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.