The Inland Revenue Board of Malaysia (IRBM) recently published Public Ruling No. 2/2021, which provides guidance on the tax deduction available to companies that sponsor any approved local or foreign arts, cultural, and heritage activities in Malaysia. In Budget 2020 the government increased the tax deduction limit of sponsorships to encourage the sponsoring of any arts, cultural, or heritage activity approved by the Minister.

The main guidance provided in the public ruling includes the following:

Application for an Approval of Sponsorship and Letter of Approval for Tax Deduction

In accordance with the guidelines on the application for a tax deduction related to sponsorship of arts, cultural, and heritage activities issued by the Ministry of Tourism, Arts and Culture Malaysia (MOTAC), sponsors must fulfill various criteria in order to be eligible for a tax deduction.

Eligible activities or programmes of sponsorship

MOTAC has identified the following activities or programmes related to arts, culture, and heritage as being eligible for a tax deduction:

• Stage performances;
• Festivals or fairs;
• Exhibitions or expo;
• Conferences, seminars, workshops, symposium, and discourse;
• Preservation or conservation;
• Research, documentation, or publication;
• Recording or production;
• Competition;
• Recognition or appreciation;
• Education or learning;
• Promotion or development;
• Marketing, product promotion or activities;
• Innovation;
• Content development;
• Archiving or creation of records or data; and
• Other activities or programmes related to the arts, culture, and heritage recognised by MOTAC.

Form of sponsorship (cash/ payment of cost of organizing activities/ donation in kind, etc.)

The form of sponsorship for local and foreign arts, culture, and heritage that has been determined by MOTAC includes the following:

• Cash;
• Artist and professional fee;
• Purchase of goods and equipment;
• Event organising costs such as food and beverages, logistics, accommodations, venue rental, technical or sound system and lighting, decoration, security, equipment, and utilities;
• Costs (cash or in-kind) of production (product) approved by MOTAC;
• Prize sponsorship;
• Donation in-kind such as goods or equipment or venue;
• Costs of preservation and conservation of heritage sites;
• Materials donation such as historic buildings, monuments, and artifacts;
• Costs of research and development activities and programmes;
• Costs of marketing and promotion activities and programmes; and
• Other forms of sponsorship recognised by MOTAC.

Application for a letter of sponsorship

An organiser, representative, or programme owner that wants to carry out a proposed activity or programme needs to submit an application to MOTAC by completing and submitting the relevant application forms. The application has to be submitted 30 days before the activity or programme is carried out. After reviewing the application in respect of the proposed activity or programme, MOTAC may issue a supporting letter for sponsorship. With this letter of sponsorship, sponsorship may be sourced from private or corporate sponsors.

For more information in respect of the application for the letter of sponsorship, please refer to the guidelines regarding the application for a tax deduction issued by MOTAC which is available at www.motac.gov.my.

Application for a letter of approval for a tax deduction

The organiser, representative, or programme owner needs to submit an application to MOTAC not later than 90 days after the activity or programme has been carried out to obtain a letter of approval for tax deduction.

For more information in respect of the application, please refer to the guideline titled Tax Deduction on Sponsorship of Arts, Cultural and Heritage Activities under subsection 34(6)(k) Income Tax Act 1967, which is available at www.motac.gov.my.

Tax Deduction

Ascertainment of adjusted income

Generally, in ascertaining the adjusted income of a person from a business for the basis period for a year of assessment, deductions are allowed from the gross income for expenditure incurred in the production of income under subsection 33(1) of the ITA subject to any specific prohibitions under section 39 of the ITA.

Special provision

In the case of sponsorships for any approved arts, cultural, and heritage activities, a special provision by virtue of paragraph 34(6)(k) of the ITA provides for a deduction for the said sponsorship from the gross income of the relevant sponsor. In ascertaining the adjusted income of a person, a deduction equivalent to the expenditure incurred by the relevant person in the relevant period for sponsoring any arts, cultural, or heritage activity as approved by the Minister is allowed.

Limit of deduction

Pursuant to the proviso to paragraph 34(6)(k) of the ITA, the amount of deduction in respect of expenditure incurred for sponsoring the said arts, cultural, and heritage activities must not in aggregate exceed MYR 1 million of which the amount deducted in respect of expenditure incurred in sponsoring foreign arts, cultural, and heritage activity must not exceed MYR 300,000. Prior to the year of assessment 2020, the limit of tax deduction for sponsoring any arts, cultural, and heritage activities was MYR 700,000 of which the deduction for sponsoring foreign arts, cultural, and heritage activities was also MYR 300,000.