INCOME TAX
 
Exemption of Income from Export of Qualifying Services
Exemption of Income Derived from Promoting Conferences
Exemption of Income Derived from International Car or Motorcycle Races
Exemption of Income Derived from Cultural or Arts Show, Exhibition, Festival or Conference or Games or Sports Approved by the Minister
Exemption of Value of Benefit for Personal Computer Received by an Employee
Exemption of Income Remitted by Malaysian Experts Returning from Abroad
Exemption of Interest Income from Bonds and Securities issued by Pengurusan Danaharta Nasional Berhad
Deduction for Promotion of Export of Higher Education
Deduction for Gifts of New Personal Computers to Employees
Deduction for Investment in an Approved Food Production Project
Accelerated Capital Allowance for Conservation of Energy
Accelerated Capital Allowance for Recycling of Wastes
Accelerated Capital Allowance for Reinvestment in a Qualifying Project
Tax Incentives for Investment in Venture Companies
Public Ruling
 

 
1. Exemption of Income from Export of Qualifying Services

Pursuant to the Income Tax (Exemption)(No.2) Order 2001, a person resident in Malaysia is exempted from payment of income tax in respect of 10% of the value of increased exports of qualifying services provided from Malaysia to foreign clients.

The amount of income to be exempted is restricted to 70% of the statutory income for a year of assessment and the balance of statutory income will be taxed at the prevailing rate. Any unutilised amount of exempted income will be carried forward for set-off in future years until it is fully utilised. The exempt account arising is available for two-tier distribution of tax-free dividend.

Qualifying services specified in the schedule to the Order are :-


 
  • Legal
 
  • Building management
 
  • Accounting
 
  • Plantation management
 
  • Architecture
 
  • Private healthcare
 
  • Marketing
 
  • Private education
 
  • Business consultancy
 
  • Publishing services
 
  • Office services
  • Information technology and communication services (ICT)
 
  • Construction management
   


For purposes of this Order :-

"Foreign client" means a company, a partnership, an organisation or a co-operative society which is incorporated or registered outside Malaysia or an individual who is a non-Malaysian citizen and does not hold a Malaysian work permit or an individual who is a non-resident Malaysian citizen living abroad;

"Qualifying services" means services as mentioned above which are provided to foreign clients, from Malaysia, and in relation to the provision of private health care and private education, the services to be provided either in Malaysia, or provided from Malaysia;

"Value of increased exports" means the difference of the value of the qualifying services exported in the basis period and that of the immediate preceding basis period.

This Order came into operation on 1st January, 1998. However, for publishing services and ICT, the Order has effect from year of assessment 2001.

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2. Exemption of Income Derived from Promoting Conferences

Tax exemption is given under the Income Tax (Exemption)(No. 53) Order 2000 to a conference promoter resident in Malaysia in respect of the statutory income derived from organising conferences held in Malaysia if the total number of foreign participants is 500 or more in the basis period for the year of assessment. Separate accounts for the income derived from organising conferences held in Malaysia are to be maintained.

For purposes of this Order :-

"statutory income derived from organising conferences held in Malaysia" means fees and other payments received by a company, an association or an organisation in performing its duties as a conference promoter less allowable expenses for tax purposes and capital allowances, if any;

"conference promoter" means a company incorporated under the Companies Act, 1965, or an association or organisation registered under the Societies Act, 1966 performing the duties of promoting and organising conferences including the arranging of accommodation, tours and sightseeing for foreign participants;

"foreign participants" means individuals who are non-Malaysian citizens participating in conferences held in Malaysia, but does not include individuals who are non-Malaysian citizens who reside in Malaysia.

For a company, the amount of income exempted is available for a two-tier distribution of tax-free dividend.

This Order is effective from year of assessment 1997.

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3. Exemption of Income Derived from International Car or Motorcycle Races

Under the Income Tax (Exemption)(No. 54) Order 2000, the following income is exempted from income tax :-

a.   Gross income earned by the driver of a racing car or motorcycle from competing in races of international standard held in Malaysia; and
     
b.   50% of the statutory income derived by a promoter of car or motorcycle races from the organisation of races of international standard held in Malaysia.


For purposes of this Order :-

"promoter of car or motorcycle races" means a company incorporated under the Companies Act, 1965, or an association or organisation registered under the Societies Act, 1966;

"races of international standard" means any car or motorcycle races recognised by the Federation De L Automobile (FIA) and the Federation International De Motorcyclisme (FIM).

The promoter of car or motorcycle races are required to maintain separate accounts for the income from the organisation of such races in Malaysia. The income exempted is available for two-tier distribution of tax-free dividend.

This Order is effective from year of assessment 1999.

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4. Exemption of Income Derived from Cultural or Arts Show, Exhibition, Festival or Conference or Games or Sports Approved by the Minister

Under the Income Tax (Exemption)(No. 55) Order 2000, the following income is exempted from income tax :-

a.   Gross income derived by a foreign national from participating in any cultural or arts show, exhibition, festival or conference or games or sports competition of international standard; and
     
b.   50% of the statutory income derived by a promoter of any cultural or arts show, exhibition, festival or conference or games or sports competition of international standard.


For purposes of this Order :-

"exhibition, festival or conference" means an exhibition, festival or conference organised with the participation of foreign nationals;

"promoter" means a company incorporated under the Companies Act, 1965, or an association or organisation registered under the Societies Act, 1966;

"games or sports competition of international standard" means any sporting event or recreational activity approved by the Ministry of Youth and Sports and organised in any form with the participation of foreign nationals from a number of countries;

"cultural or arts show" means a stage performance approved by the Ministry of Culture, Arts and Tourism and organised with the participation of foreign nationals who have made at least three performances in foreign countries other than their own;

"foreign national" means an individual who is not a Malaysian citizen.

The tax exemption shall apply only if the activities are held in Malaysia at the National Sports Complex, National Theatre, National Art Gallery or Petronas Philharmonic Hall.

The income exempted is available for two-tier distribution of tax-free dividend.

The exemption operates from 23rd October, 1998 until 31st December, 2000 effective from the year of assessment 1999 to year of assessment 2000 for basis period ending in 2000.

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5. Exemption of Value of Benefit for Personal Computer Received by an Employee

Under the Income Tax (Exemption)(No. 56) Order 2000, income tax exemption is granted on an amount equal to the value of benefit in the form of one new personal computer received by an employee as a gift from his employer.

The employee is granted only one exemption on the value of the benefit of one new personal computer for the whole duration of the basis periods from the year of assessment 2001 until the year of assessment 2003.

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6. Exemption of Income Remitted by Malaysian Experts Returning from Abroad

Under the Income Tax (Exemption) Order 2001, income tax exemption is granted to a Malaysian citizen and his or her spouse in respect of income arising from sources outside Malaysia and remitted into Malaysia within a period of 2 years from the date of arrival in Malaysia. In this context, the Malaysian citizen must be expert in specific areas and intend to return to Malaysia.

In addition, all personal belongings, including two motor cars are given import duty exemption. Application must be submitted to the Ministry of Finance for this import duty exemption.

Applicants for these incentives must complete Form KSM 01/01 for approval by the "Special Committee" set up by the Ministry of Human Resources to approve applications for the incentives under the Order.

This Order came into operation from 1st January, 2001.

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7. Exemption of Interest Income from Bonds and Securities issued by Pengurusan Danaharta Nasional Berhad

Pursuant to the Income Tax (Exemption)(No. 5) Order 2001, any person receiving interest income from bonds and securities issued by Pengurusan Danaharta Nasional Berhad within and outside Malaysia is exempted from withholding tax.

This Order also exempts the person from withholding tax under Section 109 and 109C of the Income Tax Act, 1967 (the Act).

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8. Deduction for Promotion of Export of Higher Education

Under the Income Tax (Deductions for Promotion of Export of Higher Education) Rules 2001, a double deduction for expenses for export promotion will be given to companies carrying on the business of providing higher education in Malaysia.

The company must be resident in Malaysia, incorporated under the Companies Act, 1965 with the primary purpose of establishing, managing and owning a private higher educational institution which is registered with the Ministry of Education, Malaysia.

The expenses qualifying for double deduction include, amongst others, those for market research, participation in education fairs and in respect of publicity and advertisement outside Malaysia incurred for the promotion of the export of higher education.

The Order also provides that the Director General (DG) will only allow an amount expected to have been reasonably incurred if he is of the opinion that the expenses claimed are excessive.

The Rules are effective from year of assessment 1996.

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9. Deduction for Gifts of New Personal Computers to Employees

Under the Income Tax (Deduction for Gifts of New Personal Computers to Employees) Rules 2000, a company which is resident in Malaysia shall be given a deduction of an amount equivalent to the cost of new personal computers given by the company as gifts to its employees.

The deduction is allowed once only and is limited to one new personal computer per employee for the duration of the basis periods for the year of assessment 2001 until the year of assessment 2003.

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10. Deduction for Investment in an Approved Food Production Project

The Income Tax (Deduction for Investment in an Approved Food Production Project) Rules 2001 allows a company making investments in a wholly owned subsidiary which is undertaking an approved food production project, a tax deduction equal to the amount of the investment made in the subsidiary for the sole purpose of financing the approved food production project.

For the purpose of these Rules :-

"approved food production project" means an agricultural project which is approved by the Minister of Finance by order published in the Gazette.

Under the Income Tax (Approved Food Production Projects) Order 2001, the projects listed as approved food production projects for this purpose are those in relation to :-

a.   planting of kenaf, vegetables, fruits and spices;
     
b.   aquaculture; and
     
c.   rearing of cattle, goats and sheep.


The Rules and Order are effective from year of assessment 2001.

As an alternative to claiming tax deduction for the cost of investment mentioned above, an application may be made to the Minister of Finance for tax exemption under Section 127 of the Act.

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11. Accelerated Capital Allowance for Conservation of Energy

Under the Income Tax (Accelerated Capital Allowances) (Conservation of Energy) Rules 2001, a company incurring qualifying plant expenditure on the provision of plant and machinery as certified by the Ministry of Energy, Communications and Multimedia as plant and machinery used exclusively for the conservation of energy is allowed :-

  • Initial allowance at 40% of qualifying plant expenditure
  • Annual allowance at 20% of qualifying plant expenditure

For the purpose of these Rules, "qualifying plant expenditure" means capital expenditure incurred under Paragraph 2 of Schedule 3 to the Act.

The Rules which have effect from year of assessment 2001 shall not apply to a company :-

a.   for the period the company is granted any incentive other than deductions for export promotion under the Promotion of Investments Act, 1986 (the PIA); or
     
b.   for the period the company is given reinvestment allowance under Schedule 7A to the Act.

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12. Accelerated Capital Allowance for Recycling of Wastes

Under the Income Tax (Accelerated Capital Allowances) (Recycling of Wastes) Rules 2000, a manufacturing company incurring qualifying plant expenditure on the provision of plant or machinery used exclusively or otherwise for the recycling of wastes or for the further processing of the wastes into a finished product is allowed :-

  • Initial allowance at 40% of qualifying plant expenditure
  • Annual allowance at 20% of qualifying plant expenditure

For the purpose of this Rules, "qualifying plant expenditure" means capital expenditure incurred under Paragraph 2 of Schedule 3 to the Act.

The Rules which have effect from year of assessment 2001 shall not apply to a company :-

a.   for the period the company is granted any incentive other than deductions for export promotion under the PIA; or
     
b.   for the period the company is given reinvestment allowance under Schedule 7A to the Act.

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13. Accelerated Capital Allowance for Reinvestment in a Qualifying Project

Under the Income Tax (Accelerated Capital Allowances) (Reinvestment in a Qualifying Project) Rules 2000, qualifying plant expenditure incurred on the provision of plant or machinery for the purpose of a qualifying project in respect of a promoted activity or a promoted product or an agricultural project is allowed :-

  • Initial allowance at 40% of qualifying plant expenditure
  • Annual allowance at 20% of qualifying plant expenditure

For purposes of these Rules :-

"promoted activity or promoted product" means any activity or product promoted under Section 4 of the PIA;

"qualifying plant expenditure" means capital expenditure incurred under Paragraph 2 of Schedule 3 to the Act;

"agricultural project" has the meaning as defined under Paragraph 8(c) in respect of activities listed under Paragraph 9(aa) until (ff) of Schedule 7A to the Act;

"qualifying project" has the meaning as defined under Paragraph 8(a) of Schedule 7A to the Act.

The above Rules which are effective from year of assessment 2001 shall not apply to a company :-

a.   for the period during which the company has been granted reinvestment allowance under Schedule 7A to the Act; or
     
b.   for the period during which the company has been granted pioneer status or investment tax allowance under the PIA in respect of the same promoted activity or promoted product; or
     
c.   for the year of assessment in which it fails to submit a copy of the letter from the Malaysian Industrial Development Authority confirming the promoted activity or promoted product undertaken in respect of a qualifying project.

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14. Tax Incentives for Investment in Venture Companies

The tax incentives for investment in venture companies are provided by the Income Tax (Exemption)(No. 3) Order 2001 and Income Tax (Deduction for Investment in a Venture Company) Rules 2001. The Order and the Rules are mutually exclusive.

a.   The Income Tax (Exemption)(No. 3) Order 2001 exempts a venture capital company (VCC) from tax in respect of the statutory income on all sources for ten (10) years of assessment or the years of assessment equivalent to the life of the fund whichever is the lesser. The exemption period commences from the year of assessment in the basis period the VCC commences business or the year of assessment of the coming into effect of the Order whichever is the later.
   
    In order to qualify for the aforesaid exemption, the investing VCC must obtain certification from the Securities Commission (SC) confirming that :-
   

i.

at least 70% of its funds is invested in venture companies; and
   

ii.

the company has not invested in venture companies which are its related companies at the point of first investment.
       
    A VCC is defined as a company incorporated under the Companies Act, 1965, a partnership, a scheme or an arrangement investing in a venture company in the form of seed-capital, start-up or early stage financing.

The exemption is effective from year of assessment 2000 (Current Year Basis). The income exempted is available for a two-tier distribution of tax-free dividend.

In addition, the Order provides that a loss incurred from disposal of shares in the venture company during the exempt period may be carried forward to the post-exempt period of the VCC.
       
b.   Under the Income Tax (Deduction for Investment in a Venture Company) Rules 2001, a company or an individual resident in Malaysia who makes investment in a venture company shall be entitled to a deduction equivalent to the value of the investment in ascertaining the adjusted income of the company or individual.
       
    In order to qualify for the aforesaid deduction, the investor must obtain a certificate from the SC to confirm that the investment in the venture company :-
   

i.

is in the form of the holding of shares which at the point of acquisition are not listed for quotation in the stock exchange;
   

ii.

is made for financing or funding at seed-capital, start-up or early stage; and
   

iii.

is not made in a related company at the point of first investment.
       
    This tax deduction shall not apply to a VCC which is enjoying exemption under the Income Tax (Exemption)(No. 3) Order 2001, or a company or individual for the year of assessment in which the company or the individual has disposed of its shares in the venture company prior to its listing on the official list of a stock exchange.

This deduction is effective from year of assessment 2001.


For purposes of the Order and Rules :-

"seed-capital financing" means financing or funding provided by a VCC to a venture company for the purposes of research, assessment and development of an initial concept or prototype;

"early stage financing" means financing or funding provided by a VCC to a venture company as :-

a.   capital expenditure or working capital to initiate commercialisation of a technology or product;
     
b.   additional capital expenditure or working capital to increase production capacity, marketing or product development; or
     
c.   an interim funding for a venture company expecting to be listed on the official list of a stock exchange.


Where financing or funding is provided under paragraph (b) or (c) to a venture company which is involved in activities which are not listed on the Malaysian Exchange of Securities Dealing and Automated Quotation (MESDAQ) as technology-based activities, the VCC must provide financing or funding from the seed-capital or start-up stage in order to be considered as early stage financing;

"start-up financing" means financing or funding provided to a venture company for product development and initial marketing;

"related company" has the meaning as assigned to it under Section 2 of the PIA;

"venture company" means a company incorporated under the Companies Act, 1965 which is :-

a.   resident in Malaysia for the basis year for a year of assessment; and
       
b.   involved in utilising the financing or funding at seed-capital, start-up or early stage of :-
   

i.

activities or products promoted under the PIA;
   

ii.

technology-based activities listed on MESDAQ;
   

iii.

Industrial Research and Development Grant Scheme; or
   

iv.

Multimedia Super Corridor Research and Development Grant Scheme.

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15. 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 DG from time to time. Todate, the following PRs have been issued :-

Ruling No.

Name of Ruling

Issued / Updated

7/2001

Basis Period For Business & Non-Business Sources (Companies)

30.04.2001

6/2001

Basis Period For A Business Source (Individuals & Persons other than Companies / Co-Operatives)

30.04.2001

5/2001

Basis Period For A Business Source (Co-Operatives)

30.04.2001

4/2001

Basis Period For A Non-Business Source (Individuals & Persons other than Companies)

30.04.2001

3/2001

Appeal Against An Assessment

18.01.2001

2/2001

Computation Of Initial & Annual Allowances In Respect Of Plant & Machinery

18.01.2001

1/2001

Ownership Of Plant and Machinery For The Purpose of Claiming Capital Allowances

18.01.2001

8/2000

Wilful Evasion of Tax and Related Offences

30.12.2000

7/2000

Providing Reasonable Facilities And Assistance

16.06.2000

6/2000

Keeping Sufficient Records (Persons other than Companies & Individuals) - Revised

30.06.2001

5/2000

Keeping Sufficient Records (Individuals & Partnerships) - Revised

30.06.2001

4/2000

Keeping Sufficient Records (Companies & Co-Operatives) - Revised

30.06.2001



a. PR 7/2001 - Basis Period for Business and Non-Business Sources (Companies)

This ruling dated 30th April, 2001 supercedes PR 2/2000 dated 1st March, 2000 and applies to the new Section 21A of the Act.

The ruling is effective from the year of assessment 2001.

b. PR 6/2001 - Basis Period for a Business Source (Individuals and Persons other than Companies and Co-operatives)

The above ruling applies to Sections 20 and 21 of the Act and supersedes PR 3/2000 dated 1st March, 2000. The new ruling considers the determination of the basis period for the subject persons within the context of commencing a new business.

The ruling is effective from the year of assessment 2001.

c. PR 5/2001 - Basis Period for a Business Source (Co-operatives)

The ruling applies to Sections 20 and 21 of the Act and supersedes PR 2/2000 dated 1st March, 2000. The new ruling considers the determination of the basis period for co-operatives on commencement of a new business, changing its accounting date and joining a partnership.

The ruling is effective from the year of assessment 2001.

d. PR 4/2001 - Basis Period for a Non-Business Source (Individuals and Persons other than Companies)

This ruling which supersedes PR 1/2000 applies to Sections 20 and 21 of the Act and deals with the determination of the basis period for a non-business source of income. It provides that the basis year for a year of assessment is the basis period for that year of assessment. However, a co-operative may elect that the basis period for its non-business income be the basis period of its business income.

The ruling is effective from the year of assessment 2001.

e. PR 3/2001 - Appeal Against an Assessment

The ruling considers the provisions of Sections 99, 100, 101 and 102 of the Act, relating to appeals against an assessment made and the requirement to be complied with when making an appeal.

A person who is dissatisfied with an assessment that has been made on him by the DG has the right to appeal against that assessment. The appeal must be submitted in writing not later than 30 days after he has received the notice of assessment or is deemed to have received the deemed notice of assessment.

If an appeal is made after the expiry of the period allowed, reasons for the late appeal must be given. The appeal against an assessment should state the reasons and grounds of the appeal.

The grounds of appeal should be specific ie. making reference to particular items in the tax computation.

Where Form Q has been submitted and the grounds of appeal are found to be vague that a review of the assessment is not possible, the case will be forwarded to the Special Commissioners of Income Tax (SCIT).

An appeal must be forwarded to the SC within 12 months from the date of receipt. If the review cannot be completed within that period, the DG may apply not later than 30 days before the expiry of the 12 months period to the Minister of Finance for an extension of that period.
It is effective from year of assessment 2001.


f. PR 2/2001 - Computation of Initial and Annual Allowances in respect of Plant and Machinery

The above applies to computation of annual allowances of plant and machinery under the Act and the Income Tax (Qualifying Plant and Annual Allowances) Rules 2000.

This ruling provides guidelines on the implication of simplifying plant and machinery into 3 main categories under the above Rules effective from year of assessment 2000 (current year basis) :-

  Assets   Rates
(i) Heavy machinery, motor vehicles   20%
(ii) Plant and machinery   14%
(iii) Others   10%

g. PR 1/2001 - Ownership of Plant and Machinery for the Purpose of Claiming Capital Allowances

Guidelines and interpretation on the ownership of plant and machinery and its effect on a claim for capital allowances are provided in this ruling. It also deals with situations of legal and beneficial ownership.

The ruling is effective for the year of assessment 2000 (current year basis) onwards.

h. PR 8/2000 - Wilful Evasion of Tax and Related Offences

This ruling outlines what constitutes wilful evasion or intent to evade or assist any other person to evade tax under Section 114(1) of the Act. The ruling considers what constitutes or amounts to wilful evasion or intent to evade or to assist any other person to evade tax under the Act. The ruling also considers the nature of assistance or advice given by any person in the preparation of a return that can be regarded as an offence under Section 114(1A) of the Act. Any person who assists in or advises with respect to the preparation of a return should examine specific claims for deductions, allowances, reliefs or rebates made in the return and where necessary scrutinize items/expenses that may be potentially disallowed for tax purposes.

However, no inference of dishonest intention should be made if it can be shown that the assistance is given with reasonable care and that the interpretation is one which any reasonable person would have arrived at. The offence is punishable on conviction, by a minimum fine of RM2,000 up to a maximum fine of RM20,000 or 3 years imprisonment or both.

The ruling is effective from 1st January 2001 onwards.


i. PR 7/2000 - Providing Reasonable Facilities and Assistance

The above ruling outlines the requirements of providing reasonable facilities and assistance to the DG or an authorised officer and the application of the law.

j. PR 6/2000 (Revised) - Keeping Sufficient Records (Persons other than Companies or Individuals)
k. PR 5/2000 (Revised) - Keeping Sufficient Records (Individuals and Partnership)
l. PR 4/2000 (Revised) - Keeping Sufficient Records (Companies and Co-operatives)

PRs no. 6/2000, 5/2000 and 4/2000 have been updated, following amendments to Section 82 (records keeping) of the Act.

These rulings prescribe general guidelines on how proper records should be maintained and the nature of such documents. Receipts must be serially numbered where annual gross takings from sale of goods exceed RM150,000 or RM100,000 from performance of services.

The penalties under the above revised rulings for not keeping sufficient records is a fine of not less than RM300 and not more than RM10,000 or to an imprisonment for a term not exceeding 12 months or both. These increased penalties reflect the importance of sufficient documentation under the self assessment regime for companies.

The PRs no. 6/2000, 5/2000 and 4/2000 are effective from the year of assessment 2001 onwards.

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© October 2001