malaysia budget 2014 proposals - changes affecting companies (part 1)
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BUDGET 2014 PROPOSALSHIGHLIGHTS ON CHANGES AFFECTING COMPANIES AND BUSINESSES (PART 1)
KEY ELEMENTS AFFECTING COMPANIES AND BUSINESSES (PART 1)
Changes
1. Tax Rates
2.Entertainment
3.Deemed Interest Income
4.Compulsory Acquisition
5.Tax &
Secretary Fee
6.Tax Returns
Note:-
The other changes will be shared in Part 2.
“REVIEW OF
CORPORATE
INCOME TAX
RATE”
REVIEW OF CORPORATE INCOME TAX RATES
With effect from
Y/A 2016
Descriptions Current Rate Proposed Rate
Companies with paid-up above RM2.5 million 25% 24%
Companies with paid-up below RM2.5 million
• Amount below RM500K 25% 24%
• Amount above RM500K 20% 19%
What are the changes in the tax rate..?
SECTION 18 OF INCOME TAX ACT 1967Amendment of Definition of Entertainment
AMENDMENT TO THE DEFINITION “ENTERTAINMENT”
Current Legislation
Presently “entertainment” as defined by the act includes:-
a) The provision of food, drink, recreation or hospitality of any kind; or
b) The provision of accommodation or travel in connection with the purpose of facilitating entertainment.
Proposed Legislation
To include the expenses incurred by a person or employee with or without consideration paid in cash or in kind
in promoting business shall fall within the definition entertainment.
With effect from
Y/A 2014
DEEMED INTEREST INCOMEFrom Loan Or Advances To Director
DEEMED INTEREST INCOMEFROM LOAN OR ADVANCES TO DIRECTORS
Current Legislation
Presently, for a exempt private company can make loans or advances to its directors from its internal funds
or from external borrowing.
Proposed Legislation
It is proposed that where a company provides any loan or advances from its internal funds to its directors, the company shall be deemed to derive interest income from such loans or advances.
The sum of the monthly interest is determined in accordance with the following formula:-
= 1/12 x A x B
Where A = amount loan / advances outstanding at end of monthB = average lending rate of commercial banks published by Central Bank
With effect from
Y/A 2014
Sample calculation is shown in next page….
DEEMED INTEREST INCOMEFROM LOAN OR ADVANCES TO DIRECTORS
Sample Calculation
ABC Sdn. Bhd. had provided an advance to one of its company director an amount equal to RM25,000.00 on 1st
December 2013 and RM10,000.00 was repaid in the month May 2014 and the balance was repaid by the director on
1st January 2015.
The following would be the assumptions made:-
a. The average lending rate published by Bank Negara is at 5% throughout the year 2014.
With effect from
Y/A 2014
Sample calculation is shown in next page….
DEEMED INTEREST INCOMEFROM LOAN OR ADVANCES TO DIRECTORS
With effect from
Y/A 2014
ABC Sdn. Bhd. is deemed to receive interest income of RM917 for the year 2014
Year of Assessment 2014
Month Calculation of Monthly Interest (RM) Deemed Interest
January'14 25,000 x 5% x 1/12 104
February'14 25,000 x 5% x 1/13 104
March'14 25,000 x 5% x 1/14 104
April'14 25,000 x 5% x 1/15 104
May'14 (25,000 - 10,000) x 5% x 1/12 63
June'14 15,000 x 5% x 1/12 63
July'14 15,000 x 5% x 1/13 63
August'14 15,000 x 5% x 1/14 63
September'14 15,000 x 5% x 1/15 63
October'14 15,000 x 5% x 1/16 63
November'14 15,000 x 5% x 1/17 63
December'14 15,000 x 5% x 1/18 63
Total Interest income under 4(c.) 917
DEEMED INTEREST INCOMEFROM LOAN OR ADVANCES TO DIRECTORS
With effect from
Y/A 2014
What happen when INTEREST is already CHARGED?
Scenario 1
When INTEREST CHARGED and payable to the company is MORE than the aggregate sum of interest as
determined based on the formula above, the PROVISION of Deemed Interest Income shall NOT APPLY.
If ABC Sdn. Bhd. charged an interest of 8% for the loan given to the director. The total interest payable by the
director is RM2.4k, which is more that the amount of deemed interest calculated earlier.
RM2,400 > RM917 = RM2,400 (Interest Income disclose to IRB)
DEEMED INTEREST INCOMEFROM LOAN OR ADVANCES TO DIRECTORS
With effect from
Y/A 2014
What happen when INTEREST is already CHARGED?
Scenario 2
When INTEREST CHARGED and payable to the company is LESS than the aggregate sum of interest as determined based on the formula above, the company will be DEEMED INTEREST INCOME based on the above formula.
If ABC Sdn. Bhd. charged an interest of 2% for the loan given to the director. The total interest payable by the director is RM500, which is more that the amount of deemed interest calculated earlier.
RM500 < RM917 = RM917 (Interest Income disclose to IRB)
SECTION 4C, SECTION 24(1)(AA)Gains Or Profit From A Business With Any Element of Compulsion
SECTION 4C, SECTION 24(1)(AA)GAINS OR PROFIT FROM A BUSINESS WITH ANY ELEMENT OF COMPULSION
With effect from
Y/A 2014
Current Legislation
Presently, based on the Court of Appeal in the case Penang Realty Sdn. Bhd. v KPHDN (2006) that the
compulsory acquisition of a taxpayer’s land by the Government could not constitute a sale and the
compensation received was NOT subject to income tax as element of compulsion essentially vitiated the intention to trade.
Proposed Legislation
It is proposed that any amounts that are receivables by a person or company from the disposal including such
amounts arising from any element of compulsion such as compulsory acquisition or forced sales are to
be treated as gains or profits from a business.
SECRETARIAL AND TAX FILLING FEESTax Deduction and It’s Threshold
SECRETARIAL AND TAX FILLING FEESTAX DEDUCTION AND IT’S THRESHOLD
With effect from
Y/A 2015
Current Legislation
Presently, secretarial and tax filing fees incurred by taxpayers are NOT ALLOWED as deductible expenses.
Proposed Legislation
It is proposed that the following deductions be given per year in computing the income tax liability of the tax payers:-
i. Secretarial fee - Up to RM5,000
ii. Tax filling fee - Up to RM10,000
TAX RETURNFurnishing Of Tax Return By A Company
TAX RETURNFURNISHING OF TAX RETURN BY A COMPANY
Current Legislation
Presently, a company can submit its tax return either by way of manual filling or electronic filling to the Director General.
Proposed Legislation
It is proposed that:-
1. It is mandatory for a company to file its tax return electronically; and
2. A company’s return furnished to the Director General has to be based on accounts audited by a professional
accountant.
With effect from
Y/A 2014
That’s it on Part 1!
Call US.. 03-8081 6938For further explanation on the updates..
Next….
“The changes affecting Companies and Unincorporated Businesses – Part 2”
THANK YOU
JOSH M CORPORATE SERVICES SDN BHD (919477-P)
(FORMERLY KNOWN AS ADVENTIS SECRETARIAL SERVICES SDN BHD)
P-03-08, Impian Meridian Commerz, Jalan Subang 1, USJ 1,47600 Petaling Jaya, Selangor Darul Ehsan.
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