PRIVATE & CONFIDENTIAL

KPMG Australia
(By Email)
Our ref NAC/YUNE/KWY
Contact +603 7721 7211
+603 7721 7347

8 October 2018

Dear Tony,

Re: KPMG Australia International Trust

Malaysian Tax Advisory

Further to the email correspondences and our telephone conversation on 19 September 2018, we
understand the following:-

 KPMG Australia International Trust, a trust entity, has been identified to act as the engaging
entity to carry out an advisory engagement in Malaysia.

 Pursuant to Phase 2 of the project which commenced on 14 August 2018, you have
confirmed that the trust arrangement should have a permanent establishment (“PE”) in
Malaysia. You have also informed us that the trust in Australia has a year end of 30 June. As
such, the basis period of the PE is from 14 August 2018 to 30 June 2019 for the first year of
assessment (“YA”).

 Under Section 2 of the Malaysian Income Tax Act, 1967 (“MITA”), “company” means:-

a body corporate and includes any body of persons established with a separate legal
identity by or under the laws of a territory outside Malaysia and a business trust.

Based on the Capital Markets and Services Act 2007, “business trust” within the
Malaysian context means a unit trust scheme where the operation or management of the
scheme and the scheme’s property or asset is managed by a trustee manager.

Where the trust arrangement falls within the definition of a “company”, a corporate tax file
should be registered with the Malaysian Inland Revenue Board (“MIRB”) and a tax return
should be filed.

In view of the above, you would like to seek our advice specifically on:-
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8 October 2018

 Corporate income tax compliance obligations (i.e. tax file registration, filing of estimate of
tax payable and filing of tax returns)

 Withholding tax (“WHT”) at a rate of 10% + 3% under Section 107A of the MITA in respect
of the income received by the PE

 Personal income tax compliance obligations (i.e. filing of personal tax returns and any tax
obligations in respect of employees for the trust)

 Service tax

Please note that our comments are limited to Malaysian corporate income tax, personal
income tax and service tax issues only and do not include comments on stamp duty, real
property gains tax, transfer pricing, overseas taxes, legal and regulatory matters.

Our scope of work is at a conceptual level only and does not include implementation work (i.e.
it will not include any detailed calculations, cash flow forecasts, submission of tax returns,
transfer pricing studies, preparation and review of correspondence, applications and
supporting documentation to the relevant authorities etc) including any review of contractual
agreements, financial models or any documentation.

Our comments

1. Corporate tax

1.1 Corporate income tax compliance obligations

On the basis the Australian Trust has a PE in Malaysia, a corporate tax file number should
be registered as soon as possible.

The tax file can be registered online through the MIRB’s website or can be applied for in
writing from the MIRB.

The information required to be furnished to the MIRB includes the following:-

 Date of registration / establishment of the Australian Trust in Australia

 Date of commencement of the PE in Malaysia
 Registered address in Malaysia
 Nature of business in Malaysia
 Accounting year end

In addition, the Australian Trust is required to estimate the tax payable and comply with
the tax filing requirements including, but not limited to, the submission of a Malaysian tax
return for each YA (see Appendix 1 for further details).

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On the basis that the PE commenced its operations on 14 August 2018 with a basis period
ending on 30 June 2019 (i.e. more than 6 months), it is required to submit the initial
ETP to the MIRB on or before 13 November 2018.
In relation to the tax return, it should be submitted within 7 months from the date
following the close of the financial period. As the PE has an accounting period ending 30
June, the PE must file its tax return for YA 2019 to the MIRB by 31 January 2020.

In the case of a company, the MITA specifically state that the tax return furnished has to
be based on audited accounts. In the context of a PE, we are aware of taxpayers arranging
for the auditors to perform an agreed upon procedures on the financial statements instead
of an audit.

1.2 Taxability of the income received by the PE and the deductibility of the business
expenses

The profits attributable to the PE will be subject to Malaysian corporate income tax at the
prevailing corporate rate of 24%.

Expenses wholly and exclusively incurred in the production of gross income from a
source would be allowed as a deduction unless such expenses are capital expenses or
expenses specifically prohibited under the MITA. If the expense is capital in nature, it
will not be tax deductible. Instead a claim for capital allowances can be made if the
expenditure is on a qualifying asset.

Please also note that pre-commencement expenses are not tax deductible.

In addition to the above, effective YA 2016, business income in respect of services shall
be taxable when a debt owing in respect of the services arises, notwithstanding whether
the services have been rendered or are yet to be rendered. The above treatment also
applies to a debt owing to person in respect of the use or enjoyment of any property dealt
with or to be dealt with in the course of carrying on a business.

Even where no debt is owing in respect of the services or property, any sum received in
the basis period for any services to be rendered or the use or enjoyment of any property to
be dealt with in the relevant basis period or subsequent to that relevant period shall be
taxable in that basis period.

2. General overview of the Malaysian WHT regime

The following are the main sections of the MITA which deal with the application of WHT
to fees for services rendered in Malaysia by non-resident contractors:-

 Section 107A; and

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 Section 109B.

Generally, the application of Section 107A or Section 109B depends on whether the
non-resident has a PE in Malaysia. Section 107A is usually applicable where a PE exists,
while in the absence of a PE, Section 109B would apply. Where a Double Taxation
Agreement (“DTA”) exists between both countries, the Section 109B rate of 10% may be
reduced subject to meeting the conditions as laid out in the DTA.

The obligation to administer WHT is with the payer.

2.1 Malaysian WHT under Section 107A of the MITA

Where there is a PE, the payment for consultancy services received from the Malaysian
payer would be subject to WHT at a rate of 10% + 3% pursuant to Section 107A of the
MITA. The 10% tax withheld under Section 107A(1)(a) may be set off against the
Malaysian income tax due from the PE (where any). In this respect, the tax withheld
represents an advance payment of tax and not a final tax.

Where the 10% deducted is lower than the PE’s tax liability, the difference would have
to be paid to the MIRB. Conversely, where the 10% WHT deducted is higher, the excess
is refundable to the PE. In order to apply for the 10% refund, a separate application has
to be submitted to the MIRB.

Please see our comments in item 6 in relation to the 3% WHT.

2.2 Malaysian WHT under Section 109B of the MITA

WHT under Section 109B applies to payments made to non-residents which fall within
the definition of Section 4A income. The definition of Section 4A classes of income
includes “amounts paid in consideration of technical advice, assistance or services
rendered”.

In the case of technical fees paid to a resident in Australia, the agreement reached
previously between the Australian and Malaysian Governments is that such amounts are
not subject to WHT where there is no PE of the non-residents in Malaysia. WHT under
Section 109B would be relevant if the PE makes payments to non-residents (other than tax
residents of Australia) for technical services.

3. Basis of taxation of employment income

As the employees from Australia will be exercising employment in Malaysia for more
than 60 days, they would be subject to Malaysian income tax.  Further, the employment
income cannot be exempted under the tax treaty on the basis that the Australian Trust has
a PE in Malaysia.

The remuneration payable relating to their assignment in Malaysia would be taxable

irrespective of whether the remuneration is paid in or outside Malaysia. As such, the
remuneration paid in Malaysia and Australia including any benefits provided to the

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employees during their assignment in Malaysia would be subject to Malaysian tax. The
personal income tax rates apply to their remuneration would depend on their tax residency
status in Malaysia.

4. Employee’s tax obligations

As the employees from Australia will be exercising employment in Malaysia, the

obligations to file the personal tax returns, which is on a calendar year basis, lies with
them.

The employees, as taxpayers, are required to:-

 File the annual tax returns on or before 30 April of the following year; and

 Settle the balance of tax (if any) on or before 30 April of the following year.

 To submit a personal tax return together with Form CP21 (Leaver Form) to the MIRB
one month prior to his permanent departure from Malaysia for tax clearance
purposes. If the individual qualifies as a tax resident, his original passport(s) will also
need to be submitted to the MIRB for their verification to determine his residence
status prior to his permanent departure from Malaysia. Any balance of tax due would
be payable prior to his departure from Malaysia or within 21 days from the date of
issuance of the tax clearance letter, whichever is earlier.

5. Employer’s tax obligations

Where the Australian Trust has a corporate tax file number, the Australian Trust is able to
register itself for an employer’s tax number to facilitate the discharging of the employer’s
tax obligations.

As an employer, the obligations are as follows:-

 Notification of commencement of employment within one month from the

commencement date;

 Notification of cessation of employment to the MIRB not less than one month before
the expected departure date and withholding of moneys (where applicable);

 Remit Monthly Tax Deductions to the MIRB on or before the 15th day of the
following month;

 Prepare and deliver the Statement of Remuneration from Employment (Form EA) to
the employees by the last day of February of the following year.

 File the Return Form of Employer (Form E) by 31 March of the following year; and

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 Comply with record keeping for a period of 7 years.

6. Refund of 3% WHT deduction under Section 107A(1)(b) of the MITA

The 3% WHT referred to in item 2.1 is essentially a security deposit for the Australian
Trust’s expatriate employees’ taxes in Malaysia.

The 3% WHT would be refunded to Australian Trust where Australian Trust is able to
substantiate that all its expatriate employees have fully discharged their tax obligations in
Malaysia.

In order to apply for the 3% refund, an application has to be submitted to the MIRB.

7. Service Tax

The Malaysian Service Tax is effective from 1 September 2018 following the repeal of
Goods and Services Tax (“GST”). A service provider is liable to be registered under the
Service Tax Act 2018 when the value of taxable services provided for a period of 12
months exceeds a threshold of RM500,000. 

The Service Tax legislation did not state whether foreign entities must / can register for
service tax in Malaysia. Administratively, as a local establishment, an address / place of
business is required for service tax registration. Under the previous Service Tax regime
which existed prior to GST, it could be difficult to register non-residents for service tax
where they had not formally registered a branch. It remains to be seen what approach the
Royal Malaysian Customs Department will take under the new Service Tax regime to a
non-resident who wishes to register but has not established a branch in Malaysia.

We hope the above clarifies.

Please note that the comments in this report have been prepared solely for KPMG Australia in
respect of KPMG Australia International Trust and should not be circulated to other advisors
or third parties without the prior permission of KPMG Tax Services Sdn Bhd.

In the event that you are not the intended recipient of this report, you are advised not to treat
the contents of this report as advice relating to your taxation matters. You should consult
your own professional advisers.

Please note that the scope of this report is limited to the information provided to us. The
comments in this report are based on the completeness and accuracy of the facts and/or
representations provided by you. If any of the aforementioned facts, representations or
assumptions is not entirely complete and accurate, it is imperative that we be informed
immediately, as the inaccuracy and incompleteness could have a material effect on the
conclusions in this report.

In preparing this report, we have relied upon the relevant provisions of the Malaysian tax
legislation, the regulations thereunder and judicial and administrative interpretations thereof.
Such authorities are subject to change, retrospectively or prospectively, and any such changes

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could affect the validity of this report. We will not update this report for the subsequent
changes or modifications to the legislation, regulations thereunder, and judicial and
administrative interpretations thereof.

Please do not hesitate to contact our Ms Leow Yune Yune (ext 7211) or Ms Koi Wei Yee (ext
7347) should you require further information or clarification.

Yours faithfully

Nicholas Crist
Executive Director

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Appendix 1

Malaysian corporate income tax filing obligations under the Self Assessment System

Malaysia has adopted the Self Assessment System, under which a taxpayer works out and pays
its own income tax.

Under the Self Assessment System, the MIRB conducts tax audits on taxpayers to promote
voluntary compliance with tax laws and regulations.

All companies (including branches and PEs) established in Malaysia are required to comply with
the following.

1. Estimate of Tax Payable (“ETP”)

i. Initial ETP

The initial ETP must be submitted in the prescribed form (e-Form CP204) to the MIRB
30 days before beginning of the basis period for each YA. However, when a company /
PE first commences operations (i.e. during the first basis period), the ETP must be
submitted to the MIRB within 3 months from the date of commencement of its
business and thereafter no later than 30 days before the beginning of the basis period.

With effect from YA 2011, where a company / PE first commences operations in a YA

and the basis period for that YA is less than 6 months, that company / PE is not
required to furnish an ETP for that YA.

ii. Revision of ETP

Revision of the ETP may be made either upwards or downwards in the sixth month
(i.e. by 31 January 2019) and / or ninth month (i.e. by 30 April 2019) of the basis
period by submitting the prescribed form (e-Form CP204A).

iii. Payment of tax by instalments

Upon receiving the completed e-Form CP204 furnished by the company / PE, the
MIRB will not issue any Notice of Instalment Payment (CP205) unless the company /
PE was granted the approval for a lower amount of instalment for the YA as mentioned
above. Instead, the MIRB will only issue the company with the Remittance Slips
(CP207).

The ETP is required to be settled in equal monthly instalments as determined by the

number of months in the basis period. Each instalment must be paid to the MIRB by
the 15th day of each calendar month beginning from the second month of the basis
period for that YA.

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Appendix 1 (continued)

However, where a company / PE first commences operations (i.e. during the first basis
period), its first instalment will commence from the sixth month of the basis period.

The basis period of the PE is from 14 August 2018 to 30 June 2019 for the first YA.
Hence, its first instalment for YA 2019 is by 15 January 2019.

iv. Penalties

a. Failure to furnish an ETP

A delay in submitting the ETP is an offence and the company / PE would be liable
to a fine not exceeding RM20,000 or to imprisonment of its principal officer for a
term not exceeding 6 months or both upon conviction.

Pursuant to Section 107C(10A) of the MITA, with effect from YA 2011, a 10%
penalty of the tax payable (if any) will be imposed on the company / PE without any
further notice where for a YA:-

i. the company / PE fails to furnish an ETP for the YA and no direction is

given by the Director General of Inland Revenue to the company / PE to
make the tax payment by instalments for that YA;

ii. no prosecution has been instituted in relation to the company’s / PE’s

failure in furnishing such ETP for that YA; and

iii. tax is payable by the company / PE for that YA.

Please note that the penalty shall be due and payable upon the submission of the
company’s / PE’s tax return for that YA.

b. Failure to pay instalments by the due dates

In the event of default in payment of the full amount of the instalment by the due
date, a 10% penalty will be imposed on the amount unpaid by the due date.

c. Underestimation of ETP

If the differences between the tax payable under the assessment of the company /
PE (based on the amount declared in the tax return) and the revised ETP or initial
ETP (if no revised ETP is furnished) is more than 30% of the tax payable under the
assessment, a 10% penalty will be imposed on that difference in excess of 30% of
the tax payable under the assessment.

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Appendix 1 (continued)

The penalty is calculated based on the following formula:-

10% on [(actual tax payable under the assessment – initial / revised

estimate of tax payable) – (30% of actual tax payable under the
assessment)]

The penalties that may be imposed could be appealed against. However, stringent
proof is required to substantiate that the circumstances that arose which resulted in
higher taxes were beyond the company’s / PE’s control. The penalty due is to be
settled on the due date for the submission of the tax return.

In respect of items (b) and (c) above, taxpayers are to compute the late payment
penalties and voluntarily remit the penalties due to the MIRB. The penalty for
underestimation of an ETP is to be settled on the due date for the submission of the
tax return. Please note that the penalties are recoverable by the MIRB as tax due
under the MITA and the MITA does not provide for the imposition of any further
penalties for non-payment of the late payment penalties. However, the MIRB could
institute legal proceedings to recover the debt due from the company / PE.

2. Tax return

i. Filing of tax return

Pursuant to Section 77A of the MITA, companies / PEs are generally required to
submit their tax returns (e-Form C) within 7 months from the date following the close
of the financial period which constitutes the basis period for the YA.

In addition, pursuant to Section 77(4) of the MITA, the tax return must be prepared
based on the company’s audited accounts. However, in the case of a PE where it does
not has to prepare an audited accounts instead it is necessary to has a report on agreed
upon procedures regarding financial information for the needs of corporate income tax
return.

A copy of the tax return form is also enclosed for your reference.

An assessment is deemed served on the day on which the tax return is furnished and is
based on the amount of chargeable income and tax payable (if any) submitted for that
YA. As such, no notice of assessment will be issued to the taxpayer.

ii. Payment of income tax

The tax return submitted by a company / PE under the Self Assessment System is
deemed to be a notice of assessment. The balance of income tax (net of instalments
paid) under a deemed assessment (the return) shall be due and payable on the due date

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Appendix 1 (continued)

of the submission of the return (seven months from the date following the close of the
financial period), i.e. by 31 January.

iii. Penalty provisions

a. Failure to submit a tax return

The MIRB has been taking a tough stand on companies / PEs which have defaulted
in meeting the deadline for the submission of the tax return, including those which
are not in a tax paying position.

The MIRB is empowered pursuant to Section 90(3) of the MITA to make an

estimate of the chargeable income of the company / PE for a YA and to raise an
assessment accordingly on an arbitrary basis. In addition, a penalty under Section
112(3)(a) of the MITA may be imposed, which is a penalty equal to treble the
amount of the tax which, before any set-off, repayment or relief under the MITA,
is payable for that year.

In addition to the above, the MIRB may enforce the submission of the tax return by
issuing a final notice. Upon the issuance of the final notice, the company / PE is
required to file the tax return within thirty (30) days from the date of the final
notice. Failure to comply with the final notice could render the director of the
company / PE, on conviction, to a fine of RM200 to RM20,000 or a term of
imprisonment not exceeding six months, or both under Section 112(1) of the
MITA. Please note that a penalty imposed under Section 112(3)(a) can only be
imposed where prosecution under Section 112(1) has not been instituted.

As a matter of practice, with effect from 1 October 2011, the MIRB will impose
penalties ranging from 20% to 35% of the tax payable for late filing of tax return.

b. Failure to remit tax payable

As the tax return submitted is deemed as a notice of assessment, any balance of tax
payable should be remitted to the MIRB together with the tax return. Failure to do
so will result in the MIRB imposing a penalty equivalent to 10% on the balance of
tax payable and if the tax is still not paid after 60 days, a further 5% penalty will be
imposed.

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