PR 4/2000 Keeping Sufficient Records (Companies & Co-operative)

General requirements
1) The books of account should be written up at regular intervals.
Appropriate entries for each transaction should be recorded not later than 60 days after the transaction
2) Supporting documents such as invoices, bank statements,pay-in slips, cheque butts, receipts for payments, payroll records and copies of receipts issued should be retained.
3) Receipts issued should be serially numbered if sale of goods exceeds RM150,000/year or performance of services exceeds RM100,000/year
4) A valuation of the stock in trade or work in progress should be made at the end of each accounting period and the appropriate records maintained

Period for keeping records
Records are to be retained for at least 7 years from the end of the year which records relate/return is furnished/to be retained until appeal is finally determined

Records to be kept in the national language or English
The Consequences if Sufficient Records Are Not Kept
a fine of not less than RM300 and not more than RM10,000 or to imprisonment for a term not exceeding 12 months, or to both.

Effective Ya2001 and subsequent years of assessment

source: summarised from
http://www.hasil.gov.my/pdf/pdfam/PR4_2000_Rev.pdf

PR 6/2012 Reinvestment Allowance

Replace PR 2/2008 issued on 3 Apr 2008

Changes in PR 6/2012
1. Minimum Period of operation to be eligible for RA claim
 -prior to YA2009, not less than 12 months
 -w.e.f Ya2009, not less than 36 months

2. RA as an incentive
- 60% of qualifying capital expenditure
- deductible against 70% of statutory income (promoted area 100%)
- w.e.f 2012 restricted to 70% of statutory income (promoted /non-promoted area)

3. Qualifying Project
- Prior to YA2009
A project undertaken by a company, in expanding, modernization or automating its existing business in respect of manufacturing or processing of a product or any related product within the same industry or in diversifying its existing business into any related product within the same industry.

- From YA2009
to exclude processing, the above definition was amended to - 

a project undertaken by a company, in expanding, modernizing or automating its existing business in respect of manufacturing of a product or any related product within the same industry or in diversifying its existing business into any related product within the same industry. 

4. Meaning of manufacturing and processing 
- Prior to YA2009

Manufacturing

Manufacturing is the making of articles by physical labour or machinery. It is the creation of something which did not exist in that form prior to the manufacturing process. The element of change is an important characteristic in manufacturing. Manufacturing for the purposes of Schedule 7A of the ITA 1967 are basically divided into two categories:

(a)  different in character and form, for example, wood to paper, and

(b)  no change in character but change in form, for example, wood to furniture.

Processing

(a)  Processing is the subjection of goods to a process which means, goods or materials are subjected to a process which falls short of the manufacturing of a new article and involves the treatment of the goods in some way, other than natural growth.

(b)  technique of preparation, handling or other activity designed to effect a physical or chemical change in an article or substance.

(c)  Processing also connotes a substantial measure of uniformity of treatment or system of treatment. Thus, where each product is treated individually according to the specifications required, it cannot be regarded as being subjected to a process within the meaning of Schedule 7A of the ITA 1967.

(d)  a product has gone through a series of actions that are systematic, has a higher value than before and accepted by the market. 

-From YA2009
Manufacturing
Manufacturing for the purpose of RA is defined as -

(a) conversion by manual or mechanical means of organic or inorganic materials into a new product by changing the size, shape, composition, nature or quality of such materials

(b) assembly of parts into a piece of machinery or products, or

(c) mixing of materials by a chemical reaction process including biochemical process that changes the structure of a molecule by the breaking of the intra molecular bonds or by altering the spatial arrangement of atom in the molecule.

(d) Manufacturing does not include –
(i) the installation of machinery or equipment for the purpose of construction
(ii) a simple packaging operations such as bottling, placing in boxes, bags and cases
(iii) a simple fixing
(iv) a simple mixing of any products
(v) a simple assembly of parts
(vi) any activity to ensure the preservation of products in good condition during transportation and storage
(vii) any activity to facilitate shipment and transportation
(viii) any activity of packaging or presenting goods for sale, or
(ix) [Prescription Of Activity Excluded From The Definition Of Manufacturing] Rules 2012 - P.U.(A) 23 (Appendix C).

Simple mean an activity which does not need special skills, machines, apparatus or equipment specially produced or installed for carrying out the activity.

w.e.f YA2009, processing is no longer a qualifying activity for RA purpose

5. Meaning of qualifying project
- increase in production capacity or performance (saving in time, material, labour or better quality)
- expenditure on purchase, addition to or replacement of existing assets or parts is not eligible for RA (unless for qualifying project)

a) Expansion project
- increase in demands to a product and result in increased production capacity, capacity utilization, increase in production output and sales

b) Modernization project
- upgrading of manufacturing equipment and process to achieve greater efficiency in production, improvement in qualify of product and/or reduction in costs

c) Automation
- process whereby manual operations are substituted by mechanical operation with human judgement and control

d) Diversifying project
- to produce additional or new related product/s within the same industry

6) Meaning of factory
- From YA2012
Factory mean:-
a) building used for the purpose of qualifying project to place or install plant or machinery or to store any raw material, or goods or materials manufactured prior to sales
b) building used for storage of raw material or goods and shall not be more than 1/10 of the total floor areas

-not include building used for R&D
-not include building used for staff welfare e.g canteen, nursery, accommodation, sport and recreation
-company renting a factory may claim RA on qualifying expenditure incurred for qualifying project
-relocating the manufacturing activity to new location or change of ownership of factory not qualify for RA

Qualifying period
-15 consecutive years of assessment, calculated from the YA in which qualifying capital expenditure was first claimed

PR 1/2010 Withholding Tax on Income under Paragraph 4(f)

- Effective 01.01.2009 with the introduction of new section 109F of ITA

Criteria to determine a payment fall under Paragraph 4(f)
(a) the payment is revenue and not capital in nature;
(b) the payment is not income that falls under paragraphs 4(a) to 4(e) and section 4A of the ITA;
(c) the payment received by a non-resident person is in the nature of a miscellaneous income. Such income is often casual in nature. Casual income means an occasional income, which is received outside the ordinary course of trade or vocation;
(d) the payment is for an isolated transaction; and
(e) there is an absence of repetition of transactions to indicate the commercial nature of the transaction.

Gains or profits under Paragraph 4(f) of the ITA deemed to be derived from Malaysia irrespective of whether transactions are carried on in Malaysia or not

e.g. commission, guarantee fees

Form CP37F – Section 109F, ITA –Payment to a non-resident chargeable under Paragraph 4(f) ITA

PR 4/2005 Withholding Tax on Special Classes of Income

Special classes of income chargeable to tax
1. Paragraph 4(A)(i) of ITA - Services rendered in connection with the use or installation or operation of assets
a) Provision of personnel for advisory or supervisory services
b) Installation and commissioning services

2. Paragraph 4(A)(ii) of ITA - Technical advice, assistance or services rendered in connection with technical management or administration
a) Management or marketing services
b) Consultancy service
c) Legal services in connection with a debt or agency arrangement
d) Inter-company technical services
e) Specially-tailored training course
Form CP37D – Section 109B, ITA -Payment to a non-resident chargeable under Paragraph 4A

3. Paragraph 4(A)(iii) of ITA - Rent of other payment for use of moveable property
(for use of oil rigs, boats, ships, cars, aircraft or other equipment)
a) Slot hire
b) Leasing of ships
c) Time charter
d) Voyage charter

Income under Paragraph 4A(i) and 4A(ii) are deemed derived from Malaysia if such services are performed in Malaysia

2nd addendum to PR 4/2005 Withholding Tax on Special Classes of Income
w.ef. 01.01.2009 reimbursement or disbursement on hotel accommodation is not subject to withholding tax

PR 3/2011 Investment Holding Companies (IHC)

A company whose activities consists 80% of its gross income is derived from holding of investment (interest, dividend, rental). In relation to rental income, rental which is derived by providing maintenance or support services are excluded from being treated as investment income

Determination of an investment holding company
a) its main activity is the holding of investments;
b) not less than 80% of the company’s gross income (whether exempt or not) is derived from the holding of those investments.

Permitted expenses incurred by IHC under Section 60F
1)Director’s fees
2)Wages, salaries and allowances (EPF & Socso not included)
3)Management fees
4)Secretarial, audit and accounting fees, telephone charges
5)Printing and stationery costs and postage
6)Rent and other expenses incidental to the maintenance of an office

A x B/4C

A = permitted expenses
B = gross income (dividend, interest and rental)
C = aggregate of the gross income

Amount allowable as deductible should be lower of A x B/4C or 5% of total gross income (C)

- income of IHC listed in Bursa Securities will be treated as business income , given full tax deduction

Public Ruling No. 3/2011_10/03/2011
Malaysia Master Tax Guide 2009 – Pg 13-570

PR 6/2006 Tax Treatment of Legal & Professional Expenses

Deductible
1. Debts collection – trade debts
2. Renewal of existing loans by finance company
3. Book keeping, accountancy work & audit fees
4. Renewal of lease incurred by landlord
5. Defending title to the property
6. Defending an action on trade in nature or breach of trading contracts
7. Legal cost on disputes over trading contracts
8. Cost incurred by property developer on financing facility, valuation of land, transfer of land titles, sub-division and conversion of land, survey fees
9. Renewal of leases and licenses
10. Legal fees & agency fees for employment agreements/trading contracts

Non-Deductible
1. Debts collection – non-trade debts
2. Renewal of loan
3. Secretarial fees, filling fees, AGM expenses
4. Income tax return, tax audit
5. Initial legal fees incurred by landlord
6. Defending a fraud case
7. Obtaining new leases, mortgages, loan or credit facilities etc
8. Cost incurred by property developer on obtaining bank overdraft, term loan, bridging finance & revaluation of land
9. Legal fees on increasing/reducing share capital or altering the M&A of company
10. Legal fees on acquisition of capital assets/sales/transfer of capital assets
11.Costs of leagal proceedings incurred in pursuing a claim for unlawful or unjust dismissal by an employee

Effective Ya2006 and subsequent years of assessment

Source: summarised from
http://www.hasil.gov.my/pdf/pdfam/PR6_2006.pdf

PR 3/2008 Entertainment Expenses

Section 18
Entertainment
a) provision of food, drink, recreation or hospitality of any kind or
b) provision of accommodation or travel

Recreation and hospitality
- Trip to a theme park or a recreation centre; a stay at a holiday resort; ticket to a show or theatre; gift and give-aways

Subsection 33(1)
An expenses wholly and exclusively incurred in the production of gross income is allowable as a deduction against gross income from that source


Determine whether the expenses:-
1. falls within the definition of entertainment under S.18 of ITA

2. wholly and exclusively incurred in the production of gross income under S.33(1)

3. included under any of the categories of entertainment expenses specified under proviso (i) to (viii) to paragraph 39(1)(l) of ITA








Provisio (i) to (viii) to Paragraph 39(1)(l)
(i) Entertainment to employees
- Free meals & refreshment, annual dinners, outings, family day, club membership provided to employees except where the expenditure is incidental to entertainment for others

(ii) Entertainment for payment in the ordinary course of business
- Cultural shows provided by restaurant or meal provided by airline

(iii) Promotional gifts at trade/industrial fairs/exhibitions outside Malaysia
- Samples, souvenirs etc to visitor at trade fair held outside Malaysia

(iv) Promotional samples of products of the business
- Promotional samples for advertising purposes

(v) Entertainment for cultural or sporting events open to public wholly to promote the business
- Cost of passage, food, accommodation, sport attire, equipment for artistes/sportsmen

(vi) Promotional gifts within Malaysia of articles incorporating the logo of the business
- Promotional gifts with company’s logo given to public

(vii) Entertainment related wholly to sales arising from the business
- Redemption/cash/discount voucher, free gifts, lucky draw prizes, incentive trips

(viii) Leave passage benefit provided by an employer to its employees
- Leave passage to employees and family to facilitate a yearly event within Malaysia

Entertainment expense which qualifies for a fifty percent (50%) deduction -
- Wholly & exclusively incurred in production of gross income under S33(1) but does not fall within the provisos (i) to (viii) to Paragraph 39(1)(l) of ITA

Effective from the Ya2008 and subsequent years of assessment
Source: summarised from
http://www.hasil.gov.my/pdf/pdfam/PR3_2008.pdf

PR 1/2008 Special Allowances for Small Value Assets

Small value asset
- qualifying small value assets which cost not more than RM1,000 used for business purpose, not include assets with life span of not more than 2 years

1. Special allowances for small value assets
- w.e.f Ya2006, under new Paragraph 19A, Schedule 3 of ITA
- Special allowances, 100% claimed in the year assets is acquired
- Claim for special allowances is restricted to a maximum amount of RM10,000 for each YA (AA:100%)
- Exceeding amount is eligible for normal capital allowances

2. Hire purchase of small value assets
- Not applicable to small value assets acquired through hire purchase

3. Disposal of small value assets
- If the assets disposed off and the disposal value > residual expenditure then the balancing charge have to added back to tax computation

Effective Ya2006 and subsequent years of assessment

Source: summarised from
http://www.hasil.gov.my/pdf/pdfam/PR1_2008.pdf

PR 2/2001 Computation of IA & AA in Respect of Plant & Machinery

- Paragraph 15, Schedule 3, Income Tax Act 1967
- Income Tax (Qualifying Plant Annual Allowances) Rules 2000 [P.U.(A) 52/2000]
- Re-categorised into 3 classes w.e.f Ya2000 (CYB)

1. Classification of Assets and the prescribed rates of IA & AA
a) Heavy machinery, motor vehicles - IA 20%, AA 20 %
b) Plant and machinery (air conditioners, medical & laboratory equipment) - IA 20%, AA 14 %
c) Others (Office equipment, furniture&fittings) - IA 20%, AA 10 %

unless special Rules or special rates apply

2. Assets with life span not exceeding 2 years: replacement basis
- Claim as replacement basis
- Allowed as deductible expenditure under section 33(1)(c)
- Amount recovered from the disposal of replacement assets be treated as income
- E.g. : Bedding & linen; crockery & glassware; cutlery & cooking utensils (other than stainless steel or silver); loose tools; accessories.

initial expenses (first time expenses) will be treated as capital expenditure, no deduction/CA is allow

Source: summarised from
http://www.hasil.gov.my/pdf/pdfam/PR2_2001.pdf

PR 1/2001 Ownership of P&M for the purpose of claiming CA

1. Conditions to claim capital allowances (IA & AA)
- Carrying on a business during the basis period
- Incurred the qualifying plant expenditure
- Asset was used for business purpose
- Owned the asset at the end of the basis period

2. Ownership of the asset
a) Assets owned by and used by the same person
- Entitled to claim CA

b) Assets purchase and used for business purposes by A and register under B name
- A entitled to claim IA & AA
- B not entitled to claim CA

c) Assets purchase and used for business purposes by both A & B and register under B name
- Both A & B entitled to claim IA & AA in appropriate proportion

d) Assets purchase by A and register & used for business purposes by B
- Both A & B not entitled to claim IA & AA

Source: summarised from
http://www.hasil.gov.my/pdf/pdfam/PR1_2001.pdf

PR 1/2003 Tax Treatment of Leave Passage

Leave passage – traveling/vacation within Malaysia or outside Malaysia provided to the employee

Leave passage cost - cost of fares

1. Leave passage not assessable as employment income
- Local trip < 3 times
- Oversea trip – 1 time or maximum RM3,000

2. Leave passage assessable as employment income
- Local trip - 4 or more (the most expensive passages are exempt)
- Oversea trip - 2 or more or > RM3,000

3. Leave passage incurred by employer
- Cost of fares - not deductible, disallowed under Paragraph 39(1)(m) ITA
- Food, accommodation and other incidental expenses – deductible as entertainment expenses

4. Leave passage for partnership or sole proprietors
- Not qualify for tax deduction as its private in nature

Addendum to PR 1/2003
1. W.e.f Ya2007 Leave passage incurred by an employer to facilitate a yearly event within Malaysia for employee and family is categorized as entertainment expenses – allowable as deduction

Source: summarised from
http://www.hasil.gov.my/pdf/pdfam/PR1_2003.pdf