News & Articles

INDIVIDUAL TAX

Reduction of Individual Income Tax Rates

As a measure to increase disposable income of the middle-income group and to address the rising cost of living, the Budget proposed that the individual income tax rates for resident individuals be reduced by 2 percentage points for the 3 chargeable income bands as follows:-

Income tax savings resulting from the reduction of tax rates are as follows:

*After tax rebate of RM400 for chargeable income up to RM35,000

Effective Date: From year of assessment 2018.

Tax Exemption on Rental Income from Residential Homes Received by Malaysian Resident Individuals

To encourage Malaysian resident individuals to rent out residential homes at reasonable charges, the Budget proposed that 50% income tax exemption be given on rental income received by Malaysian resident individuals subject to the following conditions:

i. rental income received not exceeding RM2,000 per month for each residential home;

ii. the residential home must be rented under a legal tenancy agreement between the owner and the tenant; and

iii. tax exemption is given for a maximum period of 3 consecutive years of assessment.

Effective Date: From year of assessment 2018 until year of assessment 2020.

Extension of Period for Resident Individual Income Tax Relief on Net Savings in the National Education Savings Scheme

To further encourage savings for the purpose of financing tertiary education of children, the Budget proposed that the resident individual income tax relief up to RM6,000 for net savings in the SSPN be extended for another 3 years.

Effective date: From year of assessment 2018 until year of assessment 2020.

CORPORATE TAX

Income Tax Exemption on The Green Sustainable and Responsible Investments (Green SRI) Sukuk Grant

To encourage the issuance of Green SRI sukuk in Malaysia, the Budget proposed that income tax exemption be given to each recipient of Green SRI sukuk grant to finance the external review expenditure in line with the guidelines as set out by the Securities Commission of Malaysia.

Effective date: For applications received by the Securities Commission of Malaysia from 1 January 2018 to 31 December 2020.

Tax Exemption on Management Fee Income for Sustainable and Responsible Investment (SRI) Funds

To further promote fund management activities globally, the Budget proposed that fund manager managing SRI fund approved by the Securities Commission of Malaysia be given tax exemptions on management fee income from managing conventional and Shariah-compliant SRI fund.

Effective date: From year of assessment 2018 to year of assessment 2020

Capital Allowance for Information and Communication Technology (ICT) equipment and Software

To assist companies to remain competitive in the digital era and adopt latest technology, the Budget proposed that companies be allowed to claim capital allowances on qualifying expenditure as follows:

Effective date: From year of assessment 2017 (Proposal 1)

From year of assessment 2018 (Proposal 2)

Expansion of Double Deduction on Expenses incurred to obtain Certification for Quality System and Standard

It is proposed that the companies registered with Malaysia Healthcare Travel Council (MHTC) that provides dental and ambulatory healthcare services be given double deduction on expenses incurred in obtaining certification for quality system and standard from the below 5 certification bodies.

1. Malaysian Society for Quality in Health (Malaysia);

2. Joint Commission International (United States of America);

3. CHKS Accreditation Unit (United Kingdom);

4. The Australian Council on Healthcare Standard (Australia); and

5. Accreditation Canada (Canada).

Effective from YA 2018

Review of Tax Incentives for Export of Private Healthcare Services

Currently, private healthcare companies are eligible to claim for tax exemption on income derived from the export of healthcare services to foreign patients either in Malaysia or from Malaysia.

The income tax exemption is equivalent to 50% of the value of increased exports of services and the exemption can be set off against 70% of the statutory income.

It is proposed that the income tax exemption be increased from 50% to 100% of the value of the increased export of services which can be set off against 70% of the statutory income subject to the following conditions:

1. at least 10% of the total number of patients receiving private healthcare services comprises of qualified healthcare travellers per year of assessment; and

2. 10% of the company’s gross income is derived from qualified healthcare travellers for each year of assessment.

Effective from YA 2018 to YA 2020

Implementation of Earning Stripping Rules to replace Thin Capitalisation Rules

It is proposed that the Thin Capitalisation Rules (TCR) be replaced by the Earning Stripping Rules (ESR) which is a new method introduced by the Organisation for Economic Cooperation and Development (OECD).

Under the ESR, interest deduction on loans between related companies will be limited to a ratio ranging from 10% to 30% of the company’s profit before tax either using the Earnings Before Interest and Taxes (EBIT) or Earnings Before Interest, Tax, Depreciation, and Amortisation (EBITDA).

Effective from 1 January 2019

Extension of period of application for tax incentives for Angel Investors

Currently, an Angel Investor who invest in investee companies in the form of ordinary shares are entitled for tax exemption equivalent to the amount of investment made in the investee companies.

An application must be made by the Angel Investor to the Minister of Finance (MOF) no later than 31 December 2017.

The qualifying criteria for the incentive are as follows:

1. Angel Investor:

a) An individual who is a resident in Malaysia and whose sources of income is not derived solely from business;

b) Investors who do not have family relations with the investee company;

c) Investors whose investment is for the sole purpose of financing the activities of the investee company as approved by the Minister; and

d) Whose investment shall not be more than 30% of the total paid-up share capital of the investee company.

2. Investee Company:

a) Incorporated under the Companies Act 1965 and a resident in Malaysia;

b) At least 51% of the company’s ordinary share capital is owned by a Malaysian citizen; and

c) Carries out activities approved by the Minister.

It is proposed that the application period for Angel Investors to enjoy the above tax exemption be extended for another 3 years.

Effective for applications submitted to the MOF from 1 January 2018 to 31 December 2020

Tax incentive for women returning to work after career break

It is proposed that women who return to the workforce after being on a career break for at least 2 years are eligible to claim income tax exemption on their employment income up to 12 consecutive months in YA 2018 to YA 2020.

Applications must be submitted to Talent Corporation Malaysia Berhad from 1 January 2018 to 31 December 2019 in order to claim this income tax exemption.

Effective from YA 2018 to YA 2020

Review of tax incentives for venture capital

Currently, tax incentives for the venture capital industry are as follows:-

1. Venture Capital Management Corporation (VCMC)

Ø Exemption of income tax on statutory income derived from share of profits received on investment made by VCC

2. Venture Capital Company (VCC)

Ø Exemption of income tax on statutory income derived from all sources of income except interest income from savings or fixed deposits and profits from Shariah-complaint deposits; and

Ø The exemption is given for a period of 10 years or according to the life of the fund established for investment in the Venture Company (VC), whichever is shorter. The VCC must be registered with SC, invests at least 70% of seed, start up and early stage fund in VC OR at least 50% in the form of seed capital. The VCC and VC are not related companies.

3. Investment in a VC

Ø Companies or individual with business income that make an investment in a VC are given a tax deduction equivalent to the amount of investment made in the VC at the adjusted income level.

It is proposed that tax exemption be given for a period of 5 years for the following:-

1. VCMC

Ø Income which is exempted from tax be expanded to include income received from management fees and performance fees in managing VCC funds.

2. VCC

Ø The investment limit in VC at the seed, start up and early stage be reduced from 70% to 50% and the 50% balance is allowed for other investments; and

Ø Companies or individuals with business income investing into the VCC funds created by VCMC be given tax deduction equivalent to the amount of investment made and restricted to a maximum of RM20 Million per year for each company or individual.

Applications to the Securities Commission Malaysia are to be made for the above proposed incentives and the applications must be received by the SC from 1 January 2018 to 31 December 2018.

Effective from YA 2018 to YA 2022

STAMP DUTY

Extension of Period for Stamp Duty Exemption to Revive Abandoned Housing Projects

Currently, stamp duty exemption is provided to revive abandoned housing projects as follows:

1. Rescuing Contractors

Ø On loan agreements to finance the completion of abandoned housing projects; and

Ø On instruments of transfer of title for land and houses in abandoned housing projects.

2. Original house purchases in the abandoned project

Ø On loan agreements for additional financing; and

Ø On instruments of transfer of houses.

Abandoned housing projects must be certified by the Ministry of Urban Wellbeing, Housing and Local Government to be eligible for the tax incentives.

To further ease the financial burden of the original house purchasers and to encourage the involvement of rescuing contractors to revive abandoned housing projects, it is proposed that the existing stamp duty exemptions be extended for another 3 years.

Effective date: Loan agreements and memorandums if transfer executed from 1 January 2018 to 31 December 2020 for abandoned housing projects certified by the Ministry of Urban Wellbeing, Housing and Local Government.

Stamp Duty Exemption for Trading of Exchange Traded Funds (ETF) and structured Warrants (SW)

To further promote development of the capital market and to make Malaysia’s capital market more competitive at the international level, it is proposed that the stamp duty exemption be given on contract notes for trading of ETF and SW by investors.

Effective date: For the trading of ETF and SW executed from 1 January 2018 to 31 December 2020.

OTHERS

Malaysia’s Participation in the Organization for Economic Cooperation and Development (OECD) Taxation Initiatives

The Budget announced Malaysia’s commitment to the OECD initiative to enhance compliance with international standards relating to exchange of information on tax matters to support foreign direct investment.

GOODS AND SERVICES TAX (GST)

Harmonizing GST treatment on Reading Materials

In order to enhance GST compliance through harmonization and certainty of treatment to consumers, the Budget proposed that the GST treatment on magazines, journals, periodicals and comics be harmonized with treatment on all types of books which are reading materials and be subjected to zero-rated supply.

Effective Date: From 1 January 2018.

GST Treatment on

Management and

Maintenance Services of Stratified Residential Buildings

In order to harmonise GST treatment on management and maintenance services including cost recovery of group insurance, quit rent and land assessments of stratified residential buildings supplied by a joint management body and management corporation to owners of houses held under strata titles, the Budget proposed that such services supplied by housing developers by treated as an exempt supply.

Effective Date: Form 1 January 2018.

Review of the GST Treatment for Local Authorities

The Budget proposed all supplies made by Local Authorities is not subjected to GST (out of scope supply).

As the Local Authorities are no longer required to be registered under the GST Act 2014 and not eligible to claim input tax. As such, GST relief will be given to Local Authorities on the acquisition of all goods excluding petroleum, commercial buildings or land and on the importation of motor cars.

Effective from 1 April 2018 or 1 October 2018, as opted by the Local Authorities.

GST Relief on Construction Services for School Buildings and Places of Worship

The Budget proposed 100% GST relief will be given on construction services for the construction of school buildings and places of worship financed through public donation.

The GST relief is restricted to construction services for which the invoice has not been issued and subject to the following conditions:

1. The approval under the Subsection 44(6) of Income Tax Act 1967 for their construction fund has been obtained;

2. The approvals for development and construction by Local Authorities, the Ministry of Education Malaysia, or State Religious Councils (for surau or mosques) have been obtained;

3. Construction of school building including hall and sport facilities are directly used for teaching and learning purposes;

4. The relief does not apply to the purchase of commercial buildings; and

5. Construction services contract signed on or after 1 April 2017.

Effective for applications submitted to the Ministry of Finance from 27 October 2017

GST Relief on the Importation of Big Ticket Items

To enhance the competitiveness of Malaysian Companies carrying out activities in the aviation, shipping and oil and gas industries, the Budget proposed that companies carrying out activities in such industries be given relief from paying GST on the importation of big ticket items.

The list of big ticket items and the terms and conditions of approval are to be stipulated by the Minister of Finance.

Effective from 1 January 2018

Relief from Payment of GST on Importation of Goods under Lease Agreements from Designated Area

To ease cash flow and facilitate GST Administration for goods under lease agreement supplied by companies located in Labuan, Langkawi, and Tioman, the Budget proposed that relief from payment of GST be given to companies especially involve in the oil and gas industry on the importation of goods under lease agreements into Malaysia from Designated Areas.

The lease of goods and the terms and conditions of approval are to be stipulated by the Minister of Finance.

Effective from 1 January 2018

GST Relief on Handling Services Rendered to Operator of Cruise Ships

Cruise ship operators will be given relief from payment of GST on handling services provided by sea port operators in Malaysia.

Effective from 1 January 2018 to 31 December 2020

The Merger of Customs Appeal Tribunal and Goods and Services Tax Appeal Tribunal

It is proposed that both Tribunals [Customs Appeal Tribunal (CAT) and Goods and Services Tax Appeal Tribunal (GSTAT)] are to be merged and all appeals by taxpayers or companies aggrieved by the decision of the Director General of Customs are to be heard by a single Tribunal which is CAT.

Effective from 1 January 2019

INCENTIVES

Review of Tax Incentives for Automation

A manufacturing company is eligible for Accelerated Capital Allowance (ACA) and Automation Equipment Allowance (AE) in the purchase of automation equipment as follows: -

Category 1 : Labour-intensive industries (rubber, plastics, wood, furniture and textile products)

ACA of 100% and AE of 100% for the first RM4 million for qualifying capital expenditure incurred during the basis period for the years of assessment 2015 to 2017

Category 2 : Industries other than category 1

ACA of 100% and AE of 100% on the first RM 2 million for qualifying capital expenditure incurred during the basis period for the years of assessment 2015 to 2020.

It is proposed that the incentive period for Category 1 be streamlined with category 2 extended to 31.12.2020.

Effective for applications received by Malaysian Investment Development Authority (MIDA) from 1 January 2018 to 31 December 2020

Tax Incentive for

Transformation to

Industry 4.0

Companies in the manufacturing sector and its related services which adopt advanced technology known as Industry 4.0 will be provided ACA and AE on the first RM10 million qualifying capital expenditure incurred in the years of assessment 2018 to 2020 and is fully claimable within 2 years of assessment.

Industry 4.0 which among others includes the following technology drivers:

1. Big Data Analytics;

2. Autonomous Robots;

3. Simulation;

4. Industrial Internet of Things

5. Cyber Security;

6. Horizontal and Vertical System Integration;

7. Cloud Computing;

8. Additive Manufacturing;

9. Augmented Reality; and

10. Artificial Intelligence.

Effective for applications received by MIDA from 1 January 2018 to 31 December 2020

Extension of Tax Incentive for Principal Hub

Multinational companies which set up their global operation centres in Malaysia are currently entitled to income tax exemption according to 3-tier preferential tax rates of 0%, 5% or 10% based on the certain criteria, such as:

1. Minimum paid-up capital of RM2.5 Million;

2. Minimum annual sales of RM300 Million;

3. Monitoring and providing services to at least 3 related companies locating and operating outside Malaysia;

4. Carrying out qualifying services activities including strategic services such as financial and talent management services; and

5. Acquire local professionals and local financial services.

This incentive is for applications received by MIDA from 1 May 2015 until 30 April 2018.

It is proposed that the Principal Hub incentive be extended for another 3 years.

Effective for applications received by MIDA until 31 December 2020

Expansion of Tax Incentives for Hiring the Disabled

Employer who employ workers affected by accidents / critical illnesses (not being certified by Department of Social Welfare) are eligible to claim a further deduction on the salary paid to the disabled person if they are certified by the Medical Board of the Social Security Organization (SOCSO) able to work within their capability.

Effective from Year of Assessment 2018

Extension of period of tax incentives for tour operating companies

Tour Operating Companies are given 100% tax exemption on statutory income from the business of operating tour packages within Malaysia and to Malaysia up to year of assessment 2018.

It is proposed that the incentive be extended for another 2 years.

Effective from YA 2019 to YA 2020

Extension of period of application for Tax Incentive for Medical Tourism

Those companies providing private health care services which will be carrying out a new investment or which will be undertaking an expansion, modernization or refurbishment are entitled to apply for tax exemption on statutory income equivalent to Investment Tax Allowance of 100% of qualifying capital expenditure for a period of 5 years and can be set-off with up to 100% statutory income

Eligible companies must be:

1. Incorporated under the Companies Act 2016 and residing in Malaysia;

2. Licensed with the Ministry of Health Malaysia; and

3. Registered with Malaysian Health Tourism Council.

Eligible health care travelers are as follows:

1. A non-Malaysian citizen who participates in the Malaysia My Second Home programme and his dependents;

2. An expatriate who is a non-Malaysian citizen holding a Malaysian work permit and his dependents; or

3. A non-Malaysian citizen who visits Malaysia and receives private healthcare services in Malaysia.

This is in respect of applications received by MIDA up to 31 December 2017.

It is proposed that this incentive be extended for another 3 years subject to the following conditions:

A) At least 10% of the total number of patients receiving private healthcare services are comprised of qualified healthcare travellers per year of assessment; and

B) At least 10% of the company’s gross income is derived from qualified healthcare travellers for each year of assessment.

Effective for applications received by MIDA until 31 December 2020

Extension of period of application for tax incentives for new 4 & 5 star hotels

Hotel operators undertaking new investments in 4 and 5 star hotels are currently entitled to the following incentives in respect of applications received by MIDA up to 31 December 2018.

It is proposed that the application period for this incentive be extended for another 2 years.

Effective for applications received by MIDA until 31 December 2020