Hi, I started my business in sole proprietor 2 years ago and now my profit is forecast will be around 200k-500k. I found that sole proprietor tax rate is higher than sdn bhd.

Question:
1)Should I move to sdn bhd to avoid too many tax? or stay in sole proprietor?
2)Any idea to avoid tax(legal way).
3)My business is selling software online, I found from article that "Foreign source income remitted into Malaysia are exempted from tax.", that's means I'm exempted from tax? since I'm purely earn from oversea.
4)I heard IT company can be exempted from tax as long as it's MSC status, so does this means I have to apply for sdn. bhd and apply for MSC status?
5)Is there any hidden disadvantage when moving to sdn bhd?

1) Yes, you got more advantage with S/B as compared individual, somemore SME that paid up capital below Rm2million (forget the exact figure), tax rate is 20% on the first 500K profit

3) Not apply on your case, foreign source income means the income is generated at there (they assume you are being taxed at there in the first place, you pay tax based on where business operate) then remit back, your case is sales and payment come from foreign, but you are operating here.

4) Roughly yes.

5) extra cost incurred with need of secretary and accountant service for account audit. You gain more advantage, especially limit your liability with S/B.

1) there are other ways to optimize tax, I vote for stay in sole prop

2) appoint a proper accountant, try accorsolutions.com, ask for Cindy and said Michael refers you. tells her you want to optimize tax staying as sole prop. what are the ways etc. If she cann't help you, please let me know. some pointers:
a) pay optimize salary to family and friends, non taxable to them and deductable for your biz
b) pay EPF, the savings is yours after age 55 and tax deductible
c) ...

3) yes, keep your money in USD and use them as USD world wide. no tax worry there.

4) msc tax exempt is 10 years if not mistaken. also check out mdec and cradle who gives you free money in your innovative ideas while the budget can be used to setup msc company etc.

5) sdn. bhd. pays extra 1-3k to maintain the accounts, audit, sc filings etc.

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Added on November 3, 2009, 12:02 amthe right reasons to start a sdn. bhd. could be

1) you will grow your biz one day into hiring many people
2) you will have investors etc.
3) you sign big value contract with your clients
4) you are tendering for projects
etc.

This post has been edited by mtsen: Nov 3 2009, 12:02 AM

as sdn bhd has to much more advatages for sure
need feedback on what are the other disadvantges of sdn bhd besides compay secretaries and audit documentations

anyone?

Isn't EPF and insurance premium all lumped together and have a limit?

1) given the size of ur business, it better to operate under sdn. bhd. both for future branding, expansion and tax savings. Furthermore, sole prop business tends to attract more detail tax audit and thus increasing ur tax risks. Furthermore, having a sdn. bhd. entity will allow for continuation of you business by fellow shareholders / directors (family members) whereas under sole prop, ur business ends if anything unfortunate happens to the proprietor becoz ur family won't be able to use the same business name (ur branding).
2) obtain a service of a qualified tax agent to do some tax planning for you.
3) no you are not exempted.
4) application for MSC status requires a service of a tax professsional which would check up whether u meet the requirement for MSC status
5) main disadvantages is u need to pay for tax, audit & secretarial services and if u wanna close ur business, u also need to pay for winding up / striking off. then again, these are negligible given the size of ur business. On the other hand, you would have these professional accountants to consult on business matters. often businessman are not familiar with certain compliance requirement and tend to result in the business having to pay penalties for non-compliances.

This post has been edited by D-Tourist: Nov 3 2009, 11:42 PM

nowsaday the LHDN are very concern over sole proprietor and partnership because in practice, many of these business account are not properly kept and maintained as compared to Sdn Bhd. For payment of salary to relative, the LHDN are also very strict as to the type of job scope involved. if you have a proper accounting system with all documents properly kept, partnership is better with income evenly split over partners with lower tax rate. Otherwise, a Sdn Bhd is still better if your company is expanding. Sdn Bhd tax rate is only at 20% on first RM500,000 whereas sole proprietor is at 27%. But of course, for Sdn Bhd, you have to incur secretary fee, audit and tax fee.

Since LHDN implementing KPI in their ranks... they are getting strict with tax collection. I own a sdn bhd and learned it the hard way in my 1st 2 years

My suggestion is to bite the bullet and go sdn bhd. What u can do with your profit is to convert it into expense assets.

eg. buying a shop lot (through bank) will be consider expense asset. Cars can also can be use but you have to justify it uses for business/goods transit.

More than that like mtsen said above... get a good Co Sec/Accountant... some can give you valuable advises on how to do tax deductions.

I'm not well versed in tax but hopefully my small experience owning a sdn bhd helped.

With the profit forecast(if its true) that you mentioned, i would suggest you convert into Sdn Bhd. Regards the tax, there are legal ways to eliminate by consults the tax consultants. With that amount of profits that you estimated(which consider big amount), it is wise to limit your liability. With this earning profit, those accountance and audit fees is nothing to ponder about(1-3k yearly) compare the profits that you claim.

TS / ExpZero,

Go consult a team of advisors before making any decision. The details that you are giving is too little.

I would recommend you go consult with SEVERAL accountants/accounting firms, legal advisors, financial planners, and those that are essential for running a business. I've stressed 'SEVERAL' because some advisors' advice may not suit you and you do not want to rush things off.

Take your time to scout around for advice. Get contacts from friends / network. When you selected a team of advisors that you think that they help, keep them in ur advising list for the long run.

Cheers. Hope it helps.

may i know how much roughly will the secretary and account services fees for a company with paid up capital less than 1m

Co Secretary retainer fees about RM60 to RM80 per month. It excludes resolutions work eg appointment of new directors or transfer shares & annual return filings

Accounting fees depends on your turnover transactions.

Co Tax fees about RM1.5 to RM2k

This post has been edited by mini orchard: Jan 22 2019, 09:55 AM

Accounting and audit fee may depend on the amount of transaction and turnover.

Generally if the amount is not too big, about 5K per annum may be doable for the necessary fee/services.

1. U should transfer to Sdn Bhd, tax rate for first 500k profit is 17% and the rest at 24% (Provided your share capital is less than 2.5mil and belong to SME category)

2. U need tax consultant for that

3. If u conduct work at Malaysia, u have to pay tax here. Foreign source mean u work at Singapore, tax paid to Singapore government, that one is foreign source. Malaysia don't need to tax u because of double tax agreement with Singapore.

4. U need to apply pioneer status for it, details i'm not too sure. One of the condition is u must set up office at MSC status building.

5. U have to pay audit fee, tax fee and secretarial fee. Audit fee could be 5-10k depending on your size, tax fee 4-6k, secretarial fee 4-6k annually. Total up could take u about RM15-20k annually.

i think not enough for current situation, i look at my dormant company, secretarial fee sum up already RM3-4k annually because of the annual filing fee. Audit fee and tax fee another potential RM2-3k if dormant.

Not sure how many dormant companies you have. But if just 1, you should consider appointing a new Co Sec.

As far as I knew, annual filing fee charged by SSM is Rm150, while secretarial monthly fee as far as I encountered range in about 2K~3kK annually for running simple SME business.

Having said that, secretarial fee is always subjected to amount of work needed and complexity of the company paper work needed.

A dormant company needs up to 4K annually?

3-4 dormant company under my group whom i working for.

Filing fee is as usual, now everything has to go online, scan and upload to SSM website. The amount of work has increase and secretarial is charging more now.

RM50 monthly secretarial fee, total RM636 annually.
RM3k for filing fee, SSM fee and circulation of financial statement.

Add both of it also close to RM4k annually already. U can ask outside for the actual fee they charge, could be a bit lesser or more or less the same.

This post has been edited by yhtan: Jan 23 2019, 10:48 AM