Crowe Chat Vol.7/2025

Tax Edition

Welcome to our Crowe Chat Vol.7/2025. In this issue, we will cover the following topics:

Special Tax Deduction – Guidelines on Deduction for Approved Contributions
Labuan – Guidelines on Substance Requirements for Fit and Proper Full Time Employees of Labuan Entities
Guidelines on the Director General of Inland Revenue Board’s (DGIR) Approval under Section 44(6) of the Malaysian Income Tax Act, 1967 (MITA) for Institutions / Organisations / Funds
Updated Operational Guideline No. 2/2024 – Application Procedure for Tax Clearance Letter for Individuals
Public Ruling (PR) 3/2025 – Tax Treatment on Asset Backed Securitisation

Download the PDF Booklet

Special Tax Deduction

Guidelines on Deduction for Approved Contributions

Introduction

Section 34(6)(h) of the MITA allows special tax deductions for expenses incurred in providing services, public amenities, or contributions to qualifying charities or community projects.

Section 34(6)(ha) of the MITA, on the other hand, grants special tax deductions for expenses incurred in providing infrastructure that is accessible for public use.

New Guidelines by the Ministry of Finance (MOF)

The MOF issued the following guidelines which are effective from 15 September 2025:

- Guidelines on Application for Tax Deduction under Section 34(6)(h) of the MITA

- Guidelines on Application for Tax Deduction under Section 34(6)(ha) of the MITA

Details of the MOF’s Guidelines

The guidelines outline the key criteria and application procedure of the special tax deductions.

Effective 1 April 2025, application for the verification of the projects and contribution amount must be submitted to the following authorities based on the amount of expenditure incurred:

Contribution Amount	Approval Body	Verification Body
RM300,000 and below	Relevant Government Authority (RGA)
Exceeding RM300,000	MOF	RGA

** RGA refers to the Federal Government, State Government and Local Authorities.

Labuan

Guidelines on Substance Requirements for Fit and Proper Full Time Employees of Labuan Entities

Introduction

With effect from 1 January 2025, Section 2B(1)(b) of the Labuan Business Activity Tax Act 1990 (LBATA) was amended by expanding the economic substance requirements to include a condition in relation to “a fit and proper person” for full-time employees.

On 9 September 2025, the Labuan Business Activity Tax (Requirements for Labuan Business Activity) (Amendment) Regulations 2025 and Labuan Business Activity Tax (Requirements for Labuan International Commodity Trading Company) (Amendment) Regulations 2025 were gazetted to prescribe the conditions of such employees.

New Guidelines

The Inland Revenue Board of Malaysia (IRBM) issued the Guidelines on Substance Requirements for Fit and Proper Full Time Employees of Labuan Entities on 5 November 2025 to outline specific operational requirements in meeting the “fit and proper person” condition for Labuan entities.

Details of the New Guidelines

The Guidelines clarify that the criteria for a full-time employee to meet the substance requirements are as follows:

The employee meets the fit and proper criteria;
The employee is employed on a permanent or contractual basis; and
The employee performs work physically in Labuan for the Labuan entity.

A full-time employee is deemed to meet the fit and proper criteria when the employee:

carries out work directly related to Labuan business activities, which include office-related duties but exclude general duties, as illustrated in the table below.

Office-Related Duties (Inclusion)		General Duties (Exclusion)
Director	Secretary	Receptionist	Office cleaner
Manager	Administrative / accounting clerk	Despatch clerk	Tea lady

possesses sufficient and appropriate competence and capability in performing his/her duties.
does not have a conflict of interest.

Employment through outsourcing, whether for permanent or contractual staff, does not qualify as fit-and-proper full-time employees for meeting substance requirements.
Labuan entities within the same corporate group may share office premises in Labuan. However, each entity must maintain its own fit-and-proper full-time employees dedicated to its respective Labuan business activity.

Approved Donation

Guidelines on the DGIR’s Approval under Section 44(6) of the MITA for Institutions / Organisations / Funds

Introduction

Income received by institutions, organisations and funds that carry out charitable activities and do not operate solely for profit is exempted from tax, provided that the approval conditions set out in the legislation are adhered to. The IRBM issues the above Guidelines to provide clarity on the approval criteria under Section 44(6) of the MITA.

Previous Technical Guideline

Guidelines on the DGIR’s Approval under Section 44(6) of the MITA for Institution / Organisation / Funds dated 20 August 2024.

Updated Technical Guideline

The IRBM issued Guidelines on the DGIR’s Approval under Section 44(6) of the MITA for Institution / Organisation / Funds on 23 October 2025.

Notable Changes

The services or benefits of the institution / organisation are now extended to non-Malaysians who are affected and in need within Malaysia, provided that prior approval has been obtained from the DGIR.
Services or benefits should be provided free of charge. For institutions or organisations that impose fees, a complete and comprehensive Financial Assistance Policy must be submitted for the IRBM’s approval. Any fees or charges applied must be at least 20% lower than the prevailing market rate.
Funds set up by the institution / organisation is treated as a separate entity and cannot be used for the institution / organisation’s corporate social responsibility activities.
The e-Derma system, accessible via the MyTax portal for new applications for tax exemption status under Section 44(6) of the MITA, is not mandatory. Applications submitted manually on the applicant’s official letterhead will continue to be accepted and processed.
Applications must now be submitted to the IRBM prior to purchasing assets, based on their cost value. Pre-approval is required for transactions of RM20,000 and above for fixtures and fittings, office equipment, and computer equipment. For all other asset categories, there is no minimum threshold for obtaining the IRBM approval.
At least 50% of the income earned in the previous year must be utilised in the following year exclusively for activities that support the institution or organisation’s objectives. Examples of charitable expenditure include scholarship grants, aid for the needy and underprivileged, medical bill assistance, direct program expenses, and other costs aligned with the approved objectives.

Employer Tax

Updated Operational Guideline No. 2/2024 – Application Procedure for Tax Clearance Letter for Individuals

Introduction

Employers in Malaysia are required by law to notify the IRBM of certain employee-related changes, including new hires, cessation of employment, and employees leaving Malaysia using Form CP22 (notification of new employee), CP22A or CP22B (notification of employee cessation) and CP21 (notification of employees leaving Malaysia).

Updated Operational Guideline

The IRBM issued the Updated Operational Guideline No. 2/2024 – Application Procedure for Tax Clearance Letter for Individuals on 1 November 2025.

Details of the Updated Operational Guideline

Employers are no longer required to submit Forms CP22A/ CP22B if the employees’ income is not chargeable to tax or their monthly income is below the Monthly Tax Deduction (MTD) threshold or is subject to MTD and they do not receive any gratuities/ compensation from the cessation of employment. This has now been extended to include non-Malaysian citizen employees who continue employment in Malaysia.
Submission of Revised or Additional Form CP22A/CP21 is now mandatorily to be submitted through the e-SPC. However, application for cancellation shall be submitted manually to the IRBM.
The e-Form CP21 has been updated with an additional field to indicate residence status in the leaver year.
Employers must keep a declaration of the resident status letter for verification purposes upon request by the IRBM.

PR 3/2025

Tax Treatment on Asset Backed Securitisation

Introduction

Briefly, asset-backed securitisation (ABS) involves transferring assets or associated risks from the Originator (the party seeking financing) to a Special Purpose Vehicle (SPV). This transfer is funded through the issuance of corporate bonds or sukuk to investors, where payments to investors are derived, directly or indirectly, from the cash flows of the underlying assets. The transfer is typically structured as a ‘true sale’ to ensure legal ownership of the assets passes to the SPV. The SPV then owns the assets and may use them as collateral to issue ABS.

The Income Tax Regulations (Asset-Backed Securitisation) 2014 [P.U.(A) 170/2014] apply to SPVs established solely for issuing bonds or asset-backed sukuk and their related Originators.

NEW PR

The IRBM issued PR 3/2025 - Tax Treatment on Asset Backed Securitisation on 4 November 2025. This ruling clarifies the tax treatments for transactions involving ABS, applicable to both the Originator and the SPV.

Highlights of the NEW PR

Tax treatment for originators

The timing of recognising income (from the sale of trade receivables, stock-in-trade, or disposal of fixed assets) and claiming deductions for losses related to a securitisation transaction must be spread over the securitisation period using a prescribed formula. This formula allocates income or losses proportionately based on the number of days in the basis period relative to the total securitisation period.

Tax treatment on SPV

The timing of claiming deductions on expenses incurred for acquiring trade receivables, stock-in-trade, or other assets related to a securitisation transaction is spread over the securitisation period using a prescribed formula. All income from any source is treated as a single business source for tax purposes during the basis period.