TOPIC 2

CORPORATE TAXATION:
TAX COMPUTATION
 STEP 1: ADJUSTED INCOME
- (RM) + (RM) Remarks
Section 4(a) Manufacturing business
Profit before taxation aa 1.1
Other income 1.2
• Interest & dividend income bb
• Rental income cc
Deductible expenses 1.3
• Salaries and wages nil
• Bad debt written-off nil
• Utilities expenses nil
Non-deductible expenses 1.4
• Depreciation dd
• General provision of doubtful dd
debts
• Renovation of premises dd
 STEP 1: ADJUSTED INCOME
- (RM) + (RM) Remarks
Double deductions 1.5
• Remuneration of disabled ee
employees
• Costs of approved training ee
• Cash contribution to ee
approved research
institute
ff fff
(ff)
Adjusted income gg 1.6
 STEP 1: ADJUSTED INCOME
Remarks Explanations
1.1 If there is a loss before tax, the amount will be written
under the –ve column.
1.2 Other non-business incomes are minuses in arriving at
adjusted income. They are then included under the
correct sections.
1.3 Deductible expenses are indicated as “nil” under the
+ve column.
1.4 Non-deductible expenses are added back.
1.5 Double deduction expenses are minuses in arriving at
adjusted income.
1.6 If adjusted income is –ve amount (i.e. adjusted loss), the
amount will be written as “nil”.
The –ve amount will be current year business loss to be
minuses against aggregate income.
 STEP 1: ADJUSTED INCOME
Expenses Example
Non- Expenses that are not incurred:
deductible • General provision of doubtful debts
• Provision of gratuity/retirement benefits
• Provision for warranty costs, stock obsolescence
• Depreciation and amortisation
• Unrealised foreign exchange loss on acquisition of stock
• Preliminary expenses written-off.
Capital expenditure
• Cost of printing & distributing annual reports
• Stamp duty and secretarial fees for increased share
capital
• Stock listing expenses
• Pre-commencement business expenses
• Entrance fees to club
• Legal & professional fees relating to violation of law,
capital structure of company, acquisition of NCA & LTL
 STEP 1: ADJUSTED INCOME
Expenses Example
Non- Capital expenditure (cont.)
deductible • Donations (approved & non-approved)
• Lump sum payment for early termination of lease
• Loan written-off to that of employees’/suppliers’
• Fines and penalties
• Foreign exchange gain/loss on acquisition of NCA,
repayment of foreign loans
• Trademark registration
• Fees for designing corporate logo
• Payment due to restrictive covenants
• Loss on disposal of long-term investment
Expenses related to s4(c) and s4(d)
• Not deductible against business income, thus + back.
• Minuses later against the individual source of income.
 STEP 1: ADJUSTED INCOME
Expenses Example
Non- s39 Expenses specifically disallowed
deductible • Private and domestic expenses
• Expenses not wholly and exclusively incurred in the
production of gross income
• Capital employed or money withdrawn as capital
• Contribution to unapproved pension/provident/saving
schemes
• Withholding tax and late payment penalty
• Leave passage
• License/permit fee for timber extraction
• Lease rental restriction
• Entertainment expenses (50% deduction)
• Labuan entity
• Anti-avoidance to incentives companies
 STEP 1: ADJUSTED INCOME
Expenses Example
Capital asset • Renovation of premises
expensed off to • Improvement expenses
P&L account (not • Small value capital items (assets e.g. calculators,
deductible) chairs etc.)
• Installation cost of machines charged in repair &
maintenance account
• Cost of stand used in advertising
• Deposits paid for telephone/utilities
• Replacement of electrical alarm system
Double deduction • Remuneration of disabled employees
(expenses must be • Remuneration of senior citizens, ex-convicts,
revenue in nature parolees, supervised persons, & ex-drug
& not prohibited dependents
by s39) • Provision of TalentCorp-approved internship
programme to students
 STEP 1: ADJUSTED INCOME
Expenses Example
Double • Expenditure incurred on approved training to
deduction employees by manufacturing, non-manufacturing
(expenses companies, hotels, tour operators + disabled non-
must be employees
revenue in • Provision of registered child care centres for employees’
nature & benefits
not • Expenditure incurred in obtaining certification for
prohibited recognised quality systems & standards, and halal
by s39) certification.
• Expenses incurred for registration of patents,
trademarks, and product licensing overseas.
• Advertising expenditure on Malaysian brand name
goods.
• Ship freight charges for shipping goods from Sabah/
Sarawak to Peninsular incurred by manufacturer and
used ports in Peninsular.
 STEP 1: ADJUSTED INCOME
Expenses Example
Double • Export credit insurance premium paid to Malaysia
deduction Export Credit Insurance Bhd.
(expenses • Export credit insurance premium based on Takaful
must be concept paid to companies approved by MoF.
revenue in • Expenses incurred for participation in an approved
nature & international trade fair held in Malaysia.
not • Expenses incurred for the promotion of
prohibited exports/promotion of export of services/promotion of
by s39) export of professional services.
• Expenses incurred in participating in a virtual trade
show/portal and costs of maintaining warehouse
overseas for promotion of exports.
• Expenses for promotion of export of higher education
by companies registered with MOHE.
• Overseas promotion expenditure incurred by profit-
oriented private schools and international schools.
 STEP 1: ADJUSTED INCOME
Expenses Example
Double • Overseas expenses incurred for promotion of tourism
deduction by hotels/tour operators registered with Malaysian
(expenses Tourism Board.
must be • Revenue expenditure on approved R&D.
revenue in • Cash contributions to approved research institute;
nature & service fee to approved research institute/company;
not R&D company/contract R&D company.
prohibited • 50% of rental payment incurred by Tun Razak Exchange
by s39) Marquee status company.
• Expenditure (≤ RM300,000/YA) incurred in
implementing vendor development programme.
• Additional expenses incurred in the issuance of retail
debenture and retail sukuk.
 STEP 2: STATUTORY INCOME
RM RM
Adjusted income gg
Add: Balancing charge h
ggg
Less: Balancing allowance i
gg
Less: Capital allowance
Unutilised CA b/f j
Add: Current year CA jj
Total available CA jjj
Less: Utilisation (gg) (gg)
Unutilised CA c/f j
Statutory income kk
 STEP 3: AGGREGATE STATUTORY
BUSINESS INCOME
RM RM
Statutory income kk

Trading business
Statutory income ll
Aggregate statutory business income mm
Less: Unabsorbed business loss b/f (n)
m

Unabsorbed business loss can be c/f for 7 consecutive YAs

only.
 STEP 4: INVESTMENT INCOME

RM RM
Section 4(c) Interest and dividend income
Interest income oo
Less: Interest expense (o)
Adjusted income oo

Dividend income pp
Less: Interest expense (p)
Adjusted income pp
Statutory income qq
 STEP 4: INVESTMENT INCOME
RM RM
Section 4(d) Rental income
Gross rental income rr
Less: Deductible rental expenses
• Quit rents and assessments r
• Fire insurance r
• Repairs and maintenance r (r)
Adjusted/statutory income ss
 STEP 5: AGGREGATE INCOME
RM RM Remarks
Section 4(a) Business income
Aggregate statutory business income mm
Less: Unabsorbed business loss b/f (n)
m
Section 4(c) Interest income
Statutory income qq

Section 4(d) Rental income

Statutory income ss
tt
Add: Recoveries of abortive u 5.1
prospecting expenditure
Aggregate income vv
 STEP 5: AGGREGATE INCOME
Remarks Explanations
5.1 When the prospector receives
• an amount from the sale of rights or other benefits
arising from or connected with the area to which the
provisional deduction relates;
• a grant from Federal/State Government;
• any amount which had been written off as
irrecoverable
 STEP 6: TOTAL/CHARGEABLE INCOME
RM RM Remarks
Aggregate income vv
Less:
• Current year business loss w 6.1
• Prospecting expenditures under x 6.2
Sch. 4
• Pre-operational business y (z) 6.3
expenditures under Sch. 4B
ab
Less: Approved donations (ac) 6.4
Defined aggregate income ad
Less: Current year loss surrendered by (ae) 6.5
subsidiaries
Total income/chargeable income af 6.6
 STEP 6: TOTAL/CHARGEABLE INCOME
Remarks Explanations
6.1 Current year business loss = Adjusted loss for the YA
If current year business loss > aggregate income, the
unutilised loss portion can be c/f for 7 consecutive YAs.
6.2 Qualifying prospecting expenditure (QPrE) incurred wholly
and exclusively in:
• searching, discovering, or winning access to the deposits
of minerals in an eligible area; or
• in testing any such deposits
QPrE can be allowed as a deduction as and when incurred
irrespective of whether the expenditure proves abortive or
productive.
The prospector must make an election for such deduction
against aggregate income.
 STEP 6: TOTAL/CHARGEABLE INCOME
Remarks Explanations
6.3 Qualifying pre-operational business expenditure
• Eligibility
• Company resident in Malaysia
• Incurred in connection with its proposal to undertake
investment in an approved business venture in
overseas.
• Scope
• Expenses directly attributable to the conduct of
feasibility studies
• Expenses directly attributable to the conduct of
market research/the obtaining of marketing info
• Expenses related to fares for travelling overseas by
company’s representative to conduct feasibility study/
market survey, and actual expenses. Maximum
deduction of RM400/day for accommodation and
sustenance.
 STEP 6: TOTAL/CHARGEABLE INCOME
Remarks Explanations
6.3 Qualifying pre-operational business expenditure (cont.)
• Unabsorbed expenses of the qualifying pre-operational
business expenditure can be c/f until fully utilised.
6.4 Approved donations
• Cash donation
• Gift of money to Government (Federal/State/local):
Deduction = actual contribution
• Cash donation to an approved institution/
organisation: Deduction is at the lower of:
• actual contributions: or
• 10% aggregate income
• Gift of artefact, manuscript or painting to Government
(Federal/State): Deduction = valuation value
 STEP 6: TOTAL/CHARGEABLE INCOME
Remarks Explanations
6.4 Approved donations (cont.)
• Cash donation to approved libraries: Max RM20,000
deduction (companies can only claim for deduction under
either “Specific Deductions” in computing adjusted
income or “Approved Donations” in computing aggregate
income).
• Donation of painting to National/State Art Gallery:
Deduction = Value of painting
• Zakat perniagaan paid to Pusat Zakat: Deduction is at the
lower of:
• Amount of zakat paid; or
• 2.5% of aggregate income
• Cash contribution to approved sport activity, national
interest project, wakaf contribution/endowment to public
university: Deduction = actual contribution
 STEP 6: TOTAL/CHARGEABLE INCOME
Remarks Explanations
6.5 70% of a company’s current year loss can be surrendered to
related companies in the group.
Conditions:
• Both companies are tax resident and have been in the group
for the past 12 months.
• Each companies’ paid-up capital is >RM2.5m at the beginning
of the YA.
• Companies must not enjoy the following incentives:
• Pioneer status / investment tax allowance
• Malaysian ship exemption
• Income tax exemption
• Reinvestment allowance
• Revenue deduction on approved food production, cost of
acquisition of foreign-owned company, proprietary rights.
 STEP 6: TOTAL/CHARGEABLE INCOME
Remarks Explanations
6.6 Total income/chargeable income is used to compute the income
tax payable.
 STEP 7: INCOME TAX PAYABLE
Small & Medium (SME) companies
• Characteristics
• Resident companies incorporated in Malaysia with paid-up
ordinary share capital ≤ RM2.5m at the beginning of the YA.
• Having gross income from business source(s) ≤ RM50m for the
basis period for a YA.
• Not within a group where the holding/other subsidiary company
has paid-up ordinary share capital ≤ RM2.5m at the beginning of
the YA.
• Income tax rate for YA2020:
Chargeable income Tax rate
≤ RM500,000 17%
Excess 24%
 STEP 7: INCOME TAX PAYABLE
Non-SME companies
• Characteristics
• Resident companies incorporated in Malaysia with paid-up
ordinary share capital > RM2.5m at the beginning of the YA.
• Having gross income from business source(s) > RM50m for the
basis period for a YA.
• Within a group where the holding/other subsidiary company has
paid-up ordinary share capital > RM2.5m at the beginning of the
YA.
• Income tax rate for YA2020 is at 24%.
PRACTICAL EXAMPLE