Last few weeks I asked a few questions here in Lowyat regarding financial transactions, taxes, and business registration related to being a full-time trader. I did not get the answers I needed and continued digging.

Finally - I got to know that an old friend of mine is a Tax Lawyer and runs a tax consulting firm (how convenient) - decided to drop him a message, and he gave me a callback and was happy to answer all my questions.

I hope this will be useful for anyone that want to be a full time trader or doing trading as a side business. I think some of it will be useful for people who are self-employed and freelancing.

I will share my questions and the answers given by him below.

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1. Are profits from stock trading taxable, since its mentioned in LHDN document that capital gains are not taxable

If you're an active trader, yes. There is no specific number (trading frequency) given by LHDN on how they measure an active trader but to be on the safe side, assume that you are since you trade daily and it's your only source of income.

2. Do I need to register as a self-employed entity (sole-proprietorship/enterprise)?

Not necessary but recommended, especially if you earn more than RM100k a year. Register a company (apply for 5 years license) in SSN with your personal tax ID. You may not know what will you venture into in the future so it's good to have a company registered - If you decide to try other businesses, you can always use the same company name.
Registration of a company also allows you to open a corporate bank account which can help separate personal/business funds and it also helps for filing tax in the future.

3. Do I need to open a corporate bank account?

Again, not necessary but recommended. Plus corporate bank account has more flexibility/freedom in terms of transactions, unlike a personal bank account where you can get calls from the bank for above-average transaction amounts.

4. How will my income from trading be taxed? Do I use the numbers from tax statements given by the broker?

For your income to be taxed, you need to show funds in the bank account. As long as the money is in the brokerage account, it won't be taxed as there are no incoming transactions. You can make RM1 million realized gains (sold for profit) but if you never transferred it to your bank account, what will you show to the taxman?

5. Can I use funds from the business bank account for personal use?

I recommend transferring the funds you need for personal use to your personal bank account (from the business account), at least for the first 2 years to have a clean business transaction record and for ease of filing tax.

6. Will I have any problems applying for loans for a car or house, since I dont have monthly payslips to show?

Buying a car should not be a problem - the car salesperson can usually help you "kautim" with the banker. But for a house, yes.
They dont care where the money comes from but they want to know how much tax you have paid (and this is the first thing they will look at). From the tax payments, they can estimate your yearly income and if you are eligible for a loan based on other criteria (i.e credit report)
Again you can have RM1million cash in your bank account but if you have never taken a loan, no credit cards, no utility bills and have clean record with Bank Negara - most probably your loan will be rejected.

7. My initial investment funds from my US bank account (I used to work in the US for 8 years), will that be a problem since I have moved back for good to Malaysia recently and currently trading in Malaysia.

As long as you have paid taxes in the US for the funds and you have the proof (past tax filing statements), then it should be no problem.
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Thats it guys.
I dont know if some of the questions are silly but hopefully, it's helpful.
Let me know what you guys think - do you agree with these answers - do you have other answers from your source/reference
any personal experience to share?
Looking forward to your feedback.

Max

typo

item 2

it's ssm not ssn

if investment profit is passive income also subject to tax?

No. But if you buy sell everyday then it is not passive la.

good info

This post has been edited by personaforever6789: Sep 8 2023, 01:21 PM

Tq for the info. Is it only applicable to trade for self? How about trade for others then profit sharing?

This post has been edited by apathen: Feb 12 2021, 10:19 PM

According to my friend, make sure the name under the brokerage account, the company, and the bank account has to be the same (either individual or multiple partners)
So if you want to trade for others, it's better to include them as your partner as if you guys are doing the trading together rather than you doing it for him (which I think is illegal if you're not a licensed fund manager)

Thanks for sharing. I believe most of us do have such or similar question too.

Unless a person has CMSL by SC then they can trade for otherwise by the book will be considered as an investigation justification for AMLA

If you wanna trade other betters have an agreement being drawn together with the brokerage account custody in the person name I feel you wanna trade otherwise it willing be taxable to the trader who has the bear more taxation for it

does one need to have license to collect "deposits" for the investment?

I see.
So its recommended but not mandatory right?

This post has been edited by RagingBalls: Feb 14 2021, 06:07 PM

Yes if you are following by the book

Only those with CMSL are legally allowed to collect deposits and any disputes can be filed to consumer tribunal for legal protection and civil suit

Otherwise by Polis definition it is scam, money laundering, Macau scam or illegal proceeds which they have the right freeze or frozen the account which is why most of us trading overseas brokerage to bypass this matter if not can be charge under AMLA

i dont think this is completely right.

taking of deposits is under the purview of BNM, surely there's another type of licence issued by BNM.

CMSL or CMSRL are issued by the SC to mainly the investment/merchant banks. SC's role is to uphold the capital market.

am a CMSRL holder

If direct deposit yes it is under the Banking and Financial Institutions Act 1989 (BAFIA), only licensed financial institutions are allowed to accept deposits.

But in CMSL most of it are piggybacking on financial license holder under BAFIA rules through using the trust or trustee in order to skirt AMLA enforcement in order to satisfy requirements

The question is does CMSL consider as direct deposit takers or not which SC stillness hasn’t satisfy to many savvy investors

anyone know what was the tax rate like ?

So this has to be registered as ROC and not ROB right?

I think it is useful.

Good

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This post has been edited by limsmart: Oct 21 2021, 03:43 AM

is your yearly profit high?
high as the accumulated profits if used to buy assets like big cars and properties that would raise the eyebrows of lhdn?

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This post has been edited by limsmart: Oct 21 2021, 03:43 AM

then the answers to your query is very clear....

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This post has been edited by limsmart: Oct 21 2021, 03:44 AM

Active Cryptocurrency Traders Are Required To Declare Their Gains For Income Tax
https://ringgitplus.com/en/blog/income-tax/...income-tax.html

https://themalaysianreserve.com/2021/01/05/...ared-from-lhdn/

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This post has been edited by frozendreamsky: Jan 9 2022, 02:20 AM

If you wanted just for that purposes, any idea of the tax rate differential, other cost n what other extra statutory work required to maintain a sole proprietorship vs a sdn bhd vs just a submission thru BE form?

This post has been edited by MUM: Aug 20 2021, 09:50 AM

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This post has been edited by frozendreamsky: Jan 9 2022, 02:20 AM

Read post 1.....i think it had those info

Following up on this 4th point, I reckon when we are not applying for loan, we can just withdraw the min. amount of expenses monthly from brokerage account to our bank account, so as to pay the min. tax to LHDN.
And when we would like to apply for loan, we simply up the withdrawal amount and match the to be reported annual income (or annual withdrawal amount) to the loan amount desired accordingly. (eg. maintain below 40% DSR monthly)

What do you think of this?

Just my guesses.
If I am the loan officer, by just looking at Yr money transferred from Yr investment brokerage,....
How to know if you are not withdrawing Yr own invested monies but realised profits?
How do I know if your luck in winning is not a one time incident but a histories of proven winning streaks that can hv the ability to service the loan repayment amount through out that loan duration?

This post has been edited by MUM: Oct 9 2021, 11:21 AM

I am not sure how the loan officer will view an application of such nature.

But referring to author's 6th point, source of income doesn't seem to matter.
If this is true, a combination of below 2 points should suffice for loan application
a. Income tax report with sufficient annual income for your desired loan amount
b. Good credit history in loan & card repayment

For point A & B
I think there is a ( number of years) of income tax payment history n the amount of taxes paid same for the duration of credit history n amount of value of those credit repayments made per month to be considered too.
Just my guesses too
Ex: payment history is just 2 yrs,... Monthly credit repayment is just rm200 or tax history is just 2 yrs n taxes is just rm300 per year
May not get approved for large loan amount

This post has been edited by MUM: Oct 9 2021, 12:57 PM

Can intro your tax lawyer friend to handle account on profit derived from forex trading ? 😄👍🏼

Nice write up... #cryptotax