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On 18th May 2020, Inland Revenue Board of Malaysia (IRBM) has released The Practice Note No. 3/2020 to clarify an additional criteria of having gross business income from business not exceeding RM50 million, applicable to a company or Limited Liability Partnership (LLP) resident in Malaysia to enjoy special tax treatment under Paragraphs 2A and 2D, and subparagraph 19A(3) of Schedule 3 of the Income Tax Act, 1967 (ITA).

 

Under the amendment of ITA 1967 by the Finance Act 2019 and effective from Year Assessment (YA) 2020, company/ LLP is required to fulfill ALL the criteria below to enjoy the special small and medium enterprise (SMEs) corporate tax rate and unrestricted annual claim of capital allowance for small value assets by SME:

  • Paid-up capital in respect of ordinary shares or total capital contribution up to RM2.5 million; AND
  • Gross income from business sources not exceeding RM50 million; AND
  • None of its related Company/LLP having paid-up capital/ contribution up to RM2.5 million.

 

The company/ LLP that fulfill the criteria will be deemed as SME and eligible to enjoy:

1. 2-tier SME’s Corporate Tax Rate, instead of flat corporate rate 24%

SME’s Corporate Tax Rate
YA 2019 Effective YA 2020
  • First chargeable income of RM 500,000 – 17%
  • Next chargeable income more than RM500,000 – 24%
  • First chargeable income of RM 600,000 – 17%
  • Next chargeable income more than RM600,000 – 24%

2. Small Value Assets claimed by SME Company/ LLP are not restricted

Small Value Assets (SVA) Claim under Capital Allowance
YA 2019 Effective YA 2020
  • Value of each asset not more than RM1,300
  • No restriction on total yearly claim

*For non-SME, the SVAs are restricted to a total amount of RM13,000 for a year of assessment.

  • Value of each asset not more than RM2,000
  • No restriction on total yearly claim

*For non-SME, the SVAs are restricted to a total amount of RM 20,000 for a year of assessment.

Moreover, in the Practice Note, the below salient points have been clarified:

  • Unlisted Investment Holding Company (IHC) taxed under Section 60F is deemed to have no business income, and it is not eligible for above special tax treatment and taxed at 24%.
  • Company/LLP have no business income (including those temporary closed) but with other income which is not taxed under paragraph 4(a) ITA, is not eligible for above special tax treatment and taxed at 24%.
  • Company/LLP with gross income from foreign business sources, it shall be taken in determining the gross business income not exceeding RM50 million.
  • The Company/LLP is enjoying special incentive, exempted gross income from business source shall be taken in determining gross business income not exceeding RM50 million.

Source from IRBM Official Website Announcement (http://lampiran1.hasil.gov.my/pdf/pdfam/PN_3_2020.pdf)

For more information, please visit PN_3_2020

 

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