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Introduction to Malaysian Taxation for Unit Trust Consultants PowerPoint Presentation
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Introduction to Malaysian Taxation for Unit Trust Consultants

Introduction to Malaysian Taxation for Unit Trust Consultants

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Introduction to Malaysian Taxation for Unit Trust Consultants

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  1. Introduction to Malaysian Taxation for Unit Trust Consultants Presentedby F I M M Speaker: Mr. Vincent Josef (Former ADGIR) Vincent Josef Tax Services

  2. Seminar Programme Vincent Josef Tax Services

  3. Mr. Vincent Josef had served in various branches and divisions of the Inland Revenue Board during his 35 years’ service. These included Companies, Investigation, and Collections Branches. He retired as an Assistant Director General with Revenue Headquarters, Kuala Lumpur. Speaker’s Profile Mr. Josef lectures on Malaysian Taxation at various institutions and manages his consultancy practice where he focuses on tax audits, investigation matters and “dispute resolution”. He has authored a book “Tax Audit & Investigations Guide, Malaysia” published by CCH and serves as their Consultant Editor. Vincent Josef Tax Services

  4. ….a simple truth Tax Planning is not really rocket science. You can often achieve effective benefits of what is available through awareness of the law and compliance with its requirements. Essentially, Tax Planning is: Correct and Proper Compliance Enjoying available benefits Avoiding undue Revenue attention Vincent Josef Tax Services

  5. DIRECT TAXES • Income Tax • Real Property Gains Tax • Petroleum Income Tax • Labuan Business Activity Act • Stamp Duty • The above are administered by the • Inland Revenue Board TYPES OF TAXES Vincent Josef Tax Services

  6. CHARGEABILITY TO TAX Section 3 of The Income Tax Act, 1967 “A tax known as income tax shall be charged for each year of assessment upon the income of any person accruing in or derived from Malaysia.” Governed by sections, Schedules, Rules and Orders, and guided by Public Rulings Vincent Josef Tax Services

  7. Latest News: 2011: 108 B Vincent Josef Tax Services

  8. THE INCOME TAX ACT • Made up of 156 Sections and • 9 Schedules with the main ones being: • Schedule 1 - Tax Rates • Schedule 3 - Capital Allowances • Schedule 5 - Appeals • Schedule 6 - Exempt Income • Schedule 7A – Reinvestment Allow. • Schedule 9 – Transitional Provisions Section 2 and 18 are fully devoted to definitions but further definitions are also available in certain sections. Vincent Josef Tax Services

  9. PERSONS CHARGEABLE - 1 • Person - Company, Body of Persons, Corporation Sole • Individual • Incapacitated Person • Partnership – an association between parties who combine rights, powers, & property for business and sharing the profits. Vincent Josef Tax Services

  10. Responsibilities as - Company Individual Employer Tax Agent • Main Duties: • Payment of Tax • Submission of • Returns • 3. Related to • employees Vincent Josef Tax Services

  11. A “controlled company” is one with not more than 50 members and is controlled by 5 or less shareholders. Such companies receive closer attention from IRB. • Control of Company • Able to exercise control (directly or indirectly) over company’s affairs • Possesses or able to acquire greater part of the issued share capital of the company. Types of Companies “Member” means any person having share or interest in company’s capital or income. Vincent Josef Tax Services

  12. Amendment to SME Definition: SME benefits will be lost if the company controls or is controlled by a non-sme company. • SME Benefits: • No estimate 1st 2 years • No instalments • Special CA rates • 20% on First RM500K Impact of Amendment: Just ensure that the companies in the group have paid-up capital not exceeding 2.5 million Vincent Josef Tax Services

  13. Manager or other principal officer in Malaysia • The directors • Secretary • Any person exercising the functions of any of the above persons Who is Responsible? Sec. 75 Vincent Josef Tax Services

  14. A “Director” includes any person occupying the position of director, and any person in accordance with whose directions the directors are accustomed to act and • Is a manager concerned • with the management of the • company’s business • is remunerated out of the • funds of the business and • Owns 20% or more of the • issued share capital. • A “Service Director” is one: • Employed in a managerial or technical capacity and • Does not own more than 5% of the issued share capital. Types of Directors Vincent Josef Tax Services

  15. Value of living accommodation is the “defined value”. No comparison with 30% of Section 13(1)(a) income • No exemption on “Compensation for Loss of Employment” • No exemption on selected employment benefits • Does not qualify for “Keyman Insurance” • Section 75A – Liable for company’s tax • Liable to Sec. 104 travel restriction Restrictions on Director of Controlled Company (1) Vincent Josef Tax Services

  16. No Exemption • Home-Office-Home • Parking/Meal Allw. • Leave Passage • Child Care • Medical & Dental • Long Service • Interest Subsidy • VoLA (DV or 30%) • Salary: 100,000 • Defined Value: 48,000 • Liable: 48,000 • (Not 30,000) Restrictions on Director (2) • Compensation • Usual: RM10,000 pcys • No exemption, even for • reasons of ill-health • Company’s Outstanding Tax • Company owes RM430,000 • Director has credit balance • Director still liable for company’s • tax AND Sec. 104 Vincent Josef Tax Services

  17. Submit Estimate of Tax at least 30 days before beginning of year of assessment. • Estimate should not be less than 85% of previous year’s estimate (Revision: 6th & 9th month) • Estimate should not be less than 70% of actual tax payable. Sec. 107C Tax Shortfall to be paid within 7 months of close of accounts “Payment” Duties: Companies 1 PENALTIES APPLY FOR ANY FAILURE OF ABOVE! Vincent Josef Tax Services

  18. CLASSES OF INCOME Vincent Josef Tax Services

  19. Business: Includes profession, vocation and trade and every manufacture, adventure, or concern in the nature of trade but excludes employment. CLASSES OF INCOME – DEFINITIONS 1 Even where there is a definition, it is rather vague so as to accommodate all the many possibilities. Employment: In which the relationship of master and servant subsists Any appointment or office for which remuneration is payable. Vincent Josef Tax Services

  20. Remuneration Vincent Josef Tax Services

  21. RECOGNITION OF INCOME Vincent Josef Tax Services

  22. Sole-Proprietors and Professionals Vincent Josef Tax Services

  23. Public Ruling 1/2005: Computation of Total Income Vincent Josef Tax Services

  24. What is Liable? • Fees, Commission, Fees. and other income arising from “carrying on a business or profession” • Including trips, gifts, and rewards, however described • Other Income: • Employment • Interest • Dividend (incld. from unit trusts) • Rent • Pension Where income is ‘in-kind’, market value would apply Vincent Josef Tax Services

  25. DEDUCTIBLE EXPENSES Vincent Josef Tax Services

  26. Records & Documents • Sec. 82(8): Records include: • Books of accounts showing • Receipts and Payments • b. Invoices, vouchers, receipts and other documents to verify entries in books. • Sec. 82A(5): Documents means: • Statement of Income and Expenditure • Invoices, vouchers, receipts and others to verify particulars in a return. Vincent Josef Tax Services

  27. Common Claims (1) • Travelling & Entertainment: • Places and Persons • Date and Time • Business Discussed • Result: Sales details • Sub-commission, Incentives: • Name, IC No., Address • Reason for Payment • Details of Sales achieved • Basis • Signed Voucher Vincent Josef Tax Services

  28. Common Claims (2) • Office Maintenance: • Details of work done • Location – Home or Office? • Who done by • Bills and Receipts • Staff Training & Seminars: • Title of event • Date and Location • Who presented by • Subject matter - Relevance • Brochure • Payment receipt Vincent Josef Tax Services

  29. New Section 83A: Every company shall for each year provide to each of its agent, dealer or distributor a copy of the form prescribed by the DG. Present: No such requirement New obligation is similar to employees and Form EA Benefit: Will assist DG in income verification. Useful in Tax Audits & Investigations. • Particulars of payment • Name and Address • Other details if needed • Original kept by company • Monetary or otherwise • Applies to companies only Vincent Josef Tax Services

  30. New Section 83A: New Form: CP 58 Definition: Agents, Dealers, Distributors means any person who is authorised by a company to act as its agent, dealer or distributor, and who receives payment (whether in monetary form or otherwise) from the company arising from sales, transactions or schemescarried out by him as an agent, dealer or distributor. To be given to agent, dealer by 31st March each year. Vincent Josef Tax Services

  31. Tax Investigations and Tax Audits Vincent Josef Tax Services

  32. Avoidance Utilising tax laws to minimise the level of taxation applicable. Revenue can interfere if this done purely to save taxes and not out of business justification Section 140 refers. Evasion Deliberate efforts, throughfalsification of records, accounts, etc to lower taxes. Section 114 applies and severe penalties await, including imprisonment. Investigations and Audits - Vincent Josef Tax Services

  33. as per Investigations and Audit Frameworks Tax Audit: An examination of a taxpayer’s business records and financial affairs to ascertain the amount of tax that should be reported. Tax Investigation An examination of a person’s business and/or individual books, records, and documents to ensure that the correct amount of income has been reported and the tax thereon paid. What are Investigations & Audits? Vincent Josef Tax Services

  34. Often, an investor’s worry is that the funds he places in unit trusts or elsewhere may result in queries by IRB. Does he need to worry? A Simple Test - Making Investments Vincent Josef Tax Services

  35. NOTICE OF AUDIT VISIT 1. Date of impending visit; at least 14 days notice will be given 2. The records that should be made available 3. Years of assessment under audit 4. Names of the officers concerned Vincent Josef Tax Services

  36. IRB’S AUTHORITY Vincent Josef Tax Services

  37. TRANSACTION Source Document MAINTAINING PROPER RECORDS Records Bank Statements Accounts Tax Returns Vincent Josef Tax Services

  38. THE EXAMINATION PROCESS 1. Be Prepared – The IRB will be! 2. Discuss with accountant and tax agent 3. Review Returns, Accounts, and Computations 4. A Table showing the performance for the relevant years would be very helpful Vincent Josef Tax Services

  39. Trading Account Basis of Income Recognition Stock balance reconciliation Confirmation: Gross Revenue Confirmation: Gross Purchases ISSUES THAT WILL BE EXAMINED Profit & Loss Account Bigger items Personal/Private expenses Remuneration & EA Forms Professional Fees Foreign exchange losses Vincent Josef Tax Services

  40. Records and Documents Documents Invoices Receipts Credit Notes Given Credit Notes Received Delivery Notes Stock Books Bank Documents Statements Bank-in Slips Cheque Butts Credit Notes & Discounts Very popular for IRB! Agreement Relevant documents Other Documents Contracts (S & P) Agreements STD/Withholding Tax Vincent Josef Tax Services

  41. Records and Documents Accounts Trading Account Profit & Loss Balance Sheet Ledgers Explanatory Notes Income Tax Returns Tax Computation Working Sheets Schedules Supporting Documents Sub. Computations Vincent Josef Tax Services

  42. Tax Audits - Basis of Selection • Net Profits consistently low, bear in mind that professionals earn their income through personal effort • Expenses unrelated or unduly high • Publications, Newspapers • Acquisition of assets • Informers • Random, by Industry The biggest source of information? Your own Returns! Vincent Josef Tax Services

  43. Acquisition of Assets • Motor vehicles, especially the more expensive makes. How used in the business? • Houses, particularly up-market types. • Other investments. Income declared? Cash or Loan – Any impact? Instalment Schedule: How do you afford it? Vincent Josef Tax Services

  44. Johan’s Asset and personal details are as follows: MEANS TEST (1a) Vincent Josef Tax Services

  45. Determination of Income Discrepancy: MEANS TEST (1b) Vincent Josef Tax Services

  46. Reliefs And Deductions Vincent Josef Tax Services

  47. Vincent Josef Tax Services

  48. Vincent Josef Tax Services

  49. OFFENCES & PENALTIES • Incorrect Returns: Section 113 • Omits or understates income • Gives incorrect information • Fine (By Court): a. RM1,000 min./RM10,000max. • b. Sp. Penalty of 200% Tax Lost • Penalty (By IRB): 100% of Tax Lost Vincent Josef Tax Services

  50. OFFENCES & PENALTIES • Wilful Evasion: Section 114 • Makes false statement • Omits income • Gives false answer • Falsifies or maintain false accounts and records • Fine (By Court): a. RM1,000 min./RM20,000 max. • b. Imprisonment of 3 years • b. Sp. Penalty of 300% Tax Lost Vincent Josef Tax Services