Malaysia Finance Bill 2021

Finance Bill 2021

Further to the Budget 2022 announcement, the Finance Bill was tabled in Parliament on 9 November 2021. The Finance Bill 2021 incorporates a number of announcements made in the Budget 2022, as well as some other notable additions. The Finance Bill 2021 contains proposed amendments (among others) to the following Acts:

Income Tax Act 1967
Real Property Gains Tax Act 1976
Stamp Act 1949
Finance Act 2012 and Finance Act 2018

Below we provide some highlights on the key tax proposals based on the Finance Bill 2021:

Corporate tax

Tax on income received from outside Malaysia (foreign sourced income)	Malaysian tax residents (both companies and individual) will be taxed on gross income (all classes of income) derived from foreign sources and received in Malaysia with effect from 1 January 2022. There will be a transitional period from 1 January 2022 to 30 June 2022 where foreign sourced income remitted to Malaysia will be taxed at the rate of 3 % on gross income. From 1 July 2022 onwards, foreign sourced income received in Malaysia by Malaysian tax residents will be taxed at the prevailing tax rates (i.e. 24 % for resident companies, 17 % on the first RM600,000 of chargeable income for micro, small and medium enterprises, and 0 % to 30 % for resident individuals).
Revised time limit to carry forward business losses	The existing time limit to carry forward unutilized business losses for a maximum period of 7 consecutives years of assessment (YAs) is extended to 10 consecutive YAs.
Time limit on carry forward of unutilized reinvestment allowance (RA)	The time limit to carry forward RA for a period of 7 consecutive YAs also applies to the unabsorbed RA from the special RA under PENJANA, commencing from YA 2025. Any amounts which remain unabsorbed from YA 2031 shall be disregarded from YA 2032.
Withholding ax on ayments made to agents, dealers and distributors	Certain payments made to resident agents, dealers or distributors who are individuals and who have received more than RM100,000 will be subject to a 2 % withholding tax with effect as of 1 January 2022. Companies which fail to comply with this requirement will be subject to 10 % of the outstanding withholding tax, and would be denied a tax deduction on the expense incurred. The withholding tax deducted can be used to be offset against the tax payable by the agent, dealer or distributor.
Extension of tax rebate for the establishment of new entities for companies/Limited Liability Partnership (LLPs)	The income tax rebate of up to RM20,000 per Year of Assessment (YA), for the first three (3) YAs will be extended for new Companies/ LLPs established and commencing operations by 31 December 2022.
Submission of return based on financial statements	Similar to companies, LLPs, trust bodies and co-operative societies will be required to furnish their income tax return based on financial statements made in accordance with any written law.
Tax Identification Number (TIN)	TIN will be implemented with effect as of 1 January 2022 to broaden the tax base by enhancing compliance with existing tax laws. The TIN will be used for the purposes of income tax, real property gains tax and stamp duty. Persons who have been assigned a tax reference number on or before 1 January 2022 are deemed to have been assigned a TIN.
Power to call for bank account information for the purpose of making a garnishee order application	The Director General of Inland Revenue (DGIR) will be empowered to request for a taxpayers' bank account information from the financial institutions for the purpose of making an application to the court for a garnishee order. Penalty of RM200 to RM20,000 or imprisonment for a term not exceeding 6 months, or both will be imposed for failure to comply with the DGIR’s request.
Submission of an application for relief to the Special Commissioners of Income Tax (SCIT)	Taxpayers will be required to send the request for DGIR to forward the application for relief to SCIT in a prescribed form effective as of 1 January 2022.
Failure to Furnish Tax Estimates	A 10 % penalty on the tax payable for a YA will be imposed on LLPs for failure to submit the tax estimates.
Tax treatment on distribution to unit trust Holders	Income of non-individual unit holders of retail money market fund (RMMF) will be taxable with effect as of 1 January 2022.
Withholding tax on the distribution of income of unit trusts to unit holders other than individuals	Resident and non-resident unit holders except individuals receiving income from RMMF will be subject to a withholding tax of 24 % with effect as of 1 January 2022.
Non-application of exemption on interest from sukuk/ debenture issued pursuant to asset-backed securitization	Tax exemption will not apply, and a person will be taxed in respect of interest paid or credited by an SPV to a company from sukuk structured under an asset backed securities arrangement where the company and the person who established the SPV are from the same group. SPV is now defined under Paragraph 37 of Schedule 6 of the Malaysian Income Tax Act, 1967 (MITA).
Research and development (R&D) status companies	Companies in the business of providing R&D services (contract R&D company and R&D company) that wish to apply for an R&D tax incentive will be granted (subject to the Ministry of International Trade and Industry (MITI)’s approval) R&D status (for a period of 5 years, extendable subject to MITI’s approval). Existing contract R&D companies and R&D companies will continue to keep their status for a grace period (from 1 January 2022 to 30 June 2022). Thereafter, companies wishing to retain their status must give a notification to MITI.
Taxation of Intellectual Property (IP) income derived by a Labuan entity	The definition of chargeable profits in respect of a Labuan entity which does not meet the prescribed substantial activities requirements will exclude IP income; and the IP income will be subject to tax under the MITA. As such, all IP income of a Labuan entity (regardless of whether the substantial business activities requirements are met) will be taxed under the MITA and is proposed to take retrospective effect from 1 January 2019.

Individual Tax

Expansion of tax relief on medical examination expenses	Tax relief of up to RM1,000 on medical examination expenses for self, spouse and child will be expanded to include costs incurred for examination or consultation relating to mental health, effective YA 2022. The scope of relief includes Covid-19 detection test.
Extension of tax relief for domestic tourism expenses	A special tax relief of up to RM1,000 on domestic tourism expenses (including domestic tour packages) will be extended for expenses incurred until 31 December 2022. The scope of relief includes the purchase of domestic tour packages through a licensed travel agent registered with the Commissioner of Tourism under the Tourism Industry Act 1992.

Real Property Gains Tax (RPGT)

Increase of retention sum to be retained	Retention sum will be increased from 3 % to 5 % (of the purchase consideration) for disposal of real properties or shares in real property companies within a period of three years from the date of acquisition by a company or a trustee of a trust or a body of persons registered under any written law in Malaysia.
Leaving Malaysia without payment of tax	The scope of offence for leaving Malaysia without payment of tax will be expanded to include failure to pay a sum or debt payable, and the penalty amount will be increased to a maximum of RM20,000.
Expansion of scope for no-gain-no-loss transactions	No-gain-no-loss transactions will be expanded to include the transfer of assets owned by a nominee or a trustee of an individual, the wife of the individual or both to a controlled company. The disposal of the share consideration (“exchange shares”) is subject to RPGT upon disposal.
Expansion of losses disallowed for deduction	Losses arising from the disposal of exchange shares (transfer of shares to a controlled company) will not be allowed to be utilized to reduce the total chargeable gain of a person for a YA and the losses will be disregarded.
Revision of chargeable persons under Part II of Schedule 5 of the RPGTA	Part II of Schedule 5 of the RPGTA will be revised to replace societies registered under the Societies Act 1966 with body of persons registered under any written law in Malaysia.

Stamp Duty

Stamp duty refund	Specific provisions inserted into the Stamp Act 1949 specify that IRB shall not be compelled to refund excess stamp duty, and that the stamp duty refund will only be made when the assessment has become final and conclusive.
Relief for misused stamps	Duty payers will be allowed to apply for relief for misused stamps within 24 months (extended from the current 12 months period) from the date of instrument or date of execution (if the instrument is not dated), effective as of 1 January 2022.
Relief for spoiled stamps	Duty payers will be allowed to apply for relief for spoiled stamps within 24 months (extended from the current 12 months period) from the date when stamps are spoiled or the date of instrument or the date of execution (if the instrument is not dated), effective as of 1 January 2022.
Processing fee for endorsement of exempt instruments	The DGIR will impose a new processing fee of RM10 (before exemption) on instruments/documents which are exempted from stamp duty and brought to the IRB for endorsement, effective as of 1 January 2022.
Application for appeal and refund	The application for appeal and refund can be done through electronic medium effective as of 1 January 2022.
TIN in stamp duty transactions	Duty payers will be required to use the TIN assigned by the DGIR in stamp duty transactions effective as of 1 January 2022.