Malaysia: Corporate tax proposals under the finance act 2016

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The Finance Act 2016, which was gazetted on 16 January 2017, introduces new corporate tax proposals to the Malaysian Income Tax Act (MITA). The highlighted area of the proposals is as given below;

Special classes of income are subject to withholding tax regardless of place of performance of service-It is proposed that Section 15A of the ITA be amended to provide that special classes of income under subsections 4A(i) and (ii) of the ITA shall be deemed to be derived from Malaysia regardless of whether the services were performed in Malaysia or outside Malaysia. Now services under Section 4A of the ITA provided offshore will be subject to withholding tax.

Revision to income exempted from tax under Schedule 6 of the ITA- The Government has proposed that some income including income derived by a non-resident from trading in Malaysia through consignees in any kind of commodity produced outside Malaysia, Income derived by non-resident in respect of interest derived from Malaysia on an approved loan, and Interest in respect of Sukuk originated from Malaysia will no longer be exempted from tax with effect from YA 2017.

Redefinition of “Royalty”- The definition of “royalty” has been expanded significantly to include items such as software and communications via satellite.

New Penalties– Under the proposed new Sections 113A and 119B of the MITA, it is an offence for any person to make an incorrect or false return, or fail to comply with any rules made to implement or facilitate any mutual administrative assistance arrangement (including the AEOI Rules). Any person who is convicted for an offence under these new provisions will be liable to a fine of not less than RM 20,000 and not more than RM 100,000 and / or imprisonment for a term not exceeding six months.

Introduction of fees for advance pricing arrangement-The change in Section 154(1)(ec) is to enable the Minister to prescribed rules to charge fees in relation to an application for advance pricing arrangement.

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