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INLAND REVENUE BOARD MALAYSIA

Translation from the original Bahasa Malaysia text

DATE OF ISSUE : 22 MAY 2009

CONSTRUCTION CONTRACTS

PUBLIC RULING NO. 2/2009

INLAND REVENUE BOARD MALAYSIA

CONSTRUCTIONCONTRACTS

Public Ruling No. 2/2009Date of Issue: 22 May 2009 CONTENTS Page

1. Introduction 12. Interpretation 13. Date of commencement of business 1-24. Recognition of income prior to completion of contract 2-65. Separate source of income 6-96. Estimated loss from uncompleted contracts 9-117. Revision of estimates and tax computation 12-158. Completion of contract 15-189. Individual contractors 18-1910. Outgoings and expenses of construction contractors 19-2611. Other issues related to construction contractors 2612. Information required for audit 2713. Effective Date 27

DIRECTOR GENERAL'S PUBLIC RULING

A Public Ruling as provided for under section 138A of the Income Tax Act 1967is issued for the purpose of providing guidance for the public and officers of theInland Revenue Board Malaysia. It sets out the interpretation of the DirectorGeneral of Inland Revenue in respect of the particular tax law, and the policyand procedure that are to be applied.A Public Ruling may be withdrawn, either wholly or in part, by notice ofwithdrawal or by publication of a new ruling which is inconsistent with it.

Director General of Inland Revenue,

Inland Revenue Board Malaysia.

CONSTRUCTION CONTRACTS

INLAND REVENUE BOARD MALAYSIA

Public Ruling No. 2/2009Date of Issue: 22 May 2009

Issue:

Page 1 of 271. This Ruling explains the basis of determining gross income for the purpose ofcomputing adjusted income derived from the business of constructioncontracts.2. The provisions of the Income Tax Act 1967 (ITA) related to this Public Rulingare paragraphs 4

(a)

and 23

(a)

, section 24, subsections 33(1) and 33(2),section 35, subsection 36(1), sections 39 and 91 of the ITA.3. The words used in this Ruling have the following meanings:3.1 “Construction contracts” means the contracts for the performance ofconstruction services specifically negotiated for the construction of anasset or a combination of assets that are closely interrelated orinterdependent in terms of their design, technology and function ortheir ultimate purpose or use and include main and ancillary contractsincluding but not limited to mechanical engineering, electricalengineering, public utilities projects, project design and consultancy,architectural designing and infrastructural contracts;3.2 “Construction contractor” means a company, an individual, apartnership, a co-operative society, a body of persons, who or whichengages in or carries on or undertakes or causes to be undertakenconstruction contracts;3.3 “DGIR” refers to the Director General of Inland Revenue BoardMalaysia;3.4 “Substantially completed” means ninety-five per cent of the totalestimated construction costs have been incurred; and3.5 “Progress billings” means amounts billed for work performed on acontract (including retention sums) in respect of constructioncontracts, whether or not they have been paid.4.

Date of commencement of business

The date of commencement of a construction contract business is a questionof fact. It may be -(a) on the date on which the contract is secured, a letter of awardis offered, or possession of a construction site is obtained,whether in writing or otherwise;(b) on the commencement of an activity which constitutes part of aseries of activities that are actively carried out in the course of aconstruction contract business; or