Special Deduction To Corporate And Other Than Corporate Taxpayer Giving Discount On Rental Of Business Premises To Small And Medium Enterprises (SMEs)
Owners of buildings or business spaces that provide a reduction or waiver of rent to tenants of business premises consisting of small and medium enterprises are given a special deduction equal to the amount of such rent reduction for April 2020 to September 2020. This special deduction granted is subject to condition of rent reduction should be at least 30% of the original rental rate for that period.
1. Who is qualified?
- Any taxpayer who is a company or other than company (individual, cooperative or other business or non-business entities) who leases the business premises to any Small and Medium Enterprises (SMEs).
- The premise used by tenant for business purposes.
- Landlord/building owner/lessor must be a taxpayer having rental source under Section 4(a) and 4(d) of the Income Tax Act 1967.
2. Definition of SME
The definition of an SME is based on the National SME’s definition as follows:
- A business is considered as SME if it meets one of the two eligibility criteria:
- Annual sales OR the number of full-time employees, whichever is lower.
- Detailed definition of the category, namely micro, small and medium is as follows:
Source: http://www.smecorp.gov.my/index.php/en/policies/2020-02-11-08-01-24/sme-definition
If a business meets one of the criteria in all the different operating sizes, the smaller size will apply.
- For example, if the annual sales of a business is RM100 million where the company is no longer categorized as a SME but the number of full-time employees is 150 and the number is still in the SME, then the business is considered a SME.
- SMEs that are eligible for this special tax deduction are registered SMEs and have obtained SME Status Certificate from SME Corp. Malaysia. Any queries regarding eligibility or registration as an SME can be directed to SME Corp at SME Corp Malaysia at 1300-30-6000 or email to info@smecorp.gov.my
For more information, please refer to the Guideline on New SME Definition
>> Guideline_New_SME_Definition_updated
3. Who is not qualified?
Landlord who is having tenant who are excluded from the definition of SMEs:
- Entities that are public-listed on the main board; and
- Subsidiaries of:
- Publicly-listed companies on the main board;
- Multinational corporations (MNCs);
- Government-linked companies (GLCs);
- Syarikat Menteri Kewangan Diperbadankan (MKDs); and
- State-owned enterprises.
4. Is rental to related company qualified for this incentive?
- Yes, the landlord is eligible provided the tenant meet definition of SMEs under this guideline.
5. What is business premise here referring to?
- All premise used for business purposes are qualified.
- Example: Office, workshop, warehouse, childcare, rental of lot/ bazaar/ stall
- However, rental of residential premises that is used to run a business and also used as a residence, are not eligible.
6. Is this special deduction also applied to other than rental of premise such as vehicle, machine, telecommunication tower etc.?
- The special deduction is granted limited to the rental of business premises and the premises rented to the SMEs must be used for business purposes only.
7. What is the minimum deduction rate for this special deduction?
- In order to qualify for a special deduction, the reduction of rent provided must be at least 30% of the original monthly rent charged.
8. What is the special deduction rate?
- This special deduction rate is equal to the amount of rent reduction of the business premises provided by the landlord/building owner/ lessor to the SME that meets the definition of SME.
9. When is the rental deduction period eligible for this special deduction?
- The period of rent reduction eligible for this special deduction is for rents charge from April to September 2020.
10. How is this special deduction given?
- This special deduction will be provided through the issuance of Income Tax Rules.
- Any person who reduce the rents of his/her/its business premises from the original rate charged to the tenant who is a SME is given a special deduction based on the reduction of the rent.
Example:
A Sdn. Bhd. rented out the business premises which is a shop lot to B who is a SME, at rate of RM 10,000 a month (RM120,000 a year). A Sdn. Bhd. agreed to provide a reduction of rent to B for April, May and June 2020 by RM4,000 per month (a 40% reduction).
|
Comparison |
||||
| Without discount
(A) (RM) |
Without special deduction
(B) (RM) |
Under special deduction
(C) (RM) |
||
| i.e. under normal rental rate and no tax incentive | i.e. tenant is non-SME | i.e. tenant is SME | ||
| Monthly rental income | 10,000 | 10,000 | 10,000 | |
| Total annual rental income | 120,000 | 120,000 | 120,000 | |
| 40% rental reduction in April, May, June 2020 | RM10,000 x 40% x 6 months | – | (24,000) | (24,000) |
| Gross annual rental income | 120,000 | 96,000 | 96,000 | |
| Special deduction **Note 1 | RM4,000 x 6 months | – | – | (24,000) |
| Chargeable income | 120,000 | 96,000 | 72,000 | |
| Tax payable @ 24% **Note 2 | 28,800 | 23,040 | 17,280 | |
Note 1: Assuming no other allowable direct expense claim
Note 2: Tax rate based on the current corporate tax rate.
The tax savings that Landlord/building owner/lessor will enjoy with special deductions are as follows:
| Comparison of Tax Savings | ||
| B vs A | B vs C | A vs C |
| RM 23,040 – RM 28,800 | RM 23,040 – RM 17,280 | RM 28,800 – RM 17,280 |
| (RM 5,760) | RM 5,760 | RM 11,520 |
For taxpayers other than companies such as individuals, tax savings are based on tax rates based on their respective taxable income ranges.
11. If I reduce my rent by a different rate each month but this rate exceeds 30% per month, am I eligible?
- Yes. Calculations need to be done on a monthly basis where rates should not be less than 30% in the eligible months. However, if there is a reduction of rent made in the eligible month but the rate is less than 30% then the special deduction is not eligible for that month.
12. What if advance rental has been collected beginning of the year, can I do rental reduction and claim this special deduction?
- Yes, provided all terms & condition has been fulfilled.
13. What supporting documents are required?
- Stamped tenancy agreement;
- Rental income statement;
- SME Status Certificate issued by SME Corp.; *
- Tenant’s information, rental information and rental reduction methods**
* Information regarding registration of SME can be referred at https://smereg.smecorp.gov.my or on the official website of SME Corp Malaysia.
** To be provided in Working Sheet (HK) of Company Return Form. Please refer to example attached.
Source: IRBM Official Website Announcement (http://lampiran1.hasil.gov.my/pdf/pdfam/FAQ_PRE3.0_RENTAL_REDUCTION_2.pdf)
For more information, please click: FAQ_PRE3.0_RENTAL_REDUCTION_2
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