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TAX AND REGULATORY CHANGES


2. BUSINESS TAXATION

Incentive To Promote International Trading
Local companies granted 'International Trading Company' status will be given income tax exemption equivalent to 70% of statutory income (after deduction of capital allowance) arising from increased export sales for a period of 5 years.

To qualify as an 'International Trading Company', the criteria are as follows:
i. must be a Malaysian incorporated company;
ii. achieve an annual sales turnover of more than RM25 million;
iii. at least 70 % Malaysian equity;
iv. market manufactured goods; and
v. must be registered with Malaysia External Trade Development Corporation.


In order to qualify for this incentive, among others, the company should use local facilities such as banking, finance, insurance, shipping, ports and warehousing.

This proposal will be effective from the year of assessment 1999


'Group Relief' For Food Production
It is proposed that a company resident in Malaysia may surrender its adjusted loss in respect of a food production project to one or more related companies resident in Malaysia.

The qualifying criteria are:
i. the related companies must be companies where 70% of the equity is owned by the same shareholder;
ii. the food products must be approved by the Minister of Finance;
iii. at least 80% of sales is for domestic market;
iv. the project must be implemented within 1 year from the date of approval; and
v. this incentive is mutually exclusive with incentives such as pioneer status, investment tax allowance and reinvestment allowance.

Application for approval of the project must be made to the Ministry of Agriculture on or before 31 December 1999.


Income from charter of Malaysian ships
The exemption currently enjoyed by Malaysian residents on income derived from the business of transporting cargo and passengers on board Malaysian ships is now extended to include rental income received from time charter and voyage charter of Malaysian ships.


Unit trusts
To promote unit trusts and property unit trusts as collective investment vehicles, interest income received by such unit trusts are now exempted from tax.


Financial institutions
(a) Life insurance companies

Life insurance companies are taxed separately on its Life Fund at a concessional rate of 8%, and on its Shareholders' Fund at the normal corporate rate of 28%. The tax treatment of the actuarial surplus, which is apportioned from the Life Fund to the Shareholders' Fund, will be modified to tax the actual transfer from the Life Fund to the Shareholders' Fund (rather than the current basis of taxing the surplus on an accrual basis).


(b) Interest-in-suspense

Interest due but not received on non-performing loans is not recognised as income in the accounts. This interest is currently taxed on an accrual basis before the interest income is received. It is proposed that 50% of the interest income will not be taxed. However, such income will be taxed when it is received. This concessionary treatment will be effective only for the years of assessment 1999 and 2000.


Real Property Gains Tax (RPGT) and Stamp Duty
(a) RPGT and stamp duty exemption on financial institution mergers

Financial institutions will be granted exemption from stamp duty and real property gains tax for mergers completed between 24 October 1998 to 30 June 1999.


(b) Stamp duty exemption on loan refinancing instruments

Exemption from stamp duty will be granted on refinancing instruments with respect to term loans only (ie. where the refinancing facility represents a term loan for the purpose of funding the balance of the original loan). No exemption will be given for instruments used for refinancing overdraft facilities or working capital. Where a syndicated loan is involved, the refinancing loan agreement must stipulate the amount of refinancing loans given by each bank.

This exemption is effective from 24 October 1998.



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