The Budget for 2009 was presented to the Malaysian Parliament by the Prime Minister on 29 August 2008. Details of the Budget, which unless otherwise indicated will apply from the year of assessment (YA) 2009 (Malaysia has a "current year" basis of assessment for income tax purposes), are summarized below.
Corporate tax
The following changes are proposed:
| - | the group relief scheme, which currently allows companies to transfer 50% of their current year's business losses to related companies, will be increased to 70%; | |
| - | effective 1 January 2009, companies will be allowed to apply for advance pricing arrangements (APAs) to determine their transaction prices for income tax purposes; and | |
| - | reimbursements relating to hotel accommodation of non-residents providing technical services in Malaysia are not to be included as part of the gross amount for computing withholding tax from 1 January |
Tax incentives
The following amendments are proposed:-
| - | expenses incurred by employers during the years of assessment 2009 to 2012 for training their employees in the following fields will qualify for double deduction: (i) post graduate courses in information communication and technology (ICT), electronics and life sciences, (ii) post basic courses in nursing and allied health care and (iii) aircraft maintenance engineering courses; | |
| - | in addition, non-resident experts who receive income for providing technical training services in the abovementioned fields will be exempt from withholding tax from 30 August 2008 until 31 December 2012; | |
| - | new investments by four and five-star hotel operators in Sabah and Sarawak will qualify for the pioneer status incentive, which offers a 100% tax exemption or 100% investment tax allowance for 5 years. | |
| - | venture capital companies that invest at least 30% of their funds in start-up, early stage financing or seed capital will be eligible for a 5-year tax exemption, for new applications received by the Securities Commission from 30 August 2008 to 31 December 2013; | |
| - | plant and machinery and small value assets acquired by small and medium-sized enterprises (SMEs) in the years of assessment 2009 and 2010 will qualify for accelerated capital allowances whereby the cost of these assets can be fully claimed within 1 year; | |
| - | In addition, the maximum limit of MYR 10,000 for capital allowance on small value assets for SMEs is to be lifted; | |
| - | For income tax purposes, the definition of SME is reviewed as a company resident in Malaysia with a paid up capital of ordinary shares of MYR 2.5 million or less at the beginning of the basis period of a year of assessment whereby such a company cannot be controlled by another company with a paid up capital exceeding MYR 2.5 million; | |
| - | import duty and sales tax incurred on solar photovoltaic system equipment and high efficiency motors and insulation materials will be exempt in respect of applications received by Ministry of Finance from 30 August 2008 to 31 December 2010; | |
| - | sales tax on locally manufactured solar heating system equipment and energy efficient consumer goods such as refrigerators, air-conditioners, lightings, fans and televisions will be exempt in respect of applications received by Ministry of Finance from 30 August 2008 to 31 December 2010; | |
| - | franchise holders will qualify for a tax exemption of 100% of import duty and 50% of excise duty on new hybrid CBU cars, with engine capacity below 2,000 cc for a period of 2 years; | |
| - | domestic intermediaries, which successfully list foreign companies and foreign investment products in Bursa Malaysia will be given a tax exemption on fees received for listings of certain qualifying instruments with effect from 1 January 2009 and until 31 December 2013; | |
| - | the final withholding tax rate on income distributed by Real Estate Investment Trusts (REITs) from 1 January 2009 until 31 December 2011 will be reduced from 20% to 10% for foreign institutional investors and from 15% to 10% for resident and non-resident individuals with effect from 1 January 2009 and until 31 December 2011; and | |
| - | fees and profits received by qualifying (approved) institutions for arranging, underwriting, distributing and trading of non-MYR (approved) sukuk issued in Malaysia will be exempt from tax from YA 2009 to YA 2011. |
Budget for 2009 – additional details
Additional details of the Budget are summarized below and are effective 1 January 2009 unless otherwise indicated.
Withholding tax
Gains and/or profits that do not fall within the ambit of any other classes of taxable income defined in the Income Tax Act 1967 (ITA) and received by non-residents shall be deemed to be derived from Malaysia and subject to a 10% withholding tax if:
| - | the payer is the Federal Government, State Government or a local authority; or | |
| - | the payer is a Malaysian resident; or | |
| - | the payment is charged as an outgoing/expense in the accounts of a business carried out in Malaysia. Some of the examples provided include commission and guarantee fees. |
Transfer pricing and thin capitalization
The Budget proposes to introduce a new Section 140A into the ITA to address transfer pricing issues especially with regard to transactions of goods, services or financial assistance which are carried out between related companies. Currently, transfer pricing issues are addressed vide the Transfer Pricing Guidelines which were issued in 2003 pursuant to the general anti-avoidance provisions contained in the ITA. The proposed Section 140A of the ITA will empower the Director General to substitute a transaction price to reflect an arm's length transaction.
Additionally, the proposed Section 140A of the ITA will see the introduction of thin capitalization rules in Malaysia, whereby the tax authorities may disallow as an expense, the interest, finance charge, or other consideration payable for or losses suffered in respect of financial assistance which is deemed to be excessive. The authorities are expected to issue guidelines on thin capitalization in the near future.
Deductions
Charitable and community projects relating to the increase of income of the poor and conservation/preservation of the environment will be deductible.
Tax incentives
The following amendments are proposed:
| - | Reinvestment Allowances (RA) are to be given to companies engaged in manufacturing, processing and selected agricultural activities on their reinvestments. 60% of the qualifying capital expenditure is allowed to be set-off against up to 70% of the statutory income with effect from 1 January 2009. Also, the amendments propose that (i) manufacturing activity be clearly defined, (ii) a company must be in operation for at least 36 months to be eligible for RA, (iii) a company purchasing an asset from a related company within the same group where RA has been claimed on that asset is not allowed to claim RA on the same asset, and (iv) the provision to claw-back RA for assets disposed off within a period of 2 years from the date of purchase of the asset is to be extended to 5 years; | |
| - | Accelerated Capital Allowances on expenses incurred on ICT equipment (including computer and software) are to be accelerated from 2 years to 1 year with effect from 1 January 2009 to 31 December 2013; and | |
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