Taxable income for individuals, businesses

By LEE VOON SIONG

This is the second article in a series of four weekly articles to assist taxpayers in complying with their tax obligations.

ALL revenue income derived from a source within Malaysia are subject to tax unless specifically exempted. Foreign source income remitted into Malaysia are exempted from tax.

Employment income which must be reported in the employee's tax return include salary, wages, commission, bonus, gratuity, perquisite or allowances.
The classes of income that are subject to tax for an individual include the following:

Employment income

Employment income which must be reported in the employee's tax return includes the following:

# Salary, wages, commission, bonus, gratuity, perquisite or allowances (perquisite would include the following payments made by the employer on behalf of the employee: utility bills, income tax, children's education expenses, individual club membership, employee share option scheme and loan interest);

# Benefits-in-kind such as car, driver, corporate club membership, mobile phone, household furniture and appliances; and

# Value of living accommodation, servant and gardener.

Certain expenses are allowable against the employment income such as professional membership fees, and travelling and entertainment expenses. The onus is on the employee to prove to the Internal Revenue Board that the expenses were incurred for business purposes.

Employment income which is exempted from tax and need not be reported includes:

# Leave passages provided to the employee, his spouse and children up to a maximum of RM3,000 for one overseas trip and up to a maximum of three local trips per year;

# Retirement gratuities (on meeting certain conditions);

# Employees Provident Fund withdrawals; and

# Dental or medical treatment or child care benefit.

Dividend income

The tax treatment will be as follows:

Normal dividends: Dividends are received net of tax by individual shareholders. The gross amount of the dividend is declared in the tax return.

A Section 110 tax credit (27%) can be claimed against the income tax suffered on the dividend income. If a resident individual's marginal tax rate is lower than 27%, the excess tax credit can either be refunded or used to set off against the tax payable on other sources of income.

Tax exempt and foreign dividends: These dividends are exempted from income tax and need not be declared in the tax return.

Expenses which are deductible against the dividend income are:

# Commission or brokerage fee;

# Stamp duty on transfer of shares; and

# Interest on loan obtained to purchase the shares.

Interest income

Interest income received is subject to income tax and is required to be reported in the tax return. However, interest paid by a financial institution in Malaysia to a resident individual is not required to be reported in the individual's tax return as the withholding tax of 5% is treated as a final tax.

Rental income

Rental income is required to be reported in the tax return and is normally treated as an investment income.

Expenses which are allowable against the rental income are:

# Quit rent and assessment;

# Insurance premium on the property;

# Replacement costs on assets used in the property;

# Repairs and maintenance;

# Interest on loan obtained to purchase the property;

# Commission and agency fee;

# Advertisement for letting out of property.

Expenses incurred on advertisement, commission and legal fees for the first tenancy agreement are not allowed as these expenses are capital in nature.

Rental losses are not allowed to be utilised to set-off against other sources of income.

Business income

The taxable income of a business is determined after deduction of the following:

# All expenses and outgoings incurred wholly and exclusively in the production of the business income;

# Capital allowances; and

# Any unabsorbed business losses brought forward.

Expenses which are wholly and exclusively incurred in the production of the business income would include:

# Interest on loan used in the business;

# Rental in respect of any land or building occupied;

# Employee costs;

# Specific provision for doubtful debts/bad debts; and

# Repairs and maintenance.

Depreciation on fixed assets is not deductible.

However, capital allowances can be claimed provided the fixed assets are owned by the taxpayer and are in use for the business at the end of the basis period.

http://biz.thestar.com.my/news/story.asp?f...88&sec=business


Preparing personal income tax returns

Preparing personal income tax returns

By LEE VOON SIONG

WHO is required to submit a tax return? A person who is chargeable to tax is required to submit an income tax return to the Inland Revenue Board (IRB).

Chargeability to tax would depend on the amount of income reported and the reliefs and deductions claimed. For example, an employee who is single and earning RM27,000 annually would be chargeable to tax if his claim for relief is limited to self relief and Employees Provident Fund.

An individual who is filing his tax return for the first time will have to register a tax file with the IRB. He can do this by going to the nearest IRB office and bringing along his identity card/passport, Form EA and marriage certificate, if married.

How will you be taxed?

An individual is taxed on his chargeable income after deduction of personal reliefs. He will be taxed at scale rates starting from 0% (on the first RM2,500) to a maximum of 28% (on chargeable income exceeding RM250,000).

A non-resident individual will be taxed at a flat rate of 28% on his gross income without any relief.

Types of tax returns

Any taxpayer who has not been issued a tax return by March 31 must request for one from the IRB by April 14.

The income tax form must be completed and submitted to the IRB's Processing Unit in Pandan Indah, Kuala Lumpur. The types of income tax forms issued by the IRB are shown in the table.

Taxpayers who have previously submitted their tax returns via e-filing will no longer be issued tax returns.

Taxpayers who have received their tax returns but wish to submit their tax returns via e-filing can do so by logging in to the IRB's website (https://e.hasil.org.my) using the pin number printed on their income tax returns. An acknowledgment will be issued online automatically upon submission of the return.

For taxpayers who are filing their tax returns for the first time and wish to use the e-filing system, they can obtain their pin number as follows:

# Visit the nearest IRB office, or

# Call the IRB office and fax over a copy of their IC with their handphone number. The pin number will be sent via SMS.

Any person who fails to submit a return or notify the director general of his chargeability to tax will, on conviction, be liable to a fine of between RM200 and RM2,000 or imprisonment of up to six months or both.

How to settle tax liability?

Employees are subject to schedular tax deduction (STD) on their monthly remuneration based on an STD table. The STD will have to be remitted by the employer to the IRB by the 10th of the following month.

For taxpayers who received income other than employment income, the tax liability on that income will have to be settled by six bimonthly instalment payments starting from March the following year.

The IRB will issue a Notice of Instalment Payment (CP 500) stating the amount, due date and number of instalments.

Each instalment must be remitted to the IRB within 30 days from the due date. If the taxpayer is not agreeable to the instalment scheme, he can request for a variation by June 30.

Any balance of tax payable (i.e, total tax payable less STD and instalment payments) must be remitted to the IRB by April 30 (non-business cases) or June 30 (business cases).

Tax payments can be made:

# At the IRB payment counter in Jalan Duta, KL;

# By attaching the cheque to the tax return submitted; or

# Via selected commercial banks appointed by the IRB (the bank in slip must be retained as evidence of payment).

Penalties of up to 15% will be imposed for late payment.

http://biz.thestar.com.my/news/story.asp?f...26&sec=business



This post has been edited by jack2008: Mar 17 2008, 01:12 PM

I have several questions regarding this:

1) I've been getting conflicting answers on the Internet about this particular issue, can people double confirm it to be true? I am currently receiving a combination of US cheques and wire transfers remitted to me from the US via ad sales. Are these foreign-sourced income taxable?

2) Also, I am splitting the money half with my other partner in the sales - how exactly do I go about reporting it to the IRB?

1) as long as u can proved it's foreign source income, then it's income exempted when u remit it back to Msia. pls trust the article which publish in the newspaper.

2) partnership account is what u need to do.

Income receive outside scope of Malaysia is non taxable...
u can check under paragraph 21 schedule 6

2, partnership account?
i think appropriation accont better..
^^

This post has been edited by kuntaker: Mar 18 2008, 03:02 PM

would you say export business are all now exempted from income tax?

is it for individual only or it applies for business too?

Business 1 different le..if business 1 is consider under business income

for individual , Income derived from outside scope of Malaysia is non taxable,
example u work at Singapore but u bring back to Malaysia


i mean money come from outside lo ..

coooool....

Ah, thanks for the replies! That seemed to clear up doubts about the exemption.

I don't understand though what you guys meant by partnership account or appropriation account. Are these accounts in the banks or.. are they related to the IRB?

erm the partnership account or appropriation account is made by ur own partnership business..
u can see how much profit u gain from ur investment to the partnership ,
becoz partnership is non taxable thats y the income receive by individual will be taxable..^^

But my ad sales currently isn't a business of any kind. Should I start setting up a partnership first before declaring my income?

Refer to the above statement, if a person's only income is from investment from oversea, how should the person provide the prove of income to financial institution when come to loan application?

Any sifu can enlighten me

Thank you

This post has been edited by maxximus: Mar 20 2008, 02:08 AM

but u should know that partnership is not a great thing either ...
if ppl sue u, u lose until really pocket 0!
wat we call as unlimited liability...
this is a risky part..
thats y a lot of ppl willing to open sdn.bhd as there are limited liability..
or in other word , u lose only ur investment money to the company..

---

Added on March 20, 2008, 5:44 amactually , u no nid to prove de...
if im not wrong , when u do transaction into ur account from overseas , bank negara will know wan...
u think bank negara do ntg?
they hv all ur transaction under ur name wan le..
^^

why wanna take loan?

This post has been edited by kuntaker: Mar 20 2008, 05:44 AM

Sorry, I've 1 question regarding this dividend taxation. I've invested in mutual funds and they declared distribution during 2007. I chose to re-invest them and I received the tax voucher. There are several columns in the voucher there, which column is my taxed amount, and which column I should add into my form when filing my borang? THanksss.

p/s: I'd like to claim back my portion of taxed amount, as my tax bracket is small compare to 27/8% ..

This post has been edited by lifeless_creature: Mar 20 2008, 05:12 PM

If i'm working as a permanent staff in company A, yet i'm also a partner in company B, which tax form should i fill in?

And in terms of partnership, all profits gain from it will not be taxable? How about profit sharing? Do i add those figure into personal income tax?

profit sharing that u earn is taxable..

i think u check lhdn website n see on which form to fill..
^^

This slides I got might be interesting to read for:

P/S: I didn't prepare it. I received it via forwarded email.

In simple term, all profit and income are taxable, unless stated otherwise like capital appreciation is tax exmpted, FD interest income, bond interest payment etc.

thanks for the info. But normally when apply loan, bank will ask for your 3 months salary slips and EA....... when I told them I no longer working with my previous employer and also not working with any company so can't give them the salary slips, and also my investment is in oversea a/c and is tax exempted, and what I have is only my monthly a/c statement for my investment a/c, which is oversea, and they said will come back to me.... till now no news..... not sure why?

btw, I want to buy property mah

If it isn't a conventional business, then why need to declare? Pocket everything la!
Otherwise, if you think the Fed government is short of cash, go register a sole proprietary business and start declaring your income earned from ad sales.

I believe in B form, not BE.
You can state your other source of income (from company A)

When you have your own business, your profit share adds up into your income.
BUT....don't declare all your profits just yet.

You need to add in company expenses first:
1) Meal allowances (yes, even bfast, lunch, dinner, supper. keep all receipts. Even eating out with parents also. You can say its for "dinner with client")

2) Entertainment fees (karaoke, movies, disco, pubs, for "client")

3) Car allowances (petrol, parking, servicing. Car used for your business)

4) Insurance (for yourself, and business assets i.e. notebooks, servers etc)

5) Misc (miscellaneous charges incurred for your business)

Then what is remained after deducting from all the above expenses, will be your taxable income.

This way you enjoy spending first, then taxed on your remainder. Employees like myself gets my pay taxed first before i can use the remainder to spend. Thats the benefit of owning a business.

However, if your taxable business income is low, then it doesn't reflect well on your business, thus difficult to secure a business loan.

They have no idea how to valuate your income, which isn't consistent.

The best maybe is to create a sole prop business focusing on foreign investment and declare your income from the returns of such investments. At least when you have proper documented evidences, its easier for them to valuate your risk level.

Thanks for your info. It's much clearer now...