Malaysia tax laws

Withholding Tax Exemption on Payment to Non Residents For Technical Advice, Assistance, etc

The Minister of Finance has granted withholding tax exemption (WHT) on payments to non-residents that fall within Section 4A(i) and (ii) of the Income Tax Act in respect of offshore services via the Income Tax (Exemption) (No. 9) Order 2017.

In effect this reverts to the previous position, such that intellectual property services (such as trade mark, industrial designs and patent registrations) provided and performed from 6 September 2017 by a foreign intellectual property agent outside of Malaysia will be exempt from WHT.

Guidelines On Taxation of Electronic Commerce

In early 2013, the Inland Revenue Board (IRB) of Malaysia’s issued a guideline on how income derived from e-commerce is to be taxed. This guideline seeks to provide some guidance on basic tax issues and income tax treatment in respect of electronic commerce (e-commerce) transactions.

Notably, the IRB stated that a server / website itself do not carry any meaning in determining derivation of income. Business income from e-commerce would be considered as Malaysian income if the operations test shows that the person is carrying on a business in Malaysia. Even though the server is fully automated in performing business activities, the substantial part of the business activities such as updating and maintaining the current information on the website is still managed by a human (Paragraph 5.1). For more details, please visit Digital News Asia.

The Royal Malaysian Customs (RMC) also released the GST Guides on E-Commerce and Web Hosting to assist in understanding the upcoming Goods and Services Tax and its implications on e-commerce and web hosting businesses.

Under an e-commerce transaction, the RMC stated that if a business is supplying goods or services in Malaysia via the Internet, the business is accountable for the collection of GST as in conventional commerce. This also applies regardless that the transactions are done through a third party e-commerce service provider (e.g. web hosting company).

As for web hosting business, all provisions of services whether it originates in the country or imported from other countries are under the scope of GST. The principal rule with regards to place of supply for services provided by web host is where the supplier belongs. In this context, if the supplier of web host services belongs to Malaysia, such services have to be standard rate. On the other hand if the supplier belongs to another country, the supply of service is out of scope. However, if the recipient of the services provided by overseas supplier belongs to Malaysia, the imported service will be subjected to GST.

Download
Inland Revenue Board – Guidelines On Taxation of Electronic Commerce
Royal Malaysian Customs – Goods and Services Tax – Guide on E-Commerce
Royal Malaysian Customs – Goods and Services Tax – Guide on Web Hosting Services

Income Tax (Deduction for Expenditure on Registration of Patent and Trade Mark) Rules 2009 [P.U. (A) 418/2009]

First published on 18 January 2010

From the year of assessment of 2010 until the year of assessment of 2014, certain companies and enterprises are able to claim tax deduction for fees or payments made to register patents and/or to register trade marks under the Malaysian Patents Act 1983 and Malaysian Trade Marks Act 1976 respectively.

The companies and enterprises that are eligible for such deduction are as follows:

(a) A company which has a paid-up capital in respect of ordinary share of RM2.5 million and less at the beginning of the basic period for a year of assessment but shall not include:

(i) A company where 50% of its paid up capital in respect of ordinary share of the company is directly or indirectly owned by a related company;

(ii) A company where 50% of the paid-up capital in respect of ordinary shares of a related company is directly or indirectly owned by the first mentioned company; and

(iii) A company where 50% of the paid-up capital in respect of ordinary shares of a company and a related company is directly or indirectly owned by another company.

(b) An enterprise in the manufacturing industry, manufacturing related services industry and agro-based industry, resident in Malaysia, which at the end of the basis period for a year of assessment-

(i) has not more than 150 full-time employees; or
(ii) has achieved annual sales of not more than RM25 million ringgit.

(c) An enterprise in the services industries, primary agriculture, information and communications technology industry, resident in Malaysia, which at the end of the basis period for a year of assessment:

(i) has not more than 50 full-time employees; or
(ii) has achieved annual sales of not more than RM5 million.

Download: [ Income Tax (Deduction for Expenditure on Registration of Patent and Trade Mark) Rules 2009]

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