1. You can cite this information as follows :
In-text citation : Chang and Ng (2021)
Reference list : Chang, C.F. and Ng, M.Y. (2021) “Corporate Law of Malaysia : The Corporate Income Tax” Social Science Research
Network, at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3830197
Note : These slides may provide extra information or illustration that are not found in the full article. This is to facilitate students’ learning.
Undang-undang syarikat 公司法
Corporate Law of Malaysia :
10. Corporate Income Tax
• Quick reference for Undergraduate Students
• With translation of key terms in “Bahasa” and “中文”
2. Topics in this Series (search SlideShare using this title) URL to the full Article
1 Boleh Law Introduction to Malaysian Company Law & Companies https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3779693
2 Boleh Law Incorporation of Companies https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3797479
3 Boleh Law Corporate Constitution https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3797482
4 Boleh Law Share Capital & Capital Maintenance https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3797487
5 Boleh Law Rights of Shareholders & Members https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3797485
6 Boleh Law Loan Capital https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3797494
7 Boleh Law Directors & Officers https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3806994
8 Boleh Law Accounting and Auditing of Corporate Accounts https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3830195
9 Boleh Law Anti-money laundering and anti-terrorist funding https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3830185
10 Boleh Law Taxation https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3830197
11 Boleh Law Meetings https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3830189
12 Boleh Law Rescuing a Company https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3830190
13 Boleh Law Winding-up a Company https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3830192
3. Government’s
tax revenue
Example :
1) Individual income tax
2) Organizational income tax
3) Corporate tax
4) real property gains tax (RPGT)
Example :
1) Sales tax
2) Services tax
3) Goods & Services Tax (GST)
4) Excise duties
Direct tax
Collected by agent
authorized by the IRB
Indirect tax
Collected by tax
authority (IRB)
4. OAS vs SAS
OAS
1) Low compliance
(kadar pematuhan yang rendah ; 遵
守率低)
2) Increased litigation
(pendakwaan meningkat ; 诉讼增加)
3) Delayed tax collection
4) Increased administration cost
5) Potential leakage
(bocoran cukai ; 税收流失)
6) Time lag in tax collection
SAS
1) Shifting the onus
(alihan tanggungjawab ; 转移责任)
2) Speeding up the process
3) Improve diligence
(meningkatkan tahap keberkesanan ;
提高效能)
4) Less confusion
5. Person subjected to tax
Any person who has income accrued/derive from Malaysia; or remitted back to Malaysia, i.e.:
1) Individual
2) Body of persons (perbadanan ; 团体)
3) Limited liability partnership
4) Incorporated entities
Types of income subjected to tax
1) Sec.4(a) – Business income
2) Sec.4(b) – Employment income
3) Sec.4(c) – Income from investment activities such as dividend and interest
4) Sec.4(d) – Income from properties such as rent and royalty (yuran royalti ; 特权使用费)
5) Sec.4(e) – Periodical payments such as annuity (pendapatan tahunan ; 年金收入) and pension
6) Sec.4(f) – Other sources of income not within the above subsections
6. Tax residence & incentives
• Tax residence determined based on the ‘central management and control’ test
(pengurusan dan kawalan pusat ; 中央管理与控制)
• Tax privileges for companies incorporated or having substantial business activities in
Malaysia :
a) Lower tax rate for SME
b) Exemption under tax treaties (perjanjian cukai antara negara ; 国家间税收协定)
c) Incentives under Promotion and Investments Act 1986
d) Reinvestment allowance under Schedule 7A
e) Investment allowance under Schedule 7B
f) Group relief (perlepasan cukai dalam kumpulan syarikat ; 集团公司减免税)
7. Year of assessment and basis period
• Basis period (BP) – the period in which the income will be subjected to income tax
assessment (tempoh asas cukai ; 计税基期)
• Year of assessment (YA) – the year in which tax liability arises (tahun taksiran cukai ; 课
税年度)
• BP need not coincide with the calendar year – tax calculation not necessary to end on 31st
December.
• Change BP – the tax DG must be informed
8. Flexibility for new start-up
Sec.21A(4)(a) first BP can be less than 12 months
Sec.21A(4)(b) first BP can be more than 12 months (spanning across 2 YA)
Sec.21A(4)(c) first BP can be more than 12 months (spanning across 3 YA)
Sec.21A(8)
first BP can be any number of months, in order to coincide with the BP of
other companies within the same group
When income should be brought to income tax ?
Business income
(except advance service and rent income )
When a ‘debt owing’ to such income is incurred
Income other than business sources When income is received
Income for service sector and property
leasing
When income is received, even when the service
will be rendered in the future and rent is subject to
refund.
9. Treasury shares (TS) – maintenance & income tax treatments
Repurchase of own share by PLCs :
a) Be cancelled immediately; or
b) Kept as treasury shares – and subsequently be :
• cancelled
• distributed to shareholders as share dividends;
• resale
• transferred to others as purchase consideration (bayaran ; 付款)
• used for employees’ share option scheme (ESOS) (skim opsyen saham pekerja ; 员工认股
权计划
Money used to repurchase own shares is not allowed for tax deduction (except for ESOS purpose)
– because the costs are not wholly and exclusively incurred to generate income.
10. Dividend distribution – income tax treatments
• single-tier system (sistem cukai satu peringkat ; 单层税制)
• Tax free income – dividends received by shareholders from tax resident companies in
Malaysia are taxable but exempted
11. Company’s responsibilities to furnish income tax return
• Who is responsible ?
1) manager or any principal officer in Malaysia
2) the director
3) the company secretary
4) any person charged with the function
• Time limit – within 7 months from the accounts closing date
• Tax computation – based on financial statement prepared in accordance with CA 2016
• Amendment – only once in a YA. Must be filed within 6 months after the filing of the initial
return ; and before the error is discovered by the IRB
12. Company’s responsibilities keep records
• Records to be kept for 7 years – in Malaysia
• ‘Records’ are – account documenting receipts, payments, income and expenditures (i.e.
cash book, daybooks and accounting ledges), vouchers, invoices, receipts and any other
relevant documents.
• Records to be updated within 60 days from the date of the transaction.
• Can be stored in electronic form – as long as it can be retrieved and reproduced whenever
needed.
13. Company’s responsibilities to issue receipt of payment
• Companies with gross revenue of :
more than RM150,00 from the sale of goods; or
more than RM100,000 from provision of services
must issue receipt.
• Receipt must be in running serial number
14. Company’s responsibilities to pay income tax
• Tax payable – is the amount self-assessed by the taxpayer (jumlah cukai yang dinilai sendiri
oleh pembayar cukai ; 纳税人自行评估的税额)
• Payment due date – the last day of the 7th month period from the date the company’s
accounts were closed
• Penalty for late payment :
Immediately after the due date – 10% on the tax payable (if paid within 60 days)
After the end of 60 days – additional 5% on the tax payable + 10%
15. Additional assessment
• Must be paid upon issuance of the notice of additional assessment.
• Penalty :
10% on the additional assessment sum – if unpaid within 30 days from the date of the
notice
5% on the additional assessment sum + 10% – if unpaid within subsequent 60 days
• Taxpayer may request for instalment
• Taxpayer may appeal against the additional assessment. If successful, overpaid sum will
be refunded.
16. Pay-As-You-Earn (‘PAYE’) scheme
• Companies pay income tax progressively in advance throughout the year instead of a
lump sum payment upon filing of annual tax return.
• To submit income tax estimation within 30 days from the start of BP.
• Payment start from 2nd month of YA – before the 15th of every month
• Estimation based on 85% of previous year tax estimate.
• Revision can be made on the 6th or the 9th month of the YA.
• If the actual tax charged is more than 30% of the estimation – 10% penalty on the 31st
percent onwards
17. New start-up
• Estimation based on budget
• Submit estimate within 3 months after business start
• Instalment start on the 6th month
• New companies with BP less than 6 months – need not submit tax estimate for that YA – need
not pay advance tax for that year
• SME (with less than RM2.5mil paid-up capital) – need not submit tax estimate for first 2
years – need not pay advance tax for that 2 years
18. Company’s responsibilities on Employees’ income tax liability
• PAYE applies to employees’ income tax
• Advance payment via Monthly Tax Deduction (MTD)
• Employer’s duties :
a) make deduction from the employee’s income and remit it to the IRB
b) notify the IRB of new recruits who are subjected to the MTD scheme
c) notify the IRB of any resignation
d) notify the IRB of employee leaving Malaysia for 3 months or more
e) withhold remuneration of resigned employees until tax clearance
19. Director’s responsibility on Company’s income tax liability
• Doctrine of separate legal entity – directors and/or shareholders should not be held
responsible for company’s wrong – “veil of incorporation”
• Lifting the veil of incorporation for tax purpose
• Director’s personal liability for :
a) Tax payable by the company
b) Amount withheld from employee’s remuneration
• ‘Director’ include :
a) Person in-charge of the management; and
b) Person own/control the company (shareholder)
