Additional Country Code in the Guidebooks

Please be informed that the Inland Revenue Board (IRB) has inserted the following new Country Code, between CUBA and CYPRUS, in the Guidebooks and it will be effective from 5 July 2013.

Name of Country/Country Code
CURACAO/CW

Members may view the relevant changes in the Guidebooks at the IRB website. For further enquiries please email to IRB at helpitef@hasil.gov.my. You may view a copy of the IRB email to the Institute at CTIM website.

Form e-C and Form e-R for Year of Assessment 2013 available on e-Latihan

Please be informed that Income Tax Return Forms C and R for the year of assessment 2013 have been made available on the Inland Revenue Board (IRB) e–training environment since 15 June 2013.

Software developers may now test the integration of their software with the e-filing system. The following development documentation of the said Forms, including XML file specifications, is attached for your attention.

- Integration of CTHA (Version 1.2)

- Layout C for YA 2013

- Layout R for YA 2013

- List of Bank Names

Members may view the documents at the Institute’s website. For further enquiries please email to IRB at helpitef@hasil.gov.my.

Application for Renewal of Licence under S.153, ITA 1967 – Letter from the IRB dated 12 June 2013

The Deputy Director General of Inland Revenue (Operations), Dato Mohammad Sait bin Ahmad, has issued a letter, dated 12 June 2013, to the professional bodies on the above matter.

The Inland Revenue Board (IRB) has informed that in the course of processing applications for the renewal of tax agent licences, it was found that there have been applicants who had not submitted their Income Tax Return Forms (ITRF) or had not submitted their ITRF within the due date as stipulated in S.77, Income Tax Act 1967 (ITA). In addition, there have also been applicants who had failed to comply with payment of outstanding tax or tax instalment under S.103, ITA.

Paragraph 5.3 of the Code of Ethics for Tax Agents (Revised) states that:-

“5.3 A tax agent should always keep his own tax affairs up-to-date. Tax returns and letters/documents should be submitted on time and the tax payable should be paid within the time allowed.”

The IRB is of the view that a tax agent should be responsible for updating his/her personal tax affairs as he/she should set an example to his/her clients.

The Institute would like to remind members to keep their personal tax affairs up-to-date to ensure that the tax agent licence is renewed.

Members may view the letter on CTIM website.

FRS 102: Inventories – Dialogue with the Ministry of Finance (MOF)

The Joint Tax Working Group on FRS (JTWG-FRS), comprises representatives from CTIM, MIA and MICPA, has attended a dialogue called by the MOF on 13 June 2013. The dialogue was held together with the Inland Revenue Board (IRB), to discuss the tax implications relating to the implementation of FRS 102: Inventories. We are pleased to update members on the matters discussed:-

Tax issues that may arise with the implementation of FRS 102

1) Inventories measured at net realisable value (NRV) / Fair Value

Section 35(3) of Income Tax Act 1967 provides that inventories are measured at the lower of cost and market value (MV), whereas FRS 102 requires inventories to be measured at cost or NRV, whichever is the lower.

NRV is the Estimated Selling Price less Estimated Costs of Completion and Estimated “Cost to Make Sale”. Hence NRV is not equal to MV. If the NRV is lower than cost, tax adjustment is required by adding back the “cost to sell” to reinstate to Market Value (MV).

This means that the taxpayer has to maintain another set of records for its inventories for tax purposes.

To avoid the increase of costs of doing business, the JTWG-FRS proposes that the IRB adopts FRS 102 valuation of inventories since any difference will only be a timing difference. The IRB will discuss on the matter and revert to the JTWG-FRS.

2) Inventories purchased on deferred settlement term

For interest purchased on deferred settlement term, FRS 102 requires that the difference between the purchase price for normal credit terms and the amounts paid be recognised as interest expense over the period of financing. Issue has been raised on what is the appropriate tax adjustment to the “imputed interest” cost on inventories purchased on deferred settlement term.

JTWG-FRS has proposed that tax deduction be allowed on the “imputed interest” as interest expense and not subject to Section 33(2) or thin capitalization rule since the “imputed interest” is in fact the cost of inventories for tax purpose.

The IRB agreed to consider the proposal by the tax practitioners and will look into the issues and revert to the JTWG-FRS.

Submission of Comments on Draft GST Guides and Revised List of Taxable and Non-Taxable Items under Second Schedule to the Service Tax Regulations, 1975

We are pleased to inform that the Institute has recently submitted the following to the Authority:

1) Comments on “Draft” GST Guide – Registration;

2) Comments on “Draft” GST Guide – Tax Invoice and Record Keeping;

3) Comments on “Draft” GST Guide – Warehousing Scheme;

4) Comments on “Draft” GST Guide – Import;

5) Comments on “Draft” GST Guide – Approved Traders Scheme; and

6) Comments on Revised List of Taxable and Non-Taxable Items Under Second Schedule to the Service Tax Regulations, 1975

Members may view the above documents at the Institute’s website.

CTIM Memorandum on 2014 Budget Proposals (Summary)

Please be informed that the Institute has prepared and submitted a Memorandum on 2014 Budget Proposals (Summary) to the Ministry of Finance on 7 June 2013.

The Institute has made, inter alia, the following proposals in the Memorandum on 2014 Budget Proposals:-

1. Reduce revenue leakage on rental paid to foreign landlords;

2. Impose business exit tax for businesses moving out of the country;

3. Facilitate tax compliance by allowing a deduction for compliance tax fee paid to an approved tax agent, simplifying tax compliance processes, removing onerous laws, etc.;

4. Review the penalty provisions;

5. Improve transparency and clarity in laws and regulations by ensuring the timely availability of legislative framework for new measures, and judgement of decided tax cases;

6. Ensure strict application of decision by the Courts, and non-retrospective application of laws, rulings and guidelines, etc.;

7. Enhance the growth of the services industry by allowing IBA for office buildings and renovations costs;

8. Allow course fees for more professional examinations to be deductible under S46(1)(f); and

9. Improve the public consultation process.

Members may view the CTIM Memorandum on 2014 Budget Proposals (Summary) at the Institute’s website.

SOME SALIENT POINTS IN PUBLIC RULING NO. 7/2013

1. Unit Trust Funds in Malaysia

i) A unit trust is a form of collective investment constituted under a trust deed. Unit trusts are open ended investments. Each fund has a specified investment objective to determine the management aims and limitations.

ii) A conventional unit trust fund invests in a broadly diversified portfolio of stocks and bonds or other financial instruments and includes a property trust which invests primarily in real properties. Other funds include bond/ fixed income funds, money market funds, fund-of funds, index funds, structured products, feeder funds, umbrella funds, guaranteed funds and capital protected funds.

iii) Islamic unit trust funds /Syariah-based unit trust funds are collective investment schemes that invest in a diversified portfolio of Syariah-compliant securities.

iv) Unit trusts are not separate legal entities. A trustee is the registered legal owner of all assets of the trust fund. The trustee holds the assets on behalf of and for the benefit of the unit holders who are the beneficial owners of the assets of the fund.

2. Regulatory Framework

i) The sole regulatory body of the unit trust industry in Malaysia is the SC which is the supervisory authority for the establishment and operations of unit trusts in Malaysia. Only unit trust funds approved by the SC can be offered for sale to the public.

ii) The Capital Markets and Services Act 2007 (CMSA) and guidelines on unit trust funds issued by the SC are the principal legislations and guidelines governing the unit trust industry and they provide the legal framework for the roles and responsibilities of the fund manager and trustee.

iii) The Guidelines on Unit Trust Funds are issued by the SC under section 377 of the CMSA and form part of the regulatory framework for unit trusts in Malaysia, and should be read together with the securities laws.

iv) A fund manager of a unit trust which carries on an Islamic fund management business under an Islamic window is required to comply with the relevant guidelines as set out by the SC.

3. Structure and key features of Unit Trusts

i) The unit trust arrangement is a tripartite relationship between the investors (unit holders), the trustee and the management company (fund manager) in a unit trust. The trust deed defines the terms and conditions of this relationship and details the way in which the fund operates. The trust deed must be registered with the SC which also approves the appointment of the fund manager and the trustee.

ii) An Islamic unit trust scheme is required to appoint a Syariah adviser as stipulated in the SC’s Guidelines on unit trust fund to ensure that their operations are in accordance with Syariah principles.

iii) Other key features are outlined in paragraph 6 of the Ruling, and include the following:

Subject	Paragraph
Investment activities of conventional unit trusts	6.2
Investment activities of Islamic unit trusts	6.3
Investment restrictions and units	6.4
Non-permissible investments of Syariah-based unit trust fund	6.5
Income of unit trust	6.6
Fees and expenses of unit trusts	6.7

iv) The following is a summary of points made in paragraph 6.6 (Income of unit trust):

· Interest income of a unit trust is charged to tax except for interest specifically exempted under Schedule 6 of the ITA or various Exemption Orders;

· Under S2(7) of the ITA, any gains or profits received by an Islamic fund and expenses incurred, in lieu of interest, in transactions conducted in accordance with Syariah principles, are to be accorded the same treatment as if they were interest.

· The following dividends received by unit trusts are tax exempt:

- Single-tier dividends distributed by a resident company;

- Tax-exempt dividends distributed by companies enjoying tax incentives, from their exempt income accounts.

· An approved unit trust approved by the Minister of Finance, is exempt from tax on its income, and dividends received from that unit trust are also exempt in the hands of a resident individuals [Income Tax (Exemption) (No. 12) Order 1985].

· Rental income of a unit trust which is not considered as a REIT/PTF by the SC is part of the total income of the property trust.

· Other tax exempt income of a unit trust are:

- Gains from the realization of investments of a unit trust;

- Income derived from sources outside Malaysia and received in Malaysia by a resident unit trust (from YA 1998).

You may write to the Institute at technical@ctim.org.my or secretariat@ctim.org.my in respect of any concern or comments you may have on the Public Ruling.

Goods and Service Tax (GST) Industry Guides on Insurance and Takaful

Further to our e-CTIM TECH. No.66/2013, dated 11 June 2013, please be informed that the Royal Malaysian Customs (RMC) has just uploaded GST Industry Guide on Insurance and Takaful.

You may write to the Institute at technical@ctim.org.my in respect of any concern or comments you may have on the Guide.

Members may view the Guide on the official website of Malaysia Goods and Service Tax (GST).

IRB Technical Guidelines for Income Tax Treatment of Malaysian Financial Reporting Standards (MFRS)

We are pleased to inform that the Inland Revenue Board (IRB) has issued guidelines for income tax treatment of the following MFRS(s) all dated 4 June 2013:

(1) MFRS 5: Non-Current Assets Held for Sale and Discontinued Operations;

(2) MFRS 123: Borrowing Cost; and

(3) MFRS 140: Investment Property

We would be pleased if you could let us have your feedback and/or any concern in writing to technical@ctim.org.my as soon as possible, so that we may raise it to the IRB accordingly.

Members may view the guidelines at the IRB website.

LLP – Information on Basic Disclosure Requirements by CCM

During the courtesy visit to the Companies Commission of Malaysia (CCM) by CTIM on 30 April 2013, the Institute sought clarification on the requirement to lodge a solvency statement under specific provisions in the Limited Liability Partnerships (LLP) Act 2012. This was followed up by a letter to CCM.

Members may view the Institute’s letter sent to CCM and the corresponding response from CCM on the Institute’s website.

Please be guided accordingly.

Goods and Service Tax (GST) Guides

Please be informed that the Royal Malaysian Customs (RMC) has recently issued the following:-

1) GST Specific Guide on Supply;

2) GST Specific Guide on Input Tax Credit;

3) GST Industry Guide on Freight Transportation; and

4) GST Industry Guide on Passenger Transportation

We would be pleased if you could let us have your feedback and/or any concern in writing to technical@ctim.org.my as soon as possible, so that we may raise it to the Customs.

Members may view the Guides on the Institute website or the official website of Malaysia Goods and Service Tax (GST).

Income Tax Return Form C1, TA, TC & TR (PDF Format) for YA 2013

Please be informed that the Inland Revenue Board (IRB) has uploaded the Income Tax Return Forms (ITRF) C1, TA, TC & TR (in PDF format) for year of assessment 2013 to the IRB website.

Taxpayers and tax agents may download and print these ITRF.

Members may view the ITRF at the IRB website.

PUBLIC RULING (PR) NO. 7-2013 – UNIT TRUST FUNDS PART I – AN OVERVIEW

The above PR dated 28 May 2013 was uploaded to the IRB website on 6 June 2013. It forms part of the PRs on Unit Trust Funds. Members were informed about the other PRs, PR No.5 and 6, via our e-CTIM TECH 62-2013 dated 5 June 2013.

This PR gives a general overview of the unit trust fund and property trust governed by Securities Commission (SC) but excludes the real estate investments trust (REIT) and property trust fund (PTF). It explains the operational and regulatory framework of unit trust funds in Malaysia and differentiates the conventional unit trust fund from Islamic Unit Trust Funds, in terms of their structures, activities and income. A Unit trust / Property trust (excluding REIT/PTF) is required to file an Income Tax Return Form, TC, within 7 months from the date following the end of the accounting period.

You may write to the Institute at technical@ctim.org.my or secretariat@ctim.org.my in respect of any concern or comments you may have on the Public Ruling.

REVIEW OF THE PROCESSING FEE FOR APPLICATION AND RENEWAL OF TAX AGENT LICENCE UNDER S. 153 OF THE INCOME TAX ACT, 1967

The Ministry of Finance has issued a letter, dated 21 May 2013, to the professional bodies on the above subject matter.

Members may view the letter on the Institute’s website. Please revert with comments, if any.

THE INLAND REVENUE BOARD (IRB) ISSUES PUBLIC RULINGS NO. 5/2013 & 6/2013

1. The IRB of Malaysia issued the following Public Rulings on 23 May 2013:

PR No.	Topic
5/2013	Taxation of Unit Holders of Unit Trust Funds
6/2013	Unit Trust Funds Part II – Taxation of Unit Trusts

The salient points in each Public Ruling (PR) are outlined below.

2. PR 5/2013

The PR explains the taxation of unit holders who receive income distribution from unit trusts.

· Taxation of Unit Trust Holders

i) Unit holders are taxed on an amount equivalent to their share of the total taxable income of the unit trust for a year of assessment (YA) which is distributed to them by the unit trust for that YA. The tax credit attached to the distribution of income is available (under S.110(9A)) to the unit holder for set-off against tax chargeable of the unit holder.

ii) The following are tax exempt in the hands of unit holders:

§ Distributions to unit holders out of income which is tax exempt at unit trust level (e.g. certain types of interest and foreign sourced income);

§ Distribution of income from gains arising from disposal of investments by the unit trust;

§ Gains realized by unit holders from the sale or redemption of unit trusts;

§ Bonus issues of units which do not represent distributions of income derived from investments of the unit trust.

iii) The following tax rates are applicable

§ Companies and non-resident companies – 25% (prevailing rate);

§ Resident individuals and others (cooperatives, associations and societies) – scale rates;

§ Non-resident individuals and others (cooperatives, associations and societies) – 26% (current rate).

iv) There is no withholding tax on distributions of unit trust income to non-resident unit holders.

· Filing of returns – Unit holders must declare their taxable distribution of income from unit trusts in their income tax return forms, together with other taxable income.

3. PR 6/2013

The Ruling explains the taxation of unit trusts [other than a real estate investment trust or property trust fund (REIT/PTF) governed by the Securities Commission (SC)].

· Taxation of Unit Trusts in General

(i) Basis of assessment – The basis period for a unit trust is the basis year for the year of assessment or the accounting year (where the 12-month accounting period ends on a date other than 31 December) pursuant to S.21A of the ITA.

(ii) Residence status – This is determined in accordance with S.61(3) of the ITA which provides that a trust body is resident in Malaysia for the basis year for a YA if any trustee member is resident in Malaysia for that basis year.

(iii) Expense deduction – Deductibility of expenses is governed by S.33(1) of the ITA, i.e. only expenses wholly and exclusively incurred in the production of gross income are allowed as deduction against each source of income.

(iv) Special deduction – S.63B of the ITA provides for a special deduction of “permitted expenses” (defined in that section) to be made in ascertaining total income of a unit trust. The deduction is an amount which is calculated in accordance with the formula provided in that section. (Such “permitted expenses” are of the kind which are regarded as not allowable under S.33(1) of the ITA).

(v) Tax Computation of unit trusts and examples (Paragraph 7, Examples 2 to 4).

· Taxation of Property Trusts other than REIT/ PTF

(i) Paragraph 8 focuses on the taxation of property trusts that invest primarily in income generating real estate but do not qualify as REIT/ PTF under SC guidelines. Important points to note are:-

- Such Property Trusts are eligible to claim a special deduction under S.63A of the ITA for qualifying capital expenditure (QCE) which is deductible against adjusted income from the rental source of the unit trust. This deduction is not capital allowance and cannot be carried forward. Neither is there any balancing charge or allowance.

- “QCE” means capital expenditure incurred on the provision of machinery and plant used for the purpose of deriving rent from the letting of buildings, including expenditure on the alteration of an existing building or preparation of a site for installation of machinery or plant (provided that specified conditions are met).

- Conditions to qualify for claim of the special deduction must also be met (explained in paragraph 8.4 of the Ruling).

- The special deduction is in the form of an allowance equal to 10% of the QCE.

- S.63D of the ITA states that rental income of a unit trust (other than REIT/ PTF) shall not be treated as business source.



(ii) Paragraph 8.10 provides the tax computation for a Property Trust (Example 5).



You may write to the Institute at technical@ctim.org.my or secretariat@ctim.org.my in respect of any concern or comments you may have on the Public Rulings.