27 February 2013 The Malaysian Tax Regime: A Brief Overview Renuka Bhupalan Managing Director – TAXAND Malaysia
27 February 2013
The Malaysian Tax Regime: A Brief Overview
Renuka Bhupalan Managing Director – TAXAND Malaysia
© 2013 Taxand Malaysia Sdn Bhd
Tax Framework
Income Tax – Basis of Taxation
A Host of Tax Incentives
Tax Considerations for Foreign Investors
2013 Budget - Impact on Foreign Investors
Outline 2
Tax Framework 3
Direct Taxes Indirect Taxes Income Tax – tax on all types of income Real Property Gains Tax – tax on capital gains from real property and shares in real property companies Petroleum Income Tax – tax on upstream activities Stamp Duty – transaction tax – on instruments
Customs Duties – Import Duties, Excise Duties and Export Duties Sales Tax – on imports and locally manufactured goods Service Tax – on taxable services provided by taxable persons
Administered by the Inland Revenue Board (IRB)
Administered by the Royal Malaysian Customs (RMC)
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Basis of Taxation 5
General - Territorial basis of taxation – “income accruing in or derived from Malaysia”
All* foreign sourced income – EXEMPT from tax Always important to determine SOURCE of income
*Exception – Shipping, air transport, banking &
insurance – worldwide basis of taxation
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Self Assessment 6
Self assessment – tax returns filed are deemed to be assessments Tax paid via monthly instalments based on estimates furnished one month before the start of the financial year Opportunity to revise estimates in 6th and 9th months Balance of tax (if any) to be paid by filing deadline Penalties for under-estimation and late payment Penalties for incorrect returns Compliance is monitored through tax audits
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Tax Incentives 8
Wide range of incentives – generally industry based, including:
Agencies: Malaysian Investment Development Authority (“MIDA”) Invest KL Multimedia Development Corporation Biotech Corporation
Manufacturing Agriculture Biotechnology MSC Malaysia ICT Regional Operations Trading of petroleum, petroleum
products and approved commodities
Aerospace Private Education Health Tourism Strategic Projects Etc.
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Tax Incentives 9
Location based incentives and relevant agencies:
Location Agency Iskandar Region
Iskandar Region Development Authority (“IRDA”)
Tun Razak Exchange Ministry of Finance Northern Corridor Economic Region
Northern Corridor Implementation Authority
East Coast Economic Corridor (“ECER”)
ECER Development Council
Sabah Development Corridor
Sabah Economic Development and Investment Authority
Sarawak Corridor of Renewable Energy
Regional Corridor Development Authority
Labuan Labuan Financial Services Authority
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Tax Incentives 10
Nature of tax incentives:
100% or 70% exemption from tax on statutory income (i.e after tax depreciation) 100% or 60% allowance on certain capital expenditure – deductible against 100% or 70% of statutory income Others: double deductions accelerated capital allowances special deductions
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Tax Incentives 11
Application process – in several instances, application to be submitted before commencement of business
Time-frame – typically one month to three months
Dependent on merits of the case nature of activity – promoted product/promoted activity creation of employment opportunities and building of human capital capabilities benefits to the economy/nation technology/know-how transfer
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Tax Considerations for Foreign Investors 13
Company vs. branch? Profit repatriation Exit strategy Expatriate taxes Tax treaty network Transfer pricing
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Company vs. branch? 14
Key Tax Considerations: Company Branch
Tax rate 25% 25% Tax resident Yes – if control and
management in Malaysia
No – follows tax residence of parent
Eligible for tax incentives
Yes No
Capital requirements Yes: RM2 minimum, but business requirements will dictate quantum
None
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Profit Repatriation 15
Parent Company
Malaysia
Malaysian Subsidiary
Overseas
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Profit Repatriation 16
Tax Related Issues:
Form of repatriation Tax Issue
Dividends No withholding tax on dividends
Management fees/Technical services fees
Withholding tax if services performed in Malaysia (10%)
Interest Withholding tax (15%); Interest restriction (where debt used for investment) Thin capitalisation (from 1.1.2015)
Royalty Withholding tax (10%)
All of the above (except dividends)
Transfer pricing
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Exit Strategy 17
Tax effective exit strategy:
Transfers / disposal of assets Winding up – tax clearance Repatriation of capital
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Expatriate Taxation 18
Expatriates are taxable on: employment income derived from exercising employment in Malaysia employment income from employment exercised outside of Malaysia which is incidental to Malaysian employment other sources of Malaysian income
Taxable regardless of where the expatriate is paid Income from short term employment, i.e. less than 60 days, - exempt from tax for non-residents If employment is less than 182 days, treaty relief may be available Important to ensure appropriate documentation (i.e. employment contract/letter, etc.) is in place Immigration documents – work permits/professional visit passes
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Double Tax Agreements (DTAs) 19
Extensive network – more than 70 DTAs Certainty of tax treatment for investors Reduced withholding tax rates under several DTAs, including DTA with Singapore Permanent establishment issues
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Double Tax Agreements (DTAs) 20
Singapore – Malaysia DTA
Reduced withholding tax rates:
Type of income DTA rate Malaysian domestic rate
Interest 10% 15% Management, technical or consultancy fees
5% 10%
Royalty 8% 10% Dividend n/a nil
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Transfer Pricing 21
All related party transactions must be transacted at arm’s length Applies to both domestic and cross-border related party transactions Importance of documentation to support related party transactions
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2013 Budget – Impact for foreign investors 22
Concept of Business Trusts
Limited Liability Partnerships – new business vehicle
Tax incentives GIFT programme; Private educational sector; TRX incentives
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Why Malaysia? 23
Relatively simple tax structure Tax incentives Legal framework Infrastructure Cost structure Opportunities – development corridors, infrastructure projects, etc. …. and ….
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Thank You TAXAND MALAYSIA SDN BHD
Suite 13A.05, Level 13A Wisma Goldhill
67 Jalan Raja Chulan 50200 Kuala Lumpur T: +603-2032 2799 F: +603-2032 3799
www.taxand.com.my
Renuka Bhupalan E: [email protected]
24 Contact Details 24
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1. These presentation materials contain general information only based on our understanding of the tax position under current tax legislation and the related practice thereof, all of which are subject to change, possibly on a retrospective basis. We are not obligated to update the presentation slides for any future changes.
2. Independent professional advice should be obtained on any tax matters as the consequences / implications may differ depending on the facts and circumstances of each case.
3. No part of the presentation materials may be disclosed to third parties or copied, reproduced or transmitted by any means, extracted, quoted or included in any other document or communication without our prior consent.
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Disclaimer 25
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