I had an registered enterprise company. Wondering if I need to change it to Sdn Bhd. My aim is to pay the least tax as possible.

Here the situation. I basically do design and mobile app stuff. So far is on freelance basis, and go under the radar. My total income fro that was under 25k for this 2 years.

However, I'm might get a project worth 1.5mil. It will takes 18 months to complete. And I need be sub contract some part of the work to other individual/company as well.

I have not pay any tax under Enterprise company, so I am not sure how it works. So here my question is:

- My initial start up is 50k, to buy software, hardware and lots of mobile devices (phone and tablet). Is this deductible from the tax?
- Payment to freelancer and other party for the sub contract work. Its deductible too rite? But some of the work will be sub to freelancer out of this country, will that be a problem?
- what other stuff that is deductible?

And all that taken into account, is there any need for me to upgrade to Sdn Bhd?

Short answer, if 1.5M, go for Sdn Bhd.
Your payment to subcontractors are deductible for both Sdn Bhd and Enterprise.

I think it will be a lot more helpful if you were to explain why you think TS should go for Sdn Bhd for that amount of income.

Yeah.. like the post below, can you enlighten me a bit?

1. You're taxed as an individual when you do your business as a Sole Proprietor. Sdn Bhd's tax highest tax bracket is 1% less than an individual. I can't recall the figures, pls do a search on google.

2. You get more deductions in the form of travel expenses, director fees etc from a Sdn Bhd.

That's the gist of it. There are tons more other tax advantages but these are the main ones I can think of.

For 1), it depends on your personal declared tax return and Sdn Bhd tax return. If you can keep your personal below MYR100k then it is better to declare income as personal, else Sdn Bhd

2) Same as above, as Sdn Bhd you get deduction, but director fees and stuff will add up to your personal tax return. So it's your call

3) Admin cost is a lot higher in Sdn Bhd, secretary fees, acc, audit, tax, gst

4) you get protection as limited liability from Sdn Bhd. Eh if anything goes bad to your company then it won't bring it to your own personal assets.

5) Bla bla bla and a lot more

Yea its just a summary. The subject is too broad and the variables too many.
But he mentioned RM1.5M, I would assume his profit will be way more than RM100K.

Thanks for the answer.
From what I gather, is it necessary to register under at least 2 director? What if the other director wanna quit later on? Need to find replacement?

Lastly, is there anywhere I can find whats is tax deductible for Sdn Bhd? Google didnt yield me any result. Thanks a lot for the patient.

It should not be a problem. Can use your grandma or grandson. If you're all alone with not a relative or friend in the world, can use one of your staff. The people holding the majority of shares can hire and fire directors at he wish, so ultimate control remains with you. So long as you retain a majority of shares.

Everything is deductible, except what is not. In other words, try searching for the opposite, what is NOT deductible for tax.

Yes minimum 2 directors and 2 shareholders.
Speak to a company secretary. I can recommend you mine if you're interested. PM me your phone number. We can chat further on whatsapp too if u want.

Haha!! I think this has potential to be quote of the year

Thank you for all the input guys, really appreciate it.

Dividend Magic alread PM-ed u.

Sorry for hijacking your thread..want to ask a question here..

I have fork out rm5000 as capital to start the business, after business run for few month, already earn back the capital, if i want to take back/transfer the capital to my personal account isn't subject to tax?

p.s: my company is Sdn Bhd

This post has been edited by BlackPen: Dec 8 2015, 11:46 AM

If you take back RM4998 of the capital, the company becomes a RM2 company. No good.

Pay dividend instead. The company already pays the tax, so when dividend is paid to the shareholder, the shareholder don't have to pay tax again.

My company already earn some of the profit. So company still have a sum of money. So if i want to take back the capital, mean i need to pay it as dividend ? dividend no subject to tax?

Dividends won't be subjected to tax. You would've already paid tax at company level.

Sorry for another noobs question, how is dividend been counted? any limit? and how many time you can do that annually?

As many times as u want. You can only pay dividends from the profit of your company. Lets say your profit after tax is RM500K this year, you can pay all RM500K as dividends.

Question here.. Do my capital 5k (5k actually is the money to create bank account) count as a profits? Taxable? Non taxable?

No. You have to prepare a proper P&L (profit & loss account). Either do it yourself or hire someone to do it. Then look for the line item that says "accumulated profit" (it might be called something else, so ask your bookkeeper/accountant you hired which is the equivalent name if you don't see it).

I'm thinking that perhaps TS's company has not yet made RM5k profit. Perhaps he hasn't even prepared a set of accounts and do not know how much profit has been made.

He had simply looked at the bank balance, see it has a lot of cash, and thinks that it does not need so much cash sitting in the current account earning no interest. There's plenty of cash to keep the business running, even if he takes out the RM5000 he originally put in.

In that case, the company can loan you RM5000. The company is doing well, expected to return a healthy profit at the end of the year, and will pay the shareholders a dividend. This RM5000 will then be offset against whatever dividend is declared at the end of the year. If the dividend turns out to be less than RM5000, you can repay the balance then, or let the balance carry forward to offset against the next year's dividend.

There is a tax implication if the company is paying any interest (bank term loan or overdraft), if it has also advanced interest free loans to it's directors. But if it isn't paying any interest, then it's fine, and there's no problem with taxation.

The alternative is to shrink the share capital from RM5k down to RM2, which nobody does. It just does not look very good when you're asking for credit terms from your suppliers if your sharecap is only RM2.

Thank you the details explanation. Company profits already more then the capital. So I thought of take back my capital. The Company still more then enough amount to run the business So, if i take out the original put in amount is not taxable because it's not profits.

only profit is taxable right?

Thank you.

Only profits are taxable. But regardless of whether you take out the profits of leave it in the company, this has no effect on the amount of company tax. Once profit is generated, it is taxable. Not when you're taking it out. Even if you leave the money in the company, tax is still payable. The only way to reduce the tax is to reduce the profits.

There are only two ways to take money out, reduce the share capital, or pay dividend (reduce accumulated profits).

Whichever way you choose to take out your money (or even if you leave it in), it has no effect on the amount of tax you or your company have to pay.

It is inadvisable to reduce the company's paid up share capital from RM10k to RM2. There is no benefit in doing so. It looks much worse than reducing the company's accumulated profits from RM20k to RM15k. But if you are dead set on doing that (for whatever reason I cannot understand), you can just contact your company secretary. You have to leave RM2. The only way to take the last RM2 would be to wind up the company, and you said it is profitable.

Im just gonna park my butt here to learn a thing or two.

Certain business requires minimum paid up capital, you better check with your secretary

One more question here.

If the company profits already taxed and paid dividend to shareholder. The dividend need to pay 1 more time to personal income taX?

For example, profits after taxed is RM50k and there is 3 shareholder, each shareholder entitle to get RM10k dividend. Transfer the RM10k to my personal account. Question is RM10k is taxable for individual?

Tax thingy make me headache I'm new to this
Thank you.

This post has been edited by BlackPen: Dec 9 2015, 04:03 PM

The dividends that your company paid to the respective shareholders are now single-tier dividends which are not taxable in the hands of the shareholders. Therefore, in your example, the RM10k dividend entitlement to each shareholders will not be taxable at their personal income tax level. As informed by other bros in the previous posts, those dividends already being taxed at company's level (i.e. reduced your retained earnings).

Hope the above helps.

i like this thread haha

Nice thread!

Just in general but you don't need to have anyone you know personally become a Director in case you don't trust them. From what I've seen long-term staff of your Company Secretary can fill in as a sleeping Director. Sdn Bhd also has significant expenses though even for dormant companies. Expect to pay at least a few thousand per year for Income Tax Agent/Secretary/Audit fees even if you're not doing business. If you're not serious about running the business then Sdn. Bhd. is a bad choice because you have regulatory requirements under the Companies Act 2016 and the Income Tax Act 1967 which require filings every year and that costs certain roughly fixed amounts. If you fail to do so then you'll get fined by SSM and IRB for not-insignificant amounts. Most small-time Audit firms have a related Secretary firm which makes it easier for them to handle your affairs.