Minutes of the Customs-Private Sector Consultative Panel Meeting No. 1/2009

The Royal Malaysian Customs (RMC) has recently released the minutes of the Customs-Private Sector Consultative Panel Meeting No.1/2009 held on 15 July 2009.  

Some of the issues discussed during the meeting were:

• criteria for the approval of public bonded warehouse licence (issue no. 6),
• proposal for on-line payment of service tax (issue no. 12),
• duty payment with the surety of bank guarantee (issue no. 19),
• delay in announcement of the ASEAN tariff reduction (issue no. 25),
• delay in issuance of Customs ruling – service tax (issue no. 26),
• refund of service tax on bad debts (issue no 28),
• review of definition of taxable services in the  Second Schedule of the Service Tax Regulations 1975 (issue 29),
• proposal to pay sales tax from the 10^th to the15th of every month (issue no. 30),
• payment of sales tax by telegraphic transfer (issue no. 31),
• proposal to increase the threshold from  RM100,000 to RM 200,000 for the imposition of sales tax (issue no. 35),  and
• abuse of licensed manufacturing warehouse (LMW) status (issue no.37).

Members can view the minutes at the Institute’s website.

IRB’s Notice on Taxation of Benefits-In-Kind

The above Notice has been issued as a result of the dialogue between professional bodies and the IRB on 8 May 2009. The IRB has informed of the following:

a)Benefits of free petrol

Employees can elect the tax treatment of the benefit of free petrol to be as follows:

(i)Be taxed at prescribed values under Appendix 2 of the Public Ruling No. 2/2004,

OR

(ii)Claim an exemption of RM2,400 on petrol used from/to home to/from working place and RM6,000 for official travels.

Where the employer is unable to segregate between petrol used from/to home to/from working place and for official travels, then only an exemption of RM6,000 will be given.

b) Benefits of telephone and payment of telephone bills

A concession is given to employers who had reported in the Form EA for the year of assessment 2008 the value of benefit enjoyed by employees on telephone (hardware) at RM300 and telephone bills paid by employer at RM300 (based on Appendix 2 of the Public Ruling No.2/2004), i.e., they do not have to revise the Form EA.

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PENGUMUMAN

PENGECUALIAN CUKAI KE ATAS MANFAAT BERUPA BARANGAN

Lanjutan daripada dialog bersama persatuan akauntan yang telah diadakan pada 8 Mei

2009, Lembaga Hasil Dalam Negeri Malaysia telah memohon pengesahan daripada

Kementerian Kewangan berhubung pengecualian cukai ke atas manfaat petrol

percuma, telefon dan bayaran bil telefon yang diterima oleh pekerja berkaitan dengan

penggajiannya. Kementerian Kewangan telah memberi persetujuan seperti berikut:

1. Manfaat petrol percuma

Sebelum tahun taksiran 2008, pekerja yang melaporkan manfaat petrol mengikut

nilai yang ditetapkan untuk petrol seperti di Lampiran 2 dalam Ketetapan Umum

No. 2/2004 hanya dikenakan cukai atas amaun yang rendah dibandingkan

dengan penggunaan persendirian sebenar. Oleh itu pengecualian ke atas

penggunaan petrol persendirian telah pun dinikmati oleh pekerja. Berdasarkan

asas tersebut, Kementerian Kewangan telah bersetuju pekerja diberi pilihan

untuk:

a. menentukan amaun petrol percuma yang dikenakan cukai mengikut nilai

yang ditetapkan untuk petrol seperti di Lampiran 2 dalam Ketetapan Umum

No. 2/2004 tanpa pengecualian diberikan; atau

b. mendapat pengecualian bagi amaun petrol yang digunakan seperti berikut:

• perjalanan dari rumah ke tempat kerja/dari tempat kerja ke rumah terhad

RM2,400;

• perjalanan untuk tujuan tugas rasmi terhad RM6,000

Sekiranya majikan tidak dapat menentukan amaun petrol percuma bagi

perjalanan dari rumah ke tempat kerja/dari tempat kerja ke rumah dan perjalanan

untuk tujuan tugas rasmi, pengecualian hanya diberi sehingga RM6,000.

2. Manfaat telefon dan bayaran bil telefon

Konsesi diberi kepada majikan untuk melaporkan manfaat telefon dan bayaran

bil telefon mengikut nilai yang ditetapkan seperti di butiran 1, perenggan 3,

Lampiran 2 dalam Ketetapan Umum No. 2/2004 iaitu:

Telefon (perkakasan): RM300

Bil telefon: RM300

Oleh itu majikan yang telah mengeluarkan Borang EA bagi tahun taksiran 2008

dan melaporkan amaun dikecualikan cukai mengikut nilai seperti di atas tidak

perlu membuat pindaan ke atas borang tersebut.

Dikeluarkan oleh: Jabatan Dasar Percukaian

Lembaga Hasil Dalam Negeri Malaysia

Tarikh: 10 Julai 2009

Addendum to Public Ruling on Trade Association (PR No. 6/2005)

The Inland Revenue (IRB) has issued the above Addendum to Public Ruling No. 6/2005 on 1 July 2009. This Addendum is issued in accordance to the amendment to Section 53 of the Income Tax Act 1967, as introduced by the Finance Act 2009 (Act 693), to include professional bodies as trade association. The addendum also provides illustration on tax treatment of adjusted loss and unabsorbed capital allowance from the members’ subscription. The Addendum is effective from year of assessment 2009.

You may view the Addendum from the attachment or downloaded it from the Institute’s websites or from the IRB’s website at the following link: http://www.hasil.gov.my/english/pdf/Add_PR06_2005.pdf

FAQ: Practice Note 2/2008 - Change of Financial Year

Question 1:
Following an approved application under section 143(2) of the Companies Act 1965 (CA 1965), can a company hold its Annual General Meeting (AGM) for the preceding calendar year and the current calendar year on the same date?

Answer:
A company is allowed to convene the AGM for the current calendar year on the same date the AGM for the preceding calendar year is held. However, the rules pertaining to the proper constitution of the AGM must be observed including the giving of proper notices to shareholders for each AGM to be held. Chronologically, the AGM for the preceding calendar year must first be convened before convening the AGM for the current year.

A separate notice must be given for the AGM of calendar year 2007 and another for AGM of calendar year 2008 by specifying the place, date and time of meeting. As far as public listed companies are concerned, they still need to strictly observe the requirements under paragraph 7.17 of the Listing Requirements of the Bursa Malaysia Securities Berhad pertaining to notices of meetings, including the requirement to advertise the notice of meetings etc.

Question 2:
Pursuant to the operation of section 143(2) of the CA 1965 (due to a change in the financial year), an AGM held beyond the calendar year will be deemed to be held in the calendar year it was supposed to be held. What is the AGM date to be stated in the annual return?

Answer:The date to be stated in the annual return shall be the date when the AGM was actually held.


Question 3:
In what circumstance will an annual return of a company need not be accompanied with an audited account?

Answer:
An annual return lodged must be accompanied with a copy of the audited accounts. However, if by operations of the provisions under sections 143(2) and 169(2) of the CA 1965, have resulted in a situation where there is no accounts to be laid before the AGM, the annual return shall be accompanied with a copy of the approval of the extension of time. An annual return which is not accompanied with a copy of audited accounts or approval of extension of time will not be accepted.

Question 4:
As Practice Note 2/2008 (PN2/2008) allows an annual return to be submitted without a copy of the audited account, will this pose an inconsistency with PN1/2008 that requires all annual returns to be accompanied with a copy of the audited account?

Answer:
There is no inconsistency between PN1/2008 and PN2/2008.

PN1/2008 reiterates the general rule that the submission of an annual return accompanied with a copy of the audited account following the laying of the audited accounts before an AGM in compliance with section 169 of the CA 1965.

PN2/2008 is an exception to the general rule where the submission of an annual return will be accepted without a copy of the audited account ONLY by virtue of the operations of sections 143(2) and 169(2) of the CA 1965 following a change in the financial year. Instead, the annual return must be substantiated with a copy of the approval for an extension of time.


Question 5:
How does a company determine the period in which the next AGM is to be held following an extension of time under section 143(2) of the CA 1965?

Answer:
Section 143(1) of the CA 1965 states that a company is required to convene an AGM once in a calendar year and not more than 15 months after the holding of the last AGM.

If an extension of time has resulted in an AGM being held beyond the calendar year, the period of 15 months runs from that date. Notwithstanding, the company must observe the requirement to convene an AGM for that current calendar year.

Question 6:
Will a compound be issued when no audited account is tabled at an AGM following an approved extension of time under section 143(2) of the CA 1965?

Answer:
Where no account is laid before the AGM pursuant to the operations of sections 143(2) and 169(2) of the CA 1965, no compound will be issued. This is because the audited account due for tabling for the extended period will be adopted at the AGM held pursuant to the extension granted.

Practice Note No. 2/2008 issued by the SSM on Change of Financial Year

COMPANIES ACT 1965: SSM’S PRACTICE NOTE NO 2/2008

RE: CHANGE OF FINANCIAL YEAR

1. This Practice Note serves to inform on the relevant actionsto be taken following a change in the financial year of a company.

Financial year of a company

2. Section 4 of the Companies Act 1965 (CA 1965) defines“financial year” in relation to any corporation as the period inrespect of which any profit and loss account of the company, laid before it at a general meeting is made up, whether that period isa year or otherwise.

3. As the CA 1965 does not specify the date in which a financial year shall commence or end, the decision to determine the financial year, including any changes thereof, is entirely at the discretion of the company.

4. Commonly, a company changes its financial year due to the following reasons:

(i) to coincide with the financial year of its holding company pursuant to section 168 of the CA 1965; or

(ii) pursuant to a change of its internal operations or policy.

Change of Financial Year Pursuant to Section 168 of the CA1965

5. Section 168 of the CA 1965 generally provides that the financial year of a subsidiary company must coincide with its holding company. A holding company that is not a foreign company shall take the necessary steps to ensure that within two(2) years after any corporation becomes a subsidiary of theholding company, the financial year of that corporation coincides with its financial year pursuant to section 168(1)(b) of the CA 1965. Notwithstanding, a holding company may apply in writingto the Registrar under section 168(3) of the CA 1965 if there is good reason for the subsidiary to continue having a different financial year.

6. To synchronize the financial year of the subsidiary with its holding company, the approval from the Registrar is not necessary. However the holding company or any of its subsidiaries shall not, without the consent of the Registrar, alter the financial year of any of the entities that would result in the financial years not coinciding.

7. A situation where the Registrar may make an order granting the application under section 168(3) of the CA 1965 is when a subsidiary company acquired is incorporated outside Malaysia.

Consequences of a Change in Financial Year

8. If a company elects to change its financial year, it is still required to strictly observe the requirements relating to the holding of the Annual General Meeting (AGM) [section 143 of the CA 1965] and laying of a profit and loss account [section 169 ofthe CA 1965]. Principally, the crux of the two (2) provisions areas follows:

(i) A company is required to hold an AGM in every calendar year;

(ii) The AGM must be held not more than 15 months after the holding of the last preceding AGM;

(iii) A company must lay its audited profit and lossaccount and balance sheet (audited accounts) during the AGM where the audited accounts is made up to a date not more than six (6) months before the date ofthe AGM; and

(iv) The audited accounts must be laid at an interval of not more than 15 months.

Appropriate Actions Following a Change in Financial Year

9. When a company changes its financial year, proper planning must be exercised to ensure that the relevant provisions of the CA 1965 are complied with. In some circumstances, the change in the financial year may result in the inability to lay the financial statements at the AGM during the calendar year.

10. The following are potential scenarios of changes of a company’s financial year and the proposed course of action to be taken in furtherance to such changes:


Example I:

In the case of a change of financial year from 30 June to 31 December, it is advised that the company prepares a 6 month accounts (1 July – 31 December) to be tabled at the AGM of the next calendar year following the change of the financial year and a 12 month accounts (1 January – 31 December) to be tabled at the subsequent calendar years.

Illustration:

X Sdn Bhd has changed its financial year end from 30 June 2006 to 31 December 2006. Its last AGM was held in December 2006. Under these circumstances, X Sdn Bhd is advised to take the following actions:

• To prepare the accounts for six (6) months from1 July 2006 to 31 December 2006 and table it at the AGM for calendar year 2007;

• Subsequently, to prepare the accounts from 1 January 2007 to 31 December 2007 and table it at the AGM for calendar year 2008.

Example II:

In the case of a change of financial year from 31 December to 30 June, it is advised that the company prepares an 18 months accounts and to be tabled at the next calendar year following the change of the financial year.

Illustration:

Y Sdn Bhd changed its financial year from 31 December 2005 to 30 June 2006. Its last AGM held in June 2006. Under these circumstances, Y Sdn Bhd is advised to take the following actions:

• To prepare the account for 18 months from 1 January 2006 to 30 June 2007 and table it at the AGM for calendar year 2007;

• To apply for an extension of time under sections143(2) and 169(2) of the CA 1965 to enable the company to table the accounts that exceeds the interval of 15 months.


Application for Extension of Time to Hold an AGM Beyond the Calendar Year


11. Following a company’s decision to change a financial year, SSM noted that an application for an extension of time under sections 143(2) and 169(2) of the CA 1965 may result in the AGM
to be held beyond the calendar year. Section 143(1) of the CA 1965 however only allows for one (1) AGM to be held in any particular calendar year. As such, the approval given under
section 143(2) may result in a company having to convene two AGMs in the following calendar year.

Illustration:

Z Sdn Bhd changed its financial year from 30 June 2006 to 31 December 2006. The company held its last AGM on 15 November 2006.

Due to the company’s internal operations and policy, its next set of audited accounts was drawn up for a period of 18 months from 1 July 2006 to 31 December 2007. The company was due to hold its AGM in November 2007. However, since the audited accounts were not ready, the company applied for an extension of time under sections143(2) and 169(2) of the CA 1965 to hold its AGM beyond the calendar year and to table the audited accounts ending December 2007.

An extension of time was granted by the Registrar under sections 143(2) and 169(2) until 28 February 2008 for the AGM to be convened for the calendar year 2007.

As a result of the approval of extension of time until 28 February 2008, Z Sdn Bhd faces predicament as it still needs to comply with the requirement under section 143(1)for calendar year 2008.

12. To address this legal anomaly, an AGM convened following an approved application under section 143(2) of the CA 1965 resulting in it being held beyond the calendar year shall be deemed to have fulfilled the requirement of section 143(1) of the CA 1965 for the calendar year it was supposedly held. This is because compliance of section 143(1) of the CA 1965 is still required.

Illustration:

Following an approval for an extension of time under sections 143(2) and 169(2) until 28 February 2008 for the AGM for calendar year 2007, Z Sdn. Bhd. held its AGM on 20 February 2008. This AGM shall be deemed to be held for the calendar year 2007.

In calendar year 2008, Z Sdn Bhd is required to convene an AGM pursuant to section 143(1) but no audited accounts need to be tabled as the audited accounts for the relevant financial year has been duly tabled.

13. If and only if, by operations of the provisions under sections 143(1) and 143(2) of the CA 1965 has resulted in a situation where there is no audited accounts to be laid before the AGM, the annual return of the company shall be accepted without the inclusion of a copy of the audited accounts. However, the company must substantiate the lodgement of the annual return with a copy of the approval of the extension of time. It must be noted that this practice shall be applicable only to bona fide cases.


14. This Practice Note serves to reiterate SSM’s stance that although a company has the prerogative to decide its financial year, a company intending to change its financial year must
strictly adhere to the provisions of sections 143 and 169 of the CA 1965.


REGISTRAR OF COMPANIES
COMPANIES COMMISSION OF MALAYSIA
31 DECEMBER 2008

SECOND ECONOMIC STIMULUS PACKAGE 2009

In response to the current global economic crisis, the honourable Deputy Prime Minister and Finance Minister, Y.A.B. Dato’ Sri Mohd Najib Tun Abdul Razak announced the Second Stimulus Package on 10 March 2009.

A brief summary of the relevant tax measures proposed is stated below:

a) Carry back of current year business losses of up to RM100,000 for years of assessment 2009 and 2010 to the immediately preceding year. The proposal is not available to amongst others, a person who:

i) has been granted pioneer status or approval for investment tax allowance under Promotion of Investments Act 1986;

ii) has made a claim for re-investment allowance under Schedule 7A of the Act;

iii) has been granted an exemption under Section 127(3)(b) or 127 (3A) of the Act;

iv) has made a claim for deduction under the Income Tax (Deduction for Investment in an Approved Food Production Project) Rules 2006; the Income Tax (Deduction for Cost of Acquisition of Proprietary Rights) Rules 2002; or the Income Tax (Deduction for Cost of Acquisition of Foreign Owned Company) Rules 2003;

v) has been exempted from tax on its income under Section 54A of the Act;

vi) is an investment holding company under Section 60FA;

vii) carries on insurance business under Section 60, inward re-insurance business under Section 60A or offshore insurance business under Section 60B;

viii) carries on takaful business under Section60AA; or

ix) in the case of an individual, has no source consisting of a business.

b) With effect from year of assessment 2009, interest of up to RM10,000 each year expended by an individual citizen who is a resident to finance the purchase of one residential property, the sale and purchase agreement of which has been executed between 10 March 2009 and 31 December 2010, is allowed deduction for 3 consecutive years from the year in which the interest is first expended.

c) With effect from year of assessment 2009, qualifying capital expenditure of up to RM100,000, incurred by a person between 10 March 2009 and 31 December 2010, on renovation or refurbishment of a premise which is used for the purpose of a business of his, shall be allowed an allowance equal to one-half of that expenditure. The list of proposed qualifying renovation or refurbishment expenditure is as follows:

i. general electrical installation;

ii. lighting;

iii. gas system;

iv. water system;

v. kitchen fittings;

vi. sanitary fittings;

vii. door, gate, window, grill and roller shutter;

viii. fixed partitions;

ix. flooring;

x. wall covering;

xi. false ceiling and cornices;

xii. ornamental features or decorations excluding fine art;

xiii. canopy or awning;

xiv. fitting room or changing room;

xv. children play area; and

xvi. recreational room for employee.

d) Paragraph 71 of Schedule 3 of the Act provides that where a person incurs qualifying expenditure in relation to an asset which he owned for a period of less than two years and such asset is disposed of, balancing charge equal to any allowance claimed in respect of the qualifying expenditure shall be made against that person, except by reason of death of that person. With effect from year of assessment 2009, the Director General of Inland Revenue is empowered to consider other reasons he thinks appropriate for not clawing back the allowance claimed.

e) For an individual who ceased employment on or after 1 July 2008, the exemption from tax on payment for compensation for loss of employment has been raised from RM6,000 to RM10,000 for each completed year of service.

f) Effective from the year of assessment 2009, double deduction is granted for remuneration incurred on employing Malaysian citizens and residents retrenched on or after 1 July 2008 and the termination has been registered with the Director General of Labour, the Ministry of Human Resources. The incentive is applicable for the employment of full time employees between the period from 10 March 2009 to 31 December 2010. The double deduction incentive is restricted to remuneration not exceeding RM10,000 per worker per month for a maximum period of 12 months.

This incentive is not applicable where the employment is for the replacement of a former employee or the former and present employers are associates or controlled companies as defined under Section 139 of the Act.

g) For the banking and financial institutions, with effect from year of assessment 2009, the interest which is due and payable for the period of twelve consecutive months related to the deferment on the repayment of a housing loan taken by a retrenched Malaysian citizen before termination of his employment, will be taxed on a receipt basis. This is on conditions, amongst others that the request for the deferment of the housing loan repayment is made between 10 March 2009 and 9 March 2010 and that the individual was retrenched on or after 1 July 2008.

h) Effective from year of assessment 2009, Accelerated Capital Allowance (ACA) of 40% annual allowance is given to a Malaysian resident on qualifying expenditure incurred under Schedule 3 of the Act between 10 March 2009 and 31 December 2010. For asset acquired under hire-purchase, only qualifying expenditure incurred during that period shall be eligible for the ACA. The incentive shall not apply to a person who in the period from 10 March 2009 to 31 December 2010:

i) has been granted incentives under the Promotion of Investments Act 1986;

ii) has made a claim for re-investment allowance under Schedule 7A of the Act;

x) has been granted an exemption under Section 127(3)(b) or 127 (3A) of the Act; or

xi) qualifies for an allowance at a higher fraction under the Act or any rules made under Section 154 of the Act.

Declare Dividend disregard accumulated losses

Can a company declare dividend out of a profit year and disregard accumulated losses?

• Companies Act had stipulated that no dividend shall be paid by the company except out of profits [S365(1)].

• No part of the capital of the company may be distributed as dividen as this would constitute a reduction of capital in a manner not permitted by the law.

• Profits are calculated by applying prudent accounting standards and practice so as to determine the source of dividends. However, when it comes to deciding whether it is lawful for a company to pay a dividend, profits as calculated under the law will be preferred as there is no legal necessity to make good any losses in fixed capital or depreciation of fixed capital (in accounting, loss or depreciation of fixed assets is allowed for in computing profits) and the profits made in the current financial year can be lawfully distributed by way of dividend without making good trading losses of earlier years.
• This means that if a company had suffered loss in the past, but has currently made a profit, legally this current profit can be distributed.
• However, directors are required to exercise reasonable commercial prudence to ensure going concern of the company and therefore, would usually make provisions for the past losses (accumulated losses) to be recovered before a dividend is declared.