course material

1. BBAC2123 Malaysian Taxation
Answers:
Introduction:
A public ruling no. 9/2019 was published by “Inland Revenue Board of Malaysia” regarding
the residence position of corporations and “bodies of person”. The ruling explains that, a
company or the body of persons will be considered as Malaysian resident on the basis of
year for assessment purpose given that at any point of time throughout the “basis year” the
administration along with the “control of business” or any single of its businesses activities
are exercised in Malaysia (Kaur 2016). A corporation or a “body of person” even though not
conducting trade or businesses in Malaysia but its business activities are performed by its
directors in Malaysia or other regulatory authority will be considered as Malaysian resident.
On the basis of aforementioned ground, the management and control implies to authorities
that impose control to ascertain the policies which needs to be followed by the corporation.
The “management” as well as “control” is considered to have been executed when the
directors fulfil the performance of company’s affairs or business notwithstanding of where
the company may be incorporated.
The present report is based on understanding the circumstances when a corporation will be
held as a Malaysian resident company for tax purpose. The study will further specify the
necessary requirements that needs to be fulfilled to be treated as a Malaysian company for
tax purpose. Furthermore, the study will provide about the tax benefits that a company
would get on becoming a Malaysian resident company.
Circumstance when a company is considered a tax resident for Malaysian income tax
purpose:
In Malaysia “Body of person” implies unincorporated body of person and not a company. It
also includes “co-operative society”, a trust, an “association” and a “Hindu Joint Family” but
not including a partnership. In Malaysia entities might also be referred as “non-resident”
which implies apart from an inhabitant in Malaysia with respect to “section 8” and based on
“subsection 61 (3) of ITA 1967” (Palil et al. 2021). It includes the Hindu Joint Family which
implies that under any system of law prevalent in India is regarded as “Hindu Joint Family”

2. or co-parcenary.
The companies and the bodies of person should satisfy some of the important principles to
be treated as resident in Malaysia. Under “section 8 of ITA 1967” it lays down the
circumstances for determining the residence status of a person in regard to corporations
and “bodies of person” excluding trust bodies where “subsection 61 (3) of ITA 1967”
explains the circumstances regarding the residence position of a trust body.
With regard to “paragraph 8 (1) of the ITA 1967”, a “Joint Hindu Family” is considered as an
occupant in Malaysia for the “basis year” during the assessment year given that the manager
is regarded as dweller during that “basis year” (Mansur 2020). Furthermore, if the manager
is considered as non-resident, the “Hindu Joint Family” is deemed as the non-resident of
Malaysia. In respect of corporations or “bodies of person” that is conducting business is
regarded as Malaysian resident under paragraph 8 (1)(b) of ITA 1967 for the basis year for
assessment purpose given that during any point of the “basis year” the management along
with its “control of business” or any single business activities are exercised in Malaysia.
In case of any other corporation or “body of person” in regard to “paragraph 8 (1)(c) of ITA
1967”, it is treated as occupant of Malaysia for “basis year” during the assessment year
given that the management as well as control of its business activities is simply applied in
Malaysia by its directors or others that have regulatory authority such as the “board of
directors” or management. While for investment holding companies, the administration as
well as control of its affairs involves the management along with the vital decision in regard
to investments.
In the circumstances of Foreign corporations, it usually extends their commercial activities
to Malaysia by establishing a subsidiary company in Malaysia or by registering a branch in
Malaysia. Concerning the residence status of a foreign company it is ascertained with
respect to “paragraphs 8 (1) and 8 (1) (c) of ITA 1967” (Mat Udin et al. 2021). The branches
relating to foreign company in Malaysia are normally considered as the non-residents
company in Malaysia unless it is understood that the administration as well as the control of
company’s daily activities or its businesses or any single of its dealings is worked out in
Malaysia.
Requirements for a company to be considered as resident:
The management along with control is considered as the vital factor that is used in
determining the actual residency position of a business in Malaysia. The management along
with control implies the authority to impose control that helps in determining the policies
which needs to be followed by an organization (Fauziati et al. 2020). The management as
well as control is viewed to be put into use where the directors of a company meet to carry
on the business affairs of the organization, regardless of where the company is
incorporated.

3. In the Famous case of “Malaysian Shipping Co v Federal Commissioner Taxation (1946)” it
was found that the company was established in Singapore. The shareholders that controlled
the company and one of its three directors was considered as an Australian resident and
was the owner of two-third shares (Yeo Lim and Azhar 2019). The law court noticed that
the Australian director had comprehensive control over the company. Since the central
management as well as control is located in Australia, then it was assumed that the
company was carrying out its business activities from Australia, being the place where most
of the decisions were made by director and hence it was considered as an Australian
resident.
As evident from above illustration, the management along with control of a corporation is
dependent on the manner based on which a business is fared. If, at any given time through
the “basis year” in the assessment year at least one single meeting of “board of directors” is
conducted in Malaysia regarding the overall control and management of company, despite
that all the other meetings were carried out of Malaysia, then the company will be
considered as a Malaysian resident company during that basis year.
Apart from this, the location where trading activities of a company is performed or the place
where physical processes might not essentially be considered as the location of control and
management (Devi, Salim and Pheng 2018). A corporation that is involved in business
activities in Malaysia will not be treated as a occupant in Malaysia on finding that not only
the business undertakings such as production or manufacturing and selling are performed
in a foreign country but also the shareholders and managements meeting regarding all the
vital affairs of company are performed and controlled is also carried out in a foreign
country.
The appointment concerning a local board of directors in Malaysia cannot be considered
useful in ascertaining the dwelling status of a corporation. On finding that the regulatory
authority is used by managements that are present at head office corporation in a foreign
country, then the company will not be treated as a occupant in Malaysia.
The directors control is useful in determining the actual management as well as control of
an organization. The directors make use of their power to manage the daily business of a
company on the basis of powers conferred to them with regard to Articles of Association
(Ya’u and Saad 2021). Apart from this, controls held by shareholders cannot be considered
much relevant in ascertaining the actual management and control because the shareholders
only use their power over company based on their voting rights at proper shareholders
meeting. The actual residency position of a director is not taken into account while
ascertaining the residency status of a corporation.
With respect to “subsection 8 (2) of ITA 1967”, when it is understood by “Director General
of Inland Revenue Board Malaysia” that a corporation is regarded as dweller in Malaysia

4. during the given assessment year, that company is treated as Malaysian resident company
for every subsequent assessment year up until the opposing is proved.
As evident Malaysia has formed an agreement with a large number of nations in order to
avoid the double taxation by simply allocating the rights to impose tax over the bilateral
income flows amid the respective treaty partners (Sahari et al. 2020). The “dual residence”
is normally avoided amid Malaysia and other nations with which Malaysia already has tax
agreements. These agreements simply offer a “tie-breaker” residency position article in
order to ascertain a single nation of residence. The provision relating to tie breaker simply
varies on the basis of treaty.
The Article involving on “residence in DTA” explains about the test regarding residence and
also acts as the “tie breaker” for double residence. The test of “tie breaker” is regarded as a
treaty that states that a “dual resident” should be considered completely as the resident of
treaty partner country for treaty purpose (Othman et al. 2017). The terms relating to a
relevant DTA needs to be denoted at the time of ascertaining the tax liability. Nevertheless,
the resident status of Malaysia is still considered applicable concerning the general
application of domestic law, in order to make sure that the revenue earned by corporations
and “bodies of person” continues to be considered taxable in under Malaysian tax regime.
When the trading as well as administration and control are exercised out of Malaysia but
some of the directors meeting have taken place in Malaysia then in such circumstances, the
“articles” and “memorandum of association” is used to determine where an organisation is
listed and whether or not there is any kind of provisions concerning the residence in article.
If the articles do not provide a location of administration and control whether or not the
articles are applied (Rametse et al. 2020). When the trading, administration and control are
exercised out of Malaysia but certain meetings of directors have taken place in Malaysia, the
minutes of directors meeting which provides the indication of directors where meetings
were held and what resolutions concerning the administration and control were taken is
also considered. To determine the residency status of a company the minutes concerning
general meetings which shows the place of such meetings have taken place and what let to
holding these meetings.
In regard to the “subsection 61 (3) of ITA 1967”, a trust body is considered as a Malaysian
dwelling company during the “basis year” for assessment purpose given that any
representative of the trust is regarded as the occupant during that basis year (Rani et al.
2017). Nevertheless, a trust body will not be considered as a resident given that the trust
was formed out of Malaysia by an individual or person that are not considered as citizens of
Malaysia. Furthermore, a trust body cannot be treated as resident of Malaysia given that the
income of that trust body during that basis year is completely derived from out of Malaysia.
The trust is managed for the entire “basis year” out of Malaysia and at least half of the
members of trustee are not regarded as resident in Malaysia during that “basis year”.

5. Tax benefits for a company to be resident:
Malaysia provides wide range of tax incentives that covers large number of industry sectors.
The tax incentives can be provided with the help of income exemption or through
allowances. Where incentives are provided in the form of allowances, any form of unused
allowances can be easily carried forward indeterminately to be used against the
forthcoming statutory earnings, excluding for some assured kind of incentives (Salihu and
Kawi 2021). This includes re-investment allowances and investment allowances for the
agreed projects, where a limitation of seven years is applied.
In agreement with “Forum on Harmful Tax Practices (FHTP)” criteria within the “Base
Erosion and Profit Shifting (BEPS)”, Malaysia has corrected the legislature in regard to the
tax inducements by removing the ring-fencing structures and eliminate the IP income from
enticements (Azmi and Mustapha 2017). The pioneer status and investment tax allowances
are available to companies that are resident of Malaysia. Companies that are involved in
manufacturing, agriculture, hotel and tourism segment or any other manufacturing or
marketable sector which takes part in promotional activity or produced a endorsed product
might be considered eligible for either pioneer status or investment tax allowances.
Pioneer status is provided through exception from company income tax of 70% of statutory
earnings for five years and the rest of 30% is simply taxed at a prevalent company income
tax rate (Mohamad and Ali 2017). The investment tax allowances are provided upon 60%
qualifying capital expenses incurred for the time period of five years and it is used against
the 70% of statutory earnings, whereas the remaining 30% balance is taxed at the prevalent
company income tax rate. A corporation that looks to make reinvestment prior to end of its
pioneer status or the incentive tax allowance status might simply opt for reinvesting the
allowances given that the company surrenders its pioneer status or the status of incentive
tax allowances.
Special incentive schemes are provided to companies that are Malaysian resident (Razali et
al. 2019). A company that is resident of Malaysia carrying on the business for not greater
than 36 months which incurs capital expenses to enlarge, modernise, mechanize or spread
its current engineering businesses or agreed agricultural project is considered eligible to
make reinvestment of allowances for the time period of fifteen years following the initial
year of claim. The allowances get calculated at 60% of QCE incurred by the company and
can be used against 70% of the statutory earnings.
The 70% constraint do not apply to projects which have got the extent of production as
explained by the “Minister of Finance”. The allowance would get withdrawn given the asset
for relating to which the allowances got approved is disposed inside the time span of five
years. There is also a “special reinvestment allowance” of 60% of QCE would be allowed
relating to the assessment years from 2020 to 2022 for corporations which have finished up
their current “15-year reinvestment allowances” period and “special reinvestment

6. allowance” approved for the years of assessment 2016 to 2018. It is simply proposed in
Budget 2022 regarding the period for special reinvestment allowances shall be extended up
until the assessment year of 2022.
The Malaysian government also provides the resident company with an incentive for
relocating to Malaysia. Malaysian companies are provided with 0% rate of tax for 10 or 15
years for the new companies which makes investment minimum of MYR 300 million or MYR
500 million, correspondingly in industrial sector in Malaysia (Sadiq et al. 2018). An ITA of
100% for a period of five years for the current corporations in Malaysia in order to transfer
their foreign manufacturing unit for the new business division which are new to Malaysia
with a minimum amount of investment of MYR 300 million.
A resident company that is involved in the process of manufacturing or in agricultural
products which exports the manufactured goods, agricultural produce or services will be
considered entitled to get an allowance between 10% and 100% of value of the increased
exports and the same is allowed for deduction up to 70% of the statutory income.
A concessionary tax rate of 10% for a period of five years is given to a company that has
been newly incorporated as a resident company in Malaysia which makes use of Malaysia as
its international base for trading in order to undertake the tactical sourcing, distribution
and procurement of raw materials, finished goods, components and unrelated companies in
Malaysia and in foreign.
The international trading businesses are simply exempted on income which is equal to 20%
of rise in export worth to be offset against the highest of 70% of the statutory earnings for
the period of five years (Sadiq et al. 2020). To be considered entitled for the incentives, it is
necessary that the company must be established in Malaysia with 60% of Malaysian
proprietorship. Attain a minimum yearly sales of MYR 10 million of which not greater than
20% of its yearly sales might be obtained from carrying out trading of produces (Shome
2021). In order to qualify for incentive, the company should make use of local services such
as banking, finance, insurance and infrastructure along with local ports and airports for
carrying out its operations.
Income tax implications for companies and bodies of persons:
A standard company income tax rate of 24% will be applied on the companies and body of
persons. Whereas the rate for resident and small and medium size companies that are
incorporated in Malaysia having capitalization of MYR 2.5 million or lower than that and no
part of group comprising of a company surpassing this capitalization threshold is held
taxable at a rate of 19% on first MYR 500,000 and the balance amount is taxed at a rate of
24%. There is also no application of local taxes on the corporate income (Luigi 2019). The
taxable corporate income comprises of all the earnings which is obtained from Malaysia. It
also includes the profits as well as gains which is made from trade and other type of

7. businesses. Taxes may also be imposed on discounts, rents, royalties, interest and other
types of current earnings. These rules are applicable to branches along with the entities
which is incorporated in Malaysia.
Conclusion:
To conclude with the management along with control is considered as the vital factor that is
used in determining the actual residency position of a business in Malaysia. The
management and control is viewed to be put into use where the directors of a company
meet to carry on the business affairs of the organization, regardless of where the company
is incorporated. In order to determine whether a company is considered as a resident of
Malaysia, the directors control test is useful in determining the actual management as well
as control of an organization.
Besides this, if a company becomes a resident company of Malaysia, they are entitled to get
a reinvestment allowance for a period of 15 years following the first year of claim. Overall, it
can be stated that the business environment of Malaysia attracts investments from all
corners of world because of its flexible tax incentive structure.
References:
Azmi, A.A.C. and Mustapha, M.Z., 2017. The role of competitiveness, gender and ethnicity in
influencing academic performance. MOJEM: Malaysian Online Journal of Educational
Management, 2(1), pp.37-47.
Devi, M.N., Salim, A.S.A. and Pheng, L.K., 2018. The impact of firm characteristics on
corporate tax aggressiveness: A study on malaysian public listed companies. Advanced
Science Letters, 24(4), pp.2208-2212.
Fauziati, P., Minovia, A.F., Muslim, R.Y. and Nasrah, R., 2020. The impact of tax knowledge on
tax compliance case study in Kota Padang, Indonesia. Journal of Advanced Research in
Business and Management Studies, 2(1), pp.22-30.
Kaur, G., 2016. Self-assessment system of taxation as a challenge for India. International
Journal of Advanced Education and Research, 1(3), pp.9-11.
Luigi, P., 2019. The Essence And The Role Of Taxes-The Principles Of Taxation. Annals-
Economy Series, 4, p.15.
Mansur, K., 2020. ASEAN Fiscal and Taxation Policy: Comparative Studies between
Malaysian Taxation System and Selected ASEAN Countries towards a Sustainable Economic
Development.

8. Mat Udin, N., Mansor, M., Derashid, C., Ibrahim, I., Abdul Aziz, S. and Sulaiman, A.J., 2020.
Malaysian corporate taxation (Incorporating 2020 Budget).
Mohamad, M. and Ali, M.A.M., 2017. Examining the factors of tax non-compliance: a case
study of small and medium enterprises in metro area. In SHS Web of Conferences (Vol. 36, p.
00017). EDP Sciences.
Othman, R.D., Pauzi, N.F.M., Bakar, S.A.N.A., Sapari, A. and Karim, M.S., 2017. Goods and
services tax (GST): the Importance of comprehension towards achieving the desired
awareness among Malaysian. In SHS Web of Conferences (Vol. 36, p. 00036). EDP Sciences.
Palil, M.R., Ismail, I.S., Zain, N.H.M. and Bakar, A.A.A., 2021. Social Enterprise and Taxation
Policy: A Systematic Literature Review. BESTUUR, 9(2), pp.135-143.
Rametse, N., Santhariah, A., Makara, T. and Devos, K., 2020. Estimating Start?up Compliance
Costs of the Malaysian Goods and Services Tax for Small?and Medium?sized
Enterprises. New Zealand Journal of Taxation Law and Policy, 26.
Rani, D.O., Pauzi, N.F.M., Bakar, S.A.N.A., Sapari, A. and Karim, M.S., 2017. Goods and Services
Tax (GST): The Importance of Comprehension Towards Achieving the Desired Awareness
Among Malaysian. In SHS web of conferences (Vol. 36). EDP Sciences.
Razali, M.W.M., Yi, P.X., Brahmana, R.K. and Tak, A.H., 2019. Malaysian Listed Firm’s Tax
avoidance: Another Earnings Management Strategy. International Journal of Academic
Research in Business and Social Sciences, 9(2), pp.643-655.
Sadiq, K., Black, C., Hanegbi, R., Jogarajan, S., Krever, R.E., Obst, W. and Ting, A.K.F.,
2020. Principles of Taxation Law 2020 (No. 13th). Thomson Lawbook Co.
Sadiq, K., Coleman, C., Hanegbi, R., Jogarajan, S., Krever, R., Obst, W., Teoh, J. and Ting, A.,
2018. Principles of taxation law 2018. Thomson Reuters (Professional) Australia Limited.
Sahari, S.N., Samsudin, S., Bujang, A.A., Suratman, R., Abd Rahman, M.S. and Jiram, W.R.A.,
2020. General Review on Malaysia Land Taxation. INTERNATIONAL JOURNAL OF
ACADEMIC RESEARCH IN BUSINESS AND SOCIAL SCIENCES, 10(3).
Salihu, I.A. and Kawi, F., 2021. Board attributes and corporate tax avoidance: An explanatory
mixed method investigation. Journal of Accounting and Taxation, 13(4), pp.291-303.
Shome, P., 2021. Principles of Taxation. In Taxation History, Theory, Law and
Administration (pp. 53-61). Springer, Cham.
Ya’u, A. and Saad, N., 2021. Bibliometric analysis of published literature on taxation in

9. Malaysia, based on Scopus database. Journal of Business Management and
Accounting, 11(1), pp.59-86.
Yeo, A.A., Lim, T.C. and Azhar, Z., 2019. Exploring Malaysian E-Commerce Taxation: A
Qualitative Insight of Online Businesses. Journal of Contemporary Issues and Thought, 9,
pp.75-85.