The Ministry of Finance coordinates
the Malaysian Government's tax system through
the Inland Revenue Department and the Customs
and Excise Department. The main taxes are
income taxes on companies and individuals;
indirect taxes such as sales tax, service
tax, and customs and excise duties; estate
and stamp duties; and real property gains
tax. The Malaysian tax year is the calendar
year. There is no tax on capital gains,
with the exception of a tax on the gain
from real property held for less than five
years.
There
are stamp duties and some excise duties.
Sales tax at rates varying from 5% to 15%
were levied on goods imported for local
consumption and on locally-manufactured
goods. There was also a service tax of 5%
on restaurants, hotels etc.
In
the 2005 budget, it was announced that the
sales and service taxes would be replaced
with a single consumption tax, the goods
and services tax (GST), in January 2007.
Special
rules apply to Labuan offshore entities
Although
Malaysia itself is not regarded as a low-tax
jurisdiction, in addition to Labuan it does
have a number of tax-friendly incentive
regimes, which are described in http://www.lowtax.net/lowtax/html/offon/malaysia/malhom.html.
Labuan Scope of Income
Tax
A company, regardless of its place of
incorporation, is a tax resident if it
is at any time during a tax year managed
and controlled in Malaysia. Generally,
a company is deemed to be managed and
controlled in the place where its directors'
meetings are held. Malaysian residents
are taxed on Malayasian-source income
and on foreign income remitted to Malaysia,
ie it is a territorial basis of taxation.
For nonresidents, only Malaysian-source
income is taxable.
Income taxable in Malaysia includes:
-
gains and profits from employment;
-
gains and profits from trade, profession
and business;
-
dividends, interest or discounts;
-
rents, royalties or premiums;
-
pensions, annuities or other periodic
payments; and
-
other gains or profits of an income
which nature is not mentioned above.
Income
from the exploration and discovery of petroleum
is subject to 38% petroleum income tax instead
of regular income tax.
Malaysia generally does not tax foreign-source
income; thus no foreign tax relief is available.
However, banking, insurance, shipping and
air transport are taxed on their world-wide
income, and they may claim foreign tax credits.
Labuan
Rates of Income Tax
Prior
to recently announced corporate tax changes,
income tax was imposed at the rate of 28%
on chargeable income for resident companies.
A
non-resident company paid 28% on chargeable
income from Malaysian sources other than:
- Interest:
15%
- Royalties
10%
- Technical
fees 10%
- Payments
for use of movable property 10%
-
Payments to Nonresident Contractors 20%
-
Branch Remittance Tax nil
These
are the rates of withholding tax.
Bank
interest paid to nonresidents without a
place of business in Malaysia is exempt
from tax.
In
September 2006, Malaysia's Prime Minister
Abdullah Ahmad Badawi unveiled a package
of tax cuts, including a 2% corporate tax
cut and tax breaks for businesses across
a number of economic sectors.
Tabling
his third budget as Prime Minister and Minister
of Finance, Abdullah announced that the
corporate tax rate would be cut to 27% in
2007year, followed by an additional one-percentage-point
cut in 2008.
"Although
this measure will result in a significant
reduction in revenue, the government is
confident that it will have a positive overall
effect on the economy," he stated.
Additionally,
in May 2007, it
emerged that the Malaysian Finance Ministry
was working with the financial authorities
of Labuan to establish a new tax structure
aimed at attracting more companies to the
Labuan International Offshore Financial
Centre (IOFC).
Speaking
at the release of the Labuan Offshore Financial
Services Authority (Lofsa) annual report
for 2006, Tan Sri Dr Zeti Ahktar Aziz, Bank
Negara Governor and Lofsa chairman, said
that new tax initiatives may be included
in the 2008 budget, due to be announced
in September 2007, along with new company
forms to better cater for the requirements
of offshore investors.
"With
the new incentives, LOFSA will be able to
compete with other offshore centres in the
Asia-Pacific region and the world,"
Zeti told reporters.
“We
want to be competitive and relative to other
offshores as the environment is changing
very significantly," she added.
Labuan Development Tax
Development
tax has traditionally been payable at the
rate of 4% on net income from business or
property rental sources, defined as a source
consisting of a business or the letting
of property situated in Malaysia, including
royalties from patents and copyrights registered
in Malaysia.
The
Government plans to abolish this tax in
stages.
Labuan Calculation of Taxable Base
Expenses
which are incurred wholly and exclusively
in the production of income are deductible
for the purposes of determining chargeable
income.
Allowable
deductions include the following:
-
interest on loans, rental payments, expenses
for repairs of premises, plant and equipment
or fixtures or for the renewal, repair
or alteration of equipment employed in
the production of income;
-
irrecoverable trade debts which are specifically
identified;
- a
justifiable share of regional or head
office revenue expenses for non-resident
companies;
- legal
expenses incurred in debt collection and
renewal of lease of premises; and
-
capital allowances for fixed assets at
pre-determined rates.
Business
losses may be set off against income derived
in the year in which the loss is incurred
and may be carried forward, but not back.
Labuan Filing Requirements and Payment of
Tax
The
year of assessment is the calendar year.
Income tax is chargeable on income earned
in the year of assessment.
Tax
returns are issued to companies at the end
of February. Companies must complete and
file the returns with the Inland Revenue
Board within 30 days of receipt.
A
self-assessment system was introduced in
2001. Companies have to file their tax returns
within six months after the end of their
accounting period. A tax return will be
deemed to be an assessment made on the date
of filing the return.
Under
the old rules, estimated tax was generally
payable in five equal installments, with
the first payment due in January or February
of the year of assessment.
From
2001, companies have been obliged to provide
an estimate of their tax payable no later
than 30 days before the beginning of their
accounting period. The estimated tax is
payable in equal monthly installments by
the 10th day of each month beginning in
the second month of the accounting period.
Any balance of tax due must be paid by the
end of the sixth month following the end
of their accounting period.
Labuan
Real Property Gains Tax
Capital
gains are generally not subject to tax in
Malaysia. Real property gains tax is charged
on gains arising from the disposal of landed
property or of interests in or over such
property, as well as the disposal of shares
in a property company as defined in the
Act.
The
rates of tax for companies range from 5%
to 30%, depending on the time frame for
disposal.
Labuan
Withholding Tax
A resident company paying dividends must
deduct income tax at the current rate; however,
a full imputation system is in operation.
If the company has paid sufficient income
tax on its own income, past or present,
it may retain the tax deducted. Otherwise,
the tax deducted must be paid to the government.
A
non-resident company may distribute after-tax
profits without incurring any additional
liability. The tax deducted by the company
satisfies the Malaysian tax liability of
a nonresident shareholder; in the case of
a resident shareholder, the credit is applied
toward the shareholder's tax liability.
Dividends
paid out of tax-exempt foreign income may
be paid without deduction of tax.
