economy, harness the capabilities of talent and assist in all aspects of change management.