cas malaysia: business highlights...with a headcount of 450, comprising partners and staff from both...
TRANSCRIPT
Welcome to CAS Malay-
sia’s fifth edition of Busi-
ness Highlights.
This publication aims to
share updates and news
on current business is-
sues every six months
with valued clients and
member firms.
In today’s fast-changing
business environment, it
is crucial to focus on the
challenges faced by com-
panies and the response
time in resolving them.
We hope to add value by
sharpening our readers’
business knowledge and
empower them to stay
ahead of the competition.
I take this opportunity to
thank all colleagues for
their contribution to this
Business Highlights.
We hope you find our
third edition of Business
Highlight useful.
We we lcome your
thoughts and feedback on
improvement for future
issues.
Happy reading!
Chen Voon Hann
Managing Partner
CAS MALAYSIA
Chartered Accountants
FOREWORD BY CAS MALAYSIA MANAGING PARTNER
‘Achieving Success Together’
CAS International is a net-
work of accounting and con-
sulting firms serving a wide
range of clients.
Each member firm in CAS
International is an independ-
ent legal entity in its own
territory.
Member firms have access
to an expert team of profes-
sional business advisors,
and provide well-thought and
result-oriented solutions for
clients.
Our partners and profession-
al staff are well-qualified and
possess expertise on a wide
range of business subjects.
They also offer extensive
experience in international
business practice and local
laws and customs, and are
always ready to refer clients
to their wide network of local
business contacts.
With a headcount of 450,
comprising partners and
staff from both local and
foreign firms, our network
operations are supported by
international committees,
technical taskforces and
frequent meetings and semi-
nars, reaping consistently
high service standards for
clients.
EDITOR: YEO CHIOU JIN
CAS MALAYSIA:
BUSINESS HIGHLIGHTS
DECEMBER 2017
Inside this issue:
Reinvestment
Allowance —
Manufacturing
VS Processing
2
Malaysia
Company Audit
Exemption
3
Foreign
Investment in
Myanmar
4
Base Erosion
and Profit
Shifting
6
2/2017
ABOUT CAS INTERNATIONAL
The Inland Revenue Board of Malay-
sia (IRBM) has issued further clarifi-
cation to assist taxpayers in ascer-
taining their entitlement to Reinvest-
ment Allowance (RA).
Among others, IRBM clarified that
Processing Activities do not qualify for
Reinvestment Allowance effective
from YA2009 onwards by amending
the definition below:
Prior to YA2009: a project undertak-
en by a company, in expanding, mod-
ernising or automating its existing
business in respect of manufacturing
or processing or in diversifying its
existing business.
From YA2009: “or processing” has
been removed. Concession allowed
for RA period started prior to YA2009.
Meaning of Manufacturing
Conversion by manual or mechanical
means to a new product by changing
the size, shape, composition, nature
or quality of materials. Changing of
size and shape have been deleted in
YA2016.
Manufacturing that results in change
of character and form or no change in
character but change in form.
It also further explained the mixing of
materials by a chemical reaction pro-
cess including biochemical process
that changes the structure of a mole-
cule by breaking of the intra molecu-
lar bonds or by altering the spatial
arrangement of atom in the molecule.
Manufacturing Flow
Taxpayers need to establish a manu-
facturing flow pertaining to its prod-
uct and identify the following changes
in the manufacturing process.
1. Transformation of raw materials
to finished goods
2. Where labour, machines and
tools functioned
3. Where and how chemical reac-
tion happened
4. Where and how biochemical pro-
cess is in place
5. Where and how the breaking of
intra molecular bonds happened
6. How a molecule structure
changed in a reaction
7. Whether high was technology
involved
Documentation
1. Borang EPS LHDN/BT/RA/2007
2. Manufacturing License
3. Fixed Assets register
4. Manufacturing Flow
5. Project paper/plan
6. Board of Directors’ resolu-
tion/minutes of meeting
7. Manufacturing floor plan, floor
measurement
8. Statistic for additional capacity
9. Paper for change of system/flow
10. Description of new product
Processing
The following are considered
“processing” and do not qualify for
Reinvestment Allowance from
YA2009 onwards.
1. A simple mixing of any products,
where no special skills, machines,
apparatus or equipment is needed
2. Installation of machinery or equip-
ment for the purpose of construc-
tion
3. A simple assembly of parts.
4. Activity in preservation of products
5. Packaging or presenting goods for
resale
6. Cutting, sorting, cleaning, drying,
grinding, mixing or packaging
7. Baking, except that which is car-
ried on in a factory
8. Cleaning, processing, packing or
freezing of product
GRACE YAP
Page 2
REINVESTMENT ALLOWANCE – MANUFACTURING VS PROCESSING
CAS MALAYSIA CHARTERED ACCOUNTANTS (AF 1476)
‘Achieving Success Together’
The purpose of an audit is to furnish
an objective independent verifica-
tion of the financial statements,
which enhances the value and credi-
bility of the financial statements
produced by management and user
confidence in those statements.
However, many small and medium-
sized enterprises (SMEs) are owner-
managed or are run by family mem-
bers; as such, a conventional audit
mandated by law is perceived to
provide negligible value to its users
and hence may not be a justifiable
cost.
On 4 August 2017, the Companies
Commission of Malaysia (SSM)
brought into force audit exemption
for certain categories of private com-
panies. Under section 267(2) of the
Companies Act 2016, dormant, zero-
revenue and threshold-qualified pri-
vate companies are eligible to elect
for audit exemption.
Dormant Company
A dormant company qualified for
audit exemption must have been
dormant from the time of its incorpo-
ration or it is dormant throughout
the current and in the immediate
preceding financial year.
Zero-Revenue Company
A zero-revenue company qualifies
for audit exemption if it does not
have any revenue during the current
and the immediate past two finan-
cial years; its total assets in the
Statement of Financial Position not
exceeding RM300,000 for the cur-
rent and the immediate past two
financial years.
Threshold-qualified Company
A company is considered to be
threshold-qualified if it has revenue
not exceeding RM100,000 during
the current as well as in the immedi-
ate past two financial years; its total
assets in the financial statements
not exceeding RM300,000 for the
current and in the immediate past
two financial years; and it has not
more than five employees as at the
end of its current and in each of its
immediate past two financial years'
end.
Audit exemption may ease the finan-
cial burden of SMEs and enable di-
rectors to focus on business strate-
gy. This would stimulate the growth
of SMEs, further contributing to the
economy.
FOONG WEI HAO
Page 3
BUSINESS HIGHLIGHTS
MALAYSIA COMPANY AUDIT EXEMPTION
‘Achieving Success Together’
Introduction
Myanmar has in the past year under-
gone substantial political and eco-
nomic changes.
Alongside this transformation, new
liberalising legislative frameworks
have been enacted and some others
have been proposed.
This presents an unprecedented
opportunity for foreign investment
into Myanmar; notwithstanding,
some considerable hurdles remain.
Business Structures and Approvals
Business Structures
Under the Foreign Investment Law
(“FIL”), a foreign investor may seek
to conduct business in Myanmar in
any of the following manners:
as a 100% foreign-owned entity;
by way of a joint venture with a
Myanmar citizen or the Myanmar
Government; or
a foreign investor operating in a
contractual relationship with a
local investor.
In addition to setting up a company
with Directorate of Investment and
Company Administration (DICA), a
foreign investor may be eligible for
incentives under the Myanmar In-
vestment Law (“MIL”) unless it is in
a Special Economic Zone (“SEZ”).
MIC Permit
When forming or registering a busi-
ness in Myanmar, generally two op-
tions exist:
i. registration under the Companies
Act, 1914 only, or
ii. registration as a Myanmar Invest-
ment Commission (“MIC”) compa-
ny under the Myanmar Investment
Law, 2016 (with the registration
under the Special Economic Zone
Law, 2014 for businesses located
in a Special Economic Zone as
third option).
Before the enactment of the new
Myanmar Investment Law, 2016,
the additional registration under the
Foreign Investment Law, 2012 was
generally optional for foreign inves-
tors.
Certain business activities such as
manufacturing and infrastructure
projects as well as investments re-
stricted pursuant to Notification No.
26/2016 did, however, require a
Permit issued by the Myanmar In-
vestment Commission.
Under the new Myanmar Investment
Law, 2016, investors must submit a
Proposal to the Myanmar Invest-
ment Commission and apply for a
Permit only for the following busi-
nesses:
businesses / investment activities
that are strategic for the Union;
large capital intensive investment
projects;
projects which have large potential
impact on the environment and
the local community;
businesses / investment activities
which use state-owned land and
buildings; and/or
businesses / investment activities
which are designated by the gov-
ernment to require the submission
of a Proposal to the Myanmar In-
vestment Commission.
Page 4
CAS MALAYSIA CHARTERED ACCOUNTANTS (AF 1476)
FOREIGN INVESTMENT IN MYANMAR
‘Achieving Success Together’
Page 5
BUSINESS HIGHLIGHTS
Permit to Trade
The foreign investor must apply to
the Directorate of Investment and
Company Administration to incorpo-
rate or register a foreign company
and obtain a Permit to Trade pursu-
ant to the Myanmar Companies Act,
1914 (“MCA”). The Myanmar Com-
panies Act, 2017 is currently under
review.
Minimum Capital Requirements
Upon obtaining the Permit to Trade,
the MCA states that the foreign in-
vestor must invest a minimum capi-
tal between approximately
USD50,000 and USD150,000, de-
pending on the type of business ac-
tivity.
The FIL, on the other hand, does not
set out the minimum amount of cap-
ital that must be invested by the
foreign investor.
Rather, it provides the MIC with dis-
cretion to determine the minimum
capital that must be invested by the
foreign investor, based on the na-
ture of the business.
Conclusion
Myanmar is in the process of finalis-
ing reforms to the Companies Act,
which covers the rules and regula-
tions surrounding business operat-
ing environments.
Under the proposed reforms, law-
makers will work to ensure that reg-
ulations for companies are brought
in line with international standards.
In doing so, the aim is to reinforce
investor rights, ease restrictions on
foreigners buying shares in local
companies and allow domestic firms
to benefit from FDI.
Once ratified, the new act will put
foreign investors on a more level
footing with Myanmar citizens, giving
them the opportunity to buy into the
domestic economy and reinforcing
their confidence in their legal rights.
CHAK WINNIE
‘Achieving Success Together’
Base Erosion and Profit Shifting
(“BEPS”) refers to tax planning strat-
egies that exploit gaps and mis-
matches in tax rules to artificially
shift profits to low or no-tax locations
where there is little or no economic
activity.
Whilst international tax planning is
not illegal, tax authorities around the
globe are certainly not prepared to
lose their fair share of tax collection.
The Inclusive Framework on BEPS
brings together over 100 countries
and jurisdictions to collaborate on
the implementation of the Organisa-
tion for Economic Co-operation and
Development (“OECD”) / G20 BEPS
Package. [Started in year 2013]
The BEPS Package consists of 15
actions which encompass the follow-
ing:
1. model provisions to prevent trea-
ty abuse (including treaty shop-
ping) by impeding the use of con-
duit companies to channel invest-
ments through countries and ju-
risdictions with favourable tax
treaties in order to obtain re-
duced rates of taxation;
2. standardised Country-by-Country
Reporting that will give tax admin-
istrations a global picture of
where the profits, tax and eco-
nomic activities of Global Multina-
tional Enterprise (“MNE”) are
reported, and the ability to use
this information to assess Trans-
fer Pricing (“TP”) and other BEPS
risks, so that tax administrations
can focus audit resources where
they will be most effective;
3. a revitalised peer review process
to address harmful tax practices,
including patent boxes where
they include harmful features, as
well as a commitment to trans-
parency through the mandatory
spontaneous exchange of rele-
vant information on taxpayer-
specific rulings which, in the ab-
sence of such information ex-
change, could give rise to BEPS
concerns;
4. an agreement to secure progress
on dispute resolution, with the
strong political commitment to
the effective and timely resolu-
tion of disputes through the Mu-
tual Agreement Procedure.
The BEPS Package aims to end the
use of shell companies used to
stash profit offshore or unduly claim
tax treaty protection and neutralise
all schemes that artificially shift prof-
it offshore.
On 23 December 2016, Malaysia
issued the Income Tax (Country-by-
Country Reporting) Rules (“CbCR
Rules”), which came into effect on 1
January 2017.
The CbCR Rules are in line with the
OECD’s recommendations contained
in Action 13 of the BEPS initiative.
These Rules shall apply to an MNE
where:
a. its ultimate holding company is
incorporated and resident in Ma-
laysia;
b. any of its constituent entities has
cross border transaction with its
other constituent entities;
c. the total consolidated group reve-
nue in the financial year preceding
the reporting financial year is at
least MYR 3 billion;
d. its constituent entities are incorpo-
rated or registered and resident in
Malaysia or any other jurisdiction.
The CbCR requires the aggregate
information for each jurisdiction the
MNE group operates in, as follows:
Revenues
Stated Capital
Income Tax paid
Income Tax accrued
Profit or Loss before Income Tax
accumulated earnings
number of employees
Tangible Assets other than cash or
cash equivalents.
BASE EROSION AND PROFIT SHIFTING
‘Achieving Success Together’
Page 6
CAS MALAYSIA CHARTERED ACCOUNTANTS (AF 1476)
Page 7
BUSINESS HIGHLIGHTS
‘Achieving Success Together’
The CbCR also requires each constit-
uent entity in the MNE group to be
identified as follows:
the jurisdiction where the entity is a
tax resident;
the tax jurisdiction in which the
entity is organised if different from
the tax jurisdiction of residence;
and
the nature of the main business
activity or activities.
The CbCR must be filed no later than
12 months after the end of the finan-
cial year.
The proposed penalty to be imposed
on taxpayers who do not comply with
the CbCR rules are a fine of between
MYR20,000 and MYR100,000 or
imprisonment for a term not exceed-
ing 6 months or both.
The Director General may use the
CbCR for the purposes of assessing
high-level TP risks and other BEPS
related risks in Malaysia, including
assessing the risk of non-compliance
by constituent entities of the MNE
with applicable TP rules, and where
appropriate for economic and statisti-
cal analysis.
The CbCR is not a substitute for a
detailed TP analysis for the purpose
of TP adjustments.
CHAN KAR MUN
C A S M A L A Y S I A P L T C H A R T E R E D A C C O U N T A N T
( L L P 0 0 0 9 9 1 8 - L C A ) ( A F 1 4 7 6 )
B-5-1, IOI BOULEVARD,
JALAN KENARI 5,
BANDAR PUCHONG JAYA,
47170 PUCHONG, SELANGOR.
Tel : 03 - 8075 2300 / 80 / 81
Fax : 03 - 8082 6611
Website : www.cas.net.my
Enquiry : [email protected]
Other offices: Alor Setar, Ipoh,
Johor Bharu and
Tawau
Page 8
CAS MALAYSIA CHARTERED ACCOUNTANTS (AF 1476)
CAS EVENTS
BADMINTON DAY COMPANY TRIP TO TAIWAN
CAS INTERNATIONAL ANNUAL CONFERENCE 2017 AT BANGKOK
15TH ANNIVERSARY DINNER
‘Achieving Success Together’