Following the announcement of Budget 2022 themed "Keluarga Malaysia, Makmur Sejahtera", the much anticipated Finance Bill 2021 was tabled in Parliament on Tuesday, 9 November 2021.
In this issue of Crowe Chat Vol.8/2021, we will cover the Key Highlights of the Malaysia Finance Bill 2021 which include changes in:-
Tax on Income Received from Outside Malaysia
Malaysian tax residents will be taxed at the rate of 3% on gross income derived from foreign sources and received in Malaysia with effect from 1 January 2022 to 30 June 2022. From 1 July 2022 onwards, foreign sourced income received in Malaysia by Malaysian tax residents will be taxed at the prevailing tax rates.
Withholding Tax on Payments Made To Agents etc.
Payments made to agents, dealers or distributors will be subjected to 2% withholding tax with effect from 1 January 2022.
Extension of Tax Rebate for Establishment of New Entities for Companies / Limited Liability Partnership (LLPs)
The income tax rebate of up to RM20,000 per Year of Assessment (YA), for the first three (3) YAs will be extended for new Companies / LLPs established and commenced operations by 31 December 2022.
Submission of Return Based on Financial Statements
LLPs, trust bodies and co-operative societies will be required to furnish their income tax return based on financial statements made in accordance with the requirement of the law governing the entity.
Tax Identification Number (TIN)
TIN will be implemented with effect from 1 January 2022 to broaden the tax base.
Power to call for bank account information for purpose of making a garnishee order application
The Director General of Inland Revenue (DGIR) will be empowered to request for taxpayers' bank account information from the financial institutions for purpose of making a garnishee order application.
Submission of application for relief to the Special Commissioners of Income Tax (SCIT)
Taxpayers will be required to send the request for DGIR to forward the application for relief to SCIT in a prescribed form.
Failure to Furnish Tax Estimates
Penalty of 10% of the tax payable for a YA will be imposed on LLPs for failure to submit the tax estimates.
Tax Treatment on Distribution to Unit Trust Holders
Income of non-individual unit holders of retail money market fund (RMMF) will be taxable.
Withholding tax on distribution of income of unit trust to unit holders other than individuals
Unit holders except individuals receiving income from RMMF will be subject to a withholding tax of 24% with effect from 1 January 2022.
Definition of Special Purpose Vehicle (SPV)
A SPV is now defined under Paragraph 37 of Schedule 6 of the Malaysian Income Tax Act, 1967 (MITA).
Non-application of exemption on interest from sukuk and debentures
Non-resident companies will be taxed in respect of interest paid or credited by a SPV from sukuk or debentures structured under an asset-backed securities (ABS) arrangement where the originator and the non-resident company are from the same group.
Non-application of exemption on interest from sukuk issued in foreign currency
A person will be taxed in respect of interest paid or credited by an SPV from sukuk issued in foreign currency structured under an ABS arrangement where the originator and the non-resident company are from the same group.
Review of tax incentive for contract research and development (R&D) companies or R&D companies
Companies in the business of providing R&D services that wish to apply for such tax incentive will be granted R&D status instead of Pioneer status from 1 January 2022 onwards.
Expansion of Tax Relief on Medical Examination Expenses
Tax relief of up to RM1,000 on medical examination expenses for self, spouse and child will be expanded to include examination costs and consultation services related to mental health as well as COVID-19 detection test.
Extension of Tax Relief for Domestic Tourism Expenses
Special tax relief of up to RM1,000 on domestic tourism expenses (including domestic tour package) will be extended for expenses incurred until 31 December 2022.
Increase of retention sum to be retained
Retention sum for disposal of real properties or shares in real property companies within a period of three (3) years from the date of acquisition by a company or a trustee of a trust or a body of persons registered under any written law in Malaysia will be increased from 3% to 5%.
Leaving Malaysia without payment of tax
The scope of offence for leaving Malaysia without payment of tax will be expanded to include failure to pay a sum or debt payable and the penalty amount will be increased to a maximum of RM20,000.
TIN in RPGT transactions
Taxpayers will be required to use TIN assigned by the DGIR in all RPGT transactions with effect from 1 January 2022.
Expansion of scope for no gain no loss transactions
No gain no loss transactions will be expanded to include the transfer of assets owned by a nominee or a trustee of an individual, the wife of the individual or both to a controlled company.
Expansion of losses disallowed for deduction
A loss arising from disposal of chargeable assets under Paragraph 34 of Schedule 2 of the RPGT Act 1976 (RPGTA) (transfer of shares to a controlled company) will not be allowed for deduction.
Clarification on computation of exemption for part disposal of shares
A formula will be used to ascertain the amount of exemption to be given if shares are partly disposed of.
Revision of chargeable persons under Part II of Schedule 5 of the RPGTA
Part II of Schedule 5 of the RPGTA will be revised to replace societies registered under the Societies Act 1966 with body of persons registered under any written law in Malaysia.
Stamp duty refund
Stamp duty refund will only be made when the assessment has become final and conclusive.
Application of relief for misused stamps
Duty payers will be allowed to apply for relief for misused stamps within 24 months from the date of instrument or date of execution (if the instrument is not dated) effective 1 January 2022.
Application of relief for spoiled stamps
Duty payers will be allowed to apply for relief for spoiled stamps within 24 months from the date when stamps are spoiled or the date of instrument or the date of execution (if the instrument is not dated) effective 1 January 2022.
Imposition of processing fee for endorsement of exempt instruments
The DGIR will impose a processing fee of RM10 on instruments/documents which are exempted from stamp duty and brought to the IRB for endorsement, effective 1 January 2022.
Application for Appeal and Refund
The application for appeal and refund can be done through electronic medium effective 1 January 2022.
TIN in stamp duty transactions
Duty payers will be required to use TIN assigned by the DGIR in stamp duty transactions effective 1 January 2022.
Tax on intellectual property (IP) income of a Labuan Entity
IP income of Labuan entities that do not meet the substance requirements will be taxed under the ITA.
Basis period for Labuan non-trading activity
The DGIR will be empowered to direct the basis period for a Labuan entity carrying on a Labuan non-trading activity that does not have a basis period.
Filing of Return of profits of Labuan non-trading activity
Labuan entities carrying on a Labuan non-trading activity will be required to file a return of profits in the prescribed form (Form LE1) to the DGIR. Failure to do so is an offence and shall upon conviction be imposed a penalty.
Payment of tax for a Labuan entity carrying on Labuan non-trading activity
Labuan entity carrying on Labuan non-trading activity that does not comply with the substantial activity requirements is required to make payment of tax under the Labuan Business Activity Tax Act 1990 (LBATA).
A director of a Labuan entity who is a resident will be jointly and severally liable to the Labuan entity tax that is due and payable.
Key Highlights of the Finance Bill 2021