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Taxation in Malaysia (The Cases)

Tax law is found in many places - tax law is generated by the federal government, state government as well as counties, cities, and other municipalities. The variety of taxes that everyone faces is staggering - tax law affects almost every aspect of your life. Generally, all income of companies and individuals accrued in, derived from or remitted to Malaysia are liable to tax. However, income remitted to Malaysia by resident companies, non-resident companies and nonresident individuals are exempted from tax. Apart from income tax, there are other direct taxes such as real property gains tax, and indirect taxes such as sales tax, service tax, excise duty and import duty. Currently, income tax is assessed on the income earned in the preceding year according to the Official Assessment System. As a measure to modernize and streamline the tax administration system, the assessment of income tax will be changed to the current year assessment from the year 2000. The present Official Assessment System will be changed to the Self-Assessment System in stages as follows:Group Companies Business, partnerships and cooperatives Salaried group Year of Implementation 2001 2003 2004

To facilitate the changeover, all income received in 1999 will be waived from income and losses incurred in 1999 will be allowed to be carried forward. Agreements for the Avoidance of Double Taxation provide for the avoidance of incidence of double taxation on income such as business profits, dividends, interest and royalties that are derived in one country and remitted to another country. To-date, Malaysia has signed such tax treaties with the following countries:

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Albania Argentina Australia Austria Bangladesh Belgium Canada China Czech Republic Denmark Egypt Fiji Finland France Germany Hungary

India Indonesia Iran Italy Japan Jordan Korea, Republic of Kuwait Malta Mauritius Mongolia Netherlands New Zealand Norway Pakistan Papua New Guinea Philippines Poland Romania

Russia Saudi Arabia Singapore Sri Lanka Sudan Sweden Switzerland Thailand Turkey United Arab Emirates United Kingdom United States of America Vietnam, Socialist Zimbabwe

Malaysia maintains a fiscal system, which is consistent, fair, transparent and competitive. Mineral producers are required to pay an income or corporate tax based on the profits of their operations. Malaysia's corporate tax today is 28 per cent, one of the lowest in the region. Export duties on most minerals have been abolished. Most raw minerals are subject to low or zero level import duty. For those still subject to import duties, the importer may apply to the government for a waiver. Imported machineries and equipment for use in mining projects are subject to the general schedule of import tariffs but an application can be made on a case-by-case basis. Value-based royalties are assessed by some individual states on some mineral commodities. Certain area-based land premiums and rental fees, processing and application fees for mining lands are imposed by the states. 16

a) Corporate Income Tax A company, whether resident or not, is assessable on income accrued in or derived from Malaysia or derived from sources outside Malaysia and remitted by a resident company is exempted from tax, excluding case of the banking and insurance business, and sea and air transport undertakings. A company is corporated resident in Malaysia if the control and management of its affair are exercised in Malaysia. A tax of 28% applies to both resident and non-resident companies. A company carrying on upstream operations is subject to a Petroleum Income Tax of 38%.

Dividend Witholding Tax

An employee on short-term visit to Malaysia enjoys tax exemption from a exercised in Malaysia when his presence does not exceed 60 days in a a calendar year. However, the non-resident individual who performs independent services such as consultancy services is not exempted.

Royalty

Besides premium and annual rent on the mining land, royalty is another form of tax that can be levied by a State or a Territory to raise revenue from any mineral produced within its boundary. This output-related tax is a percentage of the value of production based on a price fixed by government on the mineral.

Import and Export Duty on minerals

In Malaysia, import and export duties on minerals are mostly imposed ad valorem specific duties on a items. Nevertheless, over the last few years, Malaysia has abolished all the duties on minerals, except for import duty of certain types of minerals. However, import and export duties on mineral products are mostly imposed.

Incentives

Companies investing in mining and mineral exploration per se currently do not enjoy much front-end investment incentives. However, those involved in mineral processing and the manufacturing of mineral-based products do enjoy several investment incentives and other facilities. The principal incentives for such investments and facilities are provided for in the Promotion of Investments Act 1986, the Income Tax Act 1967, the

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Custom Act 1967, the Sales Tax Act 1972 and the Excise Act 1976. These incentives include the pioneer status, which takes the form of partial exemption from corporate tax, and the investment tax allowance, which provides for an allowance amounting to 60% of the qualifying capital expenditure incurred on the project within five years from the date of first incurrence of capital expenditure. There are also incentives given for manpower training and full import duty exemption on raw materials for products that are exported, and also exemption from import duty and sales tax on machinery and equipment used directly in the production process or used for environmental control, recycling, maintenance and quality control. As embodied in the National Mineral Policy, the Malaysian Government welcomes foreign investment. Malaysia's equity policy in projects involving the extraction or mining and processing of minerals is such that majority foreign equity participation of up to 100 percent is permitted. In determining the percentage, three criteria will be considered, namely the level of investments, technology and risk involved in the projects, the availability of Malaysian expertise in the areas of exploration, mining and processing of the minerals concerned and the degree of integration and level of value-added involved in the projects. In keeping with the objective of ensuring increasing Malaysian participation in mining activities, it is the policy of the Government to also encourage mining projects to be undertaken on a joint-venture basis between Malaysian and foreign partners. All such participation is exclusively on a paid, carried interest basis or other similar arrangements. A private investor that has been approved with a given equity condition will not be requested to restructure his equity at any time, notwithstanding the fact that he may have undergone an expansion or diversification, provided that the he continues to comply with the original conditions of approval and retains the original features of the project.

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in Para 4.1 above. However, for the following types of income, nonresident individuals are subject to a withholding tax which is a final tax: (a) Special classes of income - use of moveable property - technical advice, assistance or services - installation services on the supply of plant, machinery, etc. - personal services associated with the use of intangible (b) (c) property Services of a public entertainer Interest 15% 15% 10%

An employee on a short-term visit to Malaysia enjoys tax exemption in respect of his income from an employment exercised in Malaysia when his presence does not exceed 60 days in a calendar year. However, the income of a nonresident individual who performs independent services such as consultancy services is not exempted from tax.

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Reference
Jawahitha, et.al, Basic Law Q & A, Prentice Hall, Kuala Lumpur, 2002.

http://en.wikipedia.org/wiki/Income_tax

mmls online notes melaka, BHM 3076 Basic Law

http://www.gov.my/MyGov/BI/Directory/Citizen/TaxationAndCollections/Incom eTax/

http://www.lawyerment.com.my/

http://www.treasury.gov.my/

http://www.hasilnet.org.my/

http://www.jmg.gov.my/

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Appendices

ASSESMENT OF TAX - Type of Tax > Income Tax > Example of Tax Computation

STATUTORY INCOME(Business sources) STATUTORY sources)

(Gross business income less allowable expenses and Capital Allowances claimed) (Employment , dividend, interest, rent premises, etc. ) ( )

INCOME(Non Business and occupation of non-business

( _____

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AGGREGATE INCOMELess : Donations/Gifts to Government ( and approved Institutions. TOTAL INCOMELess: (i) Personal Reliefs -self and dependents -medical expenses for parents -medical expenses for serious disease inclusive of medical

)(

_____ ( ) ( ( ) ) ) ) ) ) ) ) )

( examination -disabled individual ( -disabled wife/husband ( -fees for education in scientific, technology or vocational fields or ( vocational fields -cost of purchase of necessary basic supporting ( -equipment for disabled person ( -purchase of books, journals, magazines and other similar ( publications -wife. -child/disabled child

(ii) Other Reliefs -insurance premiums and obligatory contributions to an approved provident fund. insurance premium on education -or medical benefit -annuity premium purchased through EPF annuity scheme ( ( ( _____ ( _____ ( ) ) ) ) )

CHARGEABLE INCOME INCOME TAX CHARGEABLE (as per tax rates) Less : Rebates (i) Self (ii) Wife (iii) Zakat, Fitrah

( ( (

) ) )

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(iv) Purchase of personal computer (v) Levy on foreign workers

( ( _____

) ) ( ) _____

Less: Relief for foreign tax/tax deducted at source from dividends (

TOTAL TAX PAYABLE / REPAYABLE

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