OTHER TAX AND INVESTMENT DEVELOPMENTS Concession in Self-Assessment System Public Ruling (PR) Return of Income for Investment Holding Companies for Year of Assessment 2000 (Current Year Basis) Exemption of Interest Income Derived by Banks for Achieving Annual Loan Growth Target Annual Allowance Rates for Qualifying Capital Expenditure 50% Tax Exemption on Income of a Non-Resident Individual / Non-Resident Company or Organisation Derived from Provision of Lecturing Services Exemption of Income Derived from Domestic Tours / Group Inclusive Tours Deduction of Corporate Debt Restructuring Expenses Deduction of Information Technology-Related Expenses Double Taxation Agreement The Malaysia - Australia Tax Treaty ó Protocol The New Malaysia - Japan Double Taxation Agreement Income Tax 1. Concession in Self-Assessment System In the early stages of implementation of the self-assessment system, the Inland Revenue has granted the following concessions for year of assessment 2001 only where companies can justify that the non-compliance with certain provisions under the Act was caused by events beyond their control :- a. Submission of Estimated Tax Payable Section 107C(2) provides that the estimate of tax payable must be furnished to the DG not later than 30 days before the beginning of the basis period for a year of assessment. However, no penalty for late submission of the estimated tax payable would be imposed where companies submit valid grounds for being unable to meet the stipulated deadline together with their Form CP 204. b. Quantum of Estimated Tax Payable Under the special provision to the Income Tax (Amendment) Act, 1999, the estimate of tax payable to be furnished to the DG for year of assessment 2001 shall not be less than the amount of tax payable for year of assessment 1999. However, the DG will accept a lower estimate where companies can justify that the non-compliance was caused by events beyond their control or where the companies have suffered losses in the current year. A letter to support a lower estimate must be submitted together with the prescribed Form CP 204 for consideration by the DG. c. Revised Estimate of Tax Payable A revised estimate of tax payable may be made in the sixth month of the basis period for a year of assessment using the prescribed Form CP 204. Companies are now allowed another 2 opportunities in addition to the above to revise their tax payable, i.e. in the 3rd, 9th or 12th month of the basis period. The applications must be accompanied by valid reasons for consideration by the DG. d. Return of Income The DG has granted a concession to submit the return in the prescribed form for year of assessment 2001 within 8 months from the date following the close of the accounting period which constitutes the basis period for the year of assessment. ^ top 2. Public Ruling (PR) In line with the shift to self-assessment and to assist taxpayers in the preparation of their tax returns, PRs are issued by the Inland Revenue from time to time. To date, the following PRs have been issued :- a. PR 1/2000 ó Basis period for a non-business source Currently, the basis period for non-business sources such as dividend and interest is the calendar year coinciding with the year of assessment while the basis period for the business source is generally the financial year. Under this ruling, the DG gives concession to companies or co-operatives to elect the basis period of the business source as the basis period for non-business source. This has to be consistently applied after the election has been made. b. PR 2/2000 ó Basis period for a business source (companies & co-operatives) c. PR 3/2000 ó Basis period for a business source (individuals & persons other than companies/co-operatives) Both rulings provide the basis for determining the basis periods of business income for the following situations :- i. commencing a new business; ii. changing of accounting date of existing business; and iii. joining a partnership. d. PR 4/2000 ó Keeping sufficient records (companies & co-operatives) e. PR 5/2000 ó Keeping sufficient records (individuals & partnerships) f. PR 6/2000 ó Keeping sufficient records (persons other than companies or individuals) These rulings prescribe general guidelines on how proper records should be maintained and the nature of such records. Receipts must be serially numbered if the annual gross takings from sale of goods exceed RM150,000 or RM100,000 from performance of services. g. PR 7/2000 ó Providing reasonable facilities and assistance This ruling outlines the requirement of providing reasonable facilities and assistance to the DG or its authorised officer and the application of the law (Section 80). The ruling provides officers from the Inland Revenue access to all documents including electronic data as and when requested. It also prescribes penalties for failure to provide such reasonable facilities and assistance. ^ top 3. Return of Income for Investment Holding Companies for Year of Assessment 2000 (Current Year Basis) It is the practice of the Inland Revenue to assess the income of an investment holding company on a calendar year basis where the financial year ends on a date other than 31st December. The Inland Revenue has on 22nd August 2000 confirmed that the deadline for filing of the tax return for the above assessment year in respect of such companies would be 31st May 2001. However, the Inland Revenue has, in a letter dated 19th September 2000 to the professional bodies, confirmed that investment holding companies which closed their accounts on 31st October, 30th November and 31st December are required to submit their tax returns within 8 months from the date of closure of their accounts. ^ top 4. Exemption of Interest Income Derived by Banks for Achieving Annual Loan Growth Target As announced in the 2000 Budget, the adjusted income in respect of interest derived by a banking institution from loans or profits derived from financing in excess of 8% annual growth would be exempted from income tax. To qualify for the tax exemption, the banking institution must have achieved at least 10% annual growth for the period 1st January 2000 to 31st December 2000. This has been gazetted via the Income Tax (Exemption)(No. 5) Order 2000. In addition, the banking institution needs to obtain a letter from Bank Negara Malaysia certifying :- a. that the banking institution has achieved at least 10% annual growth for the period 1st January 2000 to 31st December 2000; and b. the amount of interest or profits which is in excess of 8% annual growth. The above exemption applies to interest derived from loans or profit derived from financing granted within the period 1st January 2000 until 31st December 2000. ^ top 5. Annual Allowance Rates for Qualifying Capital Expenditure Pursuant to the Income Tax (Qualifying Plant Annual Allowances) Rules 2000, the rates of annual allowances are simplified to 3 rates for qualifying capital expenditure incurred from year of assessment 2000 (current year basis) onwards :- Type of Assets Annual Allowance % Motor vehicles, heavy machinery 20 Plant and machinery 14 Others 10 The rules also provide that expenditure on assets or parts of assets with a life span not exceeding two years shall be allowed for deduction as a revenue expenditure on a replacement basis. The initial allowance of 20% is maintained. With this new rule, the annual allowances rates ranging from 6% to 20% according to the Income Tax (Qualifying Plant Annual Allowances) Rules 1968 are revoked. The Inland Revenue had in a meeting between the professional bodies and the Technical Division of the Inland Revenue on 28th January 2000, confirmed that the new annual allowance rates will apply to the existing assets provided that the rate currently claimed on the asset is lower than the new rate. Where the current rate claimed on the asset is higher than the new rate, the Inland Revenue will allow the current rate to continue to apply. The accelerated depreciation allowance of 40% would continue to apply for qualifying capital expenditure incurred for computers and information technology equipment, control equipment and computer software. ^ top 6. 50% Tax Exemption on Income of a Non-Resident Individual / Non-Resident Company or Organisation Derived from Provision of Lecturing Services Pursuant to the Income Tax (Exemption)(No. 26) Order 2000, the Minister exempts a non-resident individual from the payment of income tax on 50% of gross income derived by that individual from undertaking an employment relating to teaching or lecturing in any approved field at any approved institution. Similarly, 50% of the adjusted income derived by a non-resident company or organisation from a source consisting of the provision of lecturing services in any approved field at any approved institution would be exempted from tax as provided under the Income Tax (Exemption)(No. 27) Order 2000. The term ìapproved fieldî means any field as follows :- a. Engineering (mechanical, electrical and electronic, aerospace, chemical, microelectronic, computer and telecommunication system); b. Computer science and information technology; c. Medical science, dentistry and pharmacy; d. Law; e. Allied health; f. Architecture, planning and survey; g. Science and mathematics; and h. Mass communication. The term ìapproved institutionî means any university, college or public institution of higher learning or private institution of higher learning approved by Ministry of Education Malaysia or any training institution approved by the Minister of Finance. The Orders shall be deemed to have come into operation from year of assessment 1997 and are effective till year of assessment 2000 (current year basis). ^ top 7. Exemption of Income Derived from Domestic Tours / Group Inclusive Tours As announced in the 2000 Budget, the Minister exempts a company from payment of tax in respect of the statutory income derived from domestic tours. To be eligible for the exemption, the total number of local tourists on domestic tours should not be less than 1,200 in the basis period for a year of assessment. The proposal has been gazetted vide the Income Tax (Exemption)(No. 6) Order 2000. Similarly, the statutory income of a company derived from group inclusive tours would also be exempted from tax if the total number of tourists from outside Malaysia on group inclusive tour is not less than 500 in the basis period for a year of assessment as gazetted under the Income Tax (Exemption)(No. 7) Order 2000. The above exemptions are given to companies resident in Malaysia which are licensed under the Tourism Industry Act, 1992 to carry on a tour operating business. A separate account for the income derived from domestic tours/group inclusive tours has to be maintained by the companies. The income exempted shall be credited to an exempt account for payment of 2 tiers of tax-exempt dividend. Where the first tier shareholder is a company, that company is permitted to pay tax free dividends out of the tax-exempt dividends received. For the purposes of the above Orders :- ìdomestic tourî means a tour package for travel within Malaysia, undertaken by local tourists inclusive of transportation by air, land or sea and accommodation; ìlocal touristsî means individuals who are Malaysian citizens or residing in Malaysia; ìgroup inclusive tourî means a tour package to or of Malaysia or any place within Malaysia undertaken by tourists from outside Malaysia, inclusive of transportation by air, land or sea and accommodation; ìtour operating businessî means any business of providing all or any of the following services :- a. arranging for sale or commission any transportation, accommodation, tour services or any other incidental services for tourists within or outside Malaysia; b. organising or conducting for sale or commission; c. providing conveyances for hire to tourists; d. any other services incidental to any of the services enumerated above. The Orders have effect for years of assessment 2000 (current year basis) and 2001. ^ top 8. Deduction of Corporate Debt Restructuring Expenses As announced in the 2000 Budget, all corporate debt restructuring expenditure incurred in respect of a corporate debt restructuring scheme completed between 30th October, 1999 and 31st December 2000 under the supervision of the Corporate Debt Restructuring Committee, Bank Negara Malaysia or under Pengurusan Danaharta Nasional Berhad will be allowed as a deduction for tax purposes. This has been gazetted under the Income Tax (Deduction for Corporate Debt Restructuring Expenditure) Rules 2000 with effect from 30th October 1999. 9. Deduction of Information Technology-Related Expenses Under the Income Tax (Deduction for Information Technology-Related Expenditure) Rules 2000, effective from year of assessment 2000 (current year basis), operating expenditure relating to the use of information technology for the improvement of management or production processes will qualify for deduction in arriving at the adjusted income. However, this does not apply to qualifying capital expenditure which relates to information technology. This was proposed in the 2000 Budget. 10. Double Taxation Agreement Malaysia has signed 60 double taxation agreements (DTA) with the following countries :- Albania* Myanmar* Argentina* Morocco* Australia Namibia* Austria Netherlands Bahrain* New Zealand Bangladesh Norway Belgium Oman* Brunei* Pakistan Canada Papua New Guinea Czech Republic People's Republic of China Denmark Philippines Egypt Poland Federal Republic of Germany Romania Fiji Russia Finland Saudi Arabia France Singapore Hungary South Africa* India South Korea Indonesia Sri Lanka Ireland Sudan* Islamic Republic Of Iran* Sweden Italy Switzerland Japan Thailand Jordan Turkey Kazakstan* United Arab Emirates Kuwait* United Kingdom Kyrgyzstan* United States of America Malta Uzbekistan Mauritius Vietnam Mongolia Zimbabwe* * DTAs pending ratification. Summary of the effective dates for various taxes relating to new DTAs which came into force recently :- Country Withholding Tax Other Taxes (YA) Czech Republic 1st January 2000 2000 United Kingdom 1st January 1999 2000 Sri Lanka 1st January 1999 2000 Ireland 1st January 2000 2001 Japan 1st January 2000 2001 Uzbekistan 1st January 2000 2001 Mongolia 1st January 1997 1998 Fiji 1st January 1998 1999 Papua New Guinea 1st January 2000 2000 Jordan 1st January 2001 2001 Malta 1st January 2002 2002 ^ top 11. The Malaysia - Australia Tax Treaty ó Protocol The above protocol gazetted on 21st October 1999 came into force on 27th June 2000. With regard to taxation of payment for services (including consultancy services) provided to Malaysia by an Australian enterprise, Malaysian tax will not be applicable unless such services are rendered in Malaysia and the services continue for a period or periods aggregating more than 3 months within any 12-month period, thereby creating a permanent establishment (PE) in Malaysia. In the absence of a PE created under the above circumstances, withholding tax under Section 109B of the Act on payment to an Australian enterprise for services is therefore inapplicable. 12. The New Malaysia - Japan Double Taxation Agreement The new Malaysia ó Japan Double Taxation Agreement gazetted on 29th April, 1999 entered into force on 31st December, 1999. In respect of Malaysian withholding tax, the new treaty will apply to income derived on or after 1st January 2000 and for all other Malaysian taxes to income, effective from year of assessment 2001 onwards. This new double taxation agreement replaces the 1971 tax treaty in its entirety. The rate of withholding tax on interest is 10% instead of 15% under the previous treaty. The withholding tax of 10% on royalties remains unchanged. However, the definition of ìroyaltiesî has been expanded to include copyrights of literary, artistic or scientific work including software, cinematograph films and films or tapes for radio or television broadcasting. Included also are receipts from bare boat charter of ships or aircraft unless dealt with under the shipping and air transport article. ^ top