Limited Liability Partnership (LLP)

The Finance (No.2) Bill 2012 (the Bill) proposes to amend the definition of ‘person’ in the Income Tax Act, 1967 (ITA) to include an LLP. An LLP is defined in the Bill as “a limited liability partnership registered under section 11 of the Limited Liability Partnerships Act 2012 (LLP Act) or a foreign limited liability partnership registered under section 45 of the LLP Act.

An LLP is a hybrid of a corporation and a partnership. The following are some salient features of an LLP as provided in the LLP Act:

1. Legal status (Section 3)

An LLP is a body corporate which has a legal personality separate from that of its partners and has perpetual succession; and its existence, rights and liabilities are not affected by any change in its partners.

It has unlimited capacity and is capable of -

· Suing and being sued;

· Acquiring, owning, holding and developing or disposing of properties;

· Doing and suffering such other acts and things as bodies corporate may lawfully do and suffer.



2. Formation & Registration (Sections 6, 10-12, 45)

Any two or more persons (individuals or bodies corporate) associated for carrying on any lawful business with a view to profit may form an LLP in accordance with the terms of the LLP agreement.

Application for registration is made to the Registrar of LLP, who is also the Chief Executive Officer of the Companies Commission of Malaysia (CCM). Upon application and payment of the prescribed fee, the Registrar may issue to that LLP a certificate of registration, or he may refuse to register the LLP for specified reasons [section 12(1)]. The name of an LLP shall end with the words “Perkongsian Liabiliti Terhad” or “PLT”.



3. Liability of Partners (Sections 21-23)

A partner is not personally liable for an obligation of the LLP (arising in contract, tort or otherwise) solely by reason of being a partner of the LLP. This does not absolve him from liabilities to a 3rd party arising from his wrongful act or omission in the course of business of the LLP or with its authority. An LLP is liable to the same extent as the partner and the liabilities shall be borne out of the property of the LLP.

Every partner of an LLP is regarded as the agent of the LLP and the LLP is bound by anything done by a partner in dealing with a third party, unless

(i) the partner is acting without authority, and

(ii) the third party with whom the partner is dealing

(a) knows that the partner has no authority or

(b) does not know that he is a partner of the LLP.



4. Cessation of Partnership Interest (Section 24)

A partner of an LLP may cease to be a partner –

· in accordance with the LLP agreement; or

· in the absence of such an agreement, by that partner giving 30 days’ notice of his/her intention to retire as partner to the other partners.



5. Appointment of Compliance Officer (Sections 27 and 46)

An LLP shall appoint at least one compliance officer from amongst its partners, or persons qualified to act as secretaries under the Companies Act, 1965 who is a citizen or permanent resident of Malaysia and ordinarily resides in Malaysia.

The compliance officer is responsible for complying with the requirements to:

· Register any changes in the registered particulars of the LLP;

· Keep and maintain documents which must be kept at the registered office of the LLP;

· Ensure that the name and registration number of the LLP is displayed outside its registered office.



6. Partners’ Annual Declaration and Accounts (Sections 46, 68-69)

A declaration by any 2 partners, stating their opinion on whether or not it appears that the LLP will be able to pay its debts as they become due in the normal course of business, must be lodged with the Registrar within 90 days of the end of the financial year.

An LLP must keep such accounting and other records as is sufficient to explain its financial position and enable accounts to be prepared which give a true and fair view of the state of affairs of the LLP.



7. Dissolution and Striking Off (Sections 47-51)

An LLP may be dissolved:

· By way of Court Order; or

· Where the LLP has ceased to operate and has discharged all debts and liabilities, by making an application to the Registrar (by a partner) for voluntary dissolution after compliance with requirements set out in section 50(3).

The Registrar may serve notice on the LLP to strike off its name from the register for reasons specified in section 51(1), which includes the circumstance that the LLP is not carrying on business or is not in operation, or it has contravened the LLP Act.

A foreign LLP shall lodge with the Registrar of LLP a notice of the fact that it has ceased to have a place of business or to carry on business in Malaysia within 7 days after the date of cessation.



8. LLP for Professional Practice (Section 8)

An LLP may be formed for the purpose of carrying on a professional practice, which partners must consist of natural persons practising the same profession and no one else, and have in force professional indemnity insurance approved by the registrar, or approved by the registrar in consultation with the relevant governing body of the profession.

Professional Indemnity Insurance (PII)

Pursuant to Rule 16 of the CTIM Rules And Regulations (On Professional Conduct And Ethics) revised on 23 February 2012, the Institute has adopted the Recommended Practice Guidance Note No. 2 --- Professional Indemnity Insurance (PII) as recommended by the Public Practice Committee. The Institute has secured a proposal from Marsh Insurance Brokers (Malaysia) Sdn Bhd (MARSH) for CTIM tax practitioners to be covered by PII. The Proposal and the QBE PII policy from the insurer, QBE Insurance (Malaysia) Berhad, are attached for your attention.

The Institute recommends that all CTIM tax practitioners should have PII coverage.

Please note that the CTIM is not involved in the PII contract between the contracting parties and is only providing a service to our members by arranging a PII cover specifically for tax practitioners for their use. Members are free to obtain their PII insurance from any other insurer (if any) in the market.

Please be guided accordingly.

2013 Budget --- The President’s Message

Dear Members

The 2013 Budget was announced on 28 September 2012. It was a Budget focussed on both long-term growth of the economy and the lower-income groups.

Having reviewed the Budget proposals and the Finance (No.2) Bill 2012 (The Bill), I wish to highlight to you a few important areas which may impact taxpayers and they are summarised as follows:

Limited Liability Partnership (LLP)

CTIM, together with the other professional bodies, has been actively involved in the past year, submitting our suggestions on the tax treatment of LLP. Our proposals were to offer the taxpayers an irrevocable choice of taxing LLP either as a partnership or a company.

The 2013 Budget has stipulated that it will be taxed as a corporate entity. The Institute will issue a separate e-CTIM highlighting the key features of an LLP as stated in the Limited Liability Partnerships Act 2012 (Act 743).

Issues on this subject that remain unresolved are:
(i) the real property gains tax and stamp duty implications on the transfer of assets and liabilities upon the conversion into an LLP
(ii) Tax treatment on the transfer of the balance sheet items such as stock-in-trade, debtors, creditors, etc.

The Finance (No.2) Bill 2012 is silent on these areas and there will be tax costs associated with such transfer. If the authority wishes to encourage the conversion of partnerships and companies to LLPs, then I believe tax neutrality should be maintained at the point of the transfer. In this respect, CTIM will take up these issues from the income tax, real property gains tax and stamp duty angles with the Ministry of Finance (MOF).


Business Trust (BT)

Business trust is a new business vehicle established under Capital Market and Services Act 2007 (CMSA). It adopts the unit trust structure as a basis for its business and is governed by Section 256K to 256ZP of CMSA. The introduction of the BT will broaden the range of investment products and vehicles in the Malaysia capital market.

Since this is a new business vehicle in Malaysia, CTIM will shortly send a separate e-CTIM outlining the basic information and operation of a BT. You may also visit the Securities Commission website to search for further information.


Withholding Tax (WHT) – New Section 109H – Appeal by Payer

The Bill now allows the payer to appeal on the Sections 109, 109B and 109F withholding taxes. However, the right of appeal will be denied to the payer if

(i) An appeal has been filed with the Special Commissioners of Income Tax by the non-resident recipient, to whom the payer was liable to make the payment; or
(ii) Such payment to the non-resident is disallowed as a deduction under S.39 of the Income Tax Act 1967 (ITA), or
(iii) The amount due has not been paid to the Director General of Inland Revenue

An issue will arise here if the payer legitimately believes (and has legal ground to do so) that the payer does not need to withhold the taxes but in a later tax audit, the tax auditors take a different position and disallow the payment to the non-resident under S. 39 and further demand the payment of the withholding tax. In such an event, under the proposed changes in the Bill, the payer will be denied the right to appeal.

This position is completely contrary to the basic principle that a taxpayer cannot be denied his right of appeal.

Again, this is a matter that needs to be brought to the attention of MOF



Change in Tax Treatment of Interest Income

The treatment of interest as a business income under S.4(a) has now become extremely restrictive under the New Section 4B. The Bill seeks to confine interest income as business source if the amended S.24(5) applies, i.e. interest arising from a business of lending money and the business is licensed under any written law.

A strict interpretation appears to exclude interest income e.g. overdue interest payment from trade debtors, etc. as business income. The decisions in the Malaysian Courts such as that on Pan Century Edible Oils may no longer apply.

This treatment is not conducive to encouraging the use of funds in carrying out business activities and this treatment would likely result in increasing the cost of doing business in Malaysia.



Treasury Shares (TS)

The Bill proposes that a deduction be given to the company having a business income on the cost of acquiring the treasury shares which are to be transferred to its employees under the employee-based remuneration scheme. The details of the proposal are available in the Bill.

Members should be aware of the following issues:

(i) As defined in the Bill, “treasury share” means a share of a company that was previously issued but was repurchased, redeemed or otherwise acquired by such company and not cancelled. It does not apply to new issue of shares to employees.
(ii) Significant efforts in keeping track of costs of acquisition on a First In First Out (FIFO) basis will be required for many larger organizations, where the shares are acquired over a period of time and subsequently transferred to the employees at different points in time.

This is a potential issue which could lead to disputes between the taxpayer and the tax auditors from the Inland Revenue Board in future.

Again CTIM will raise this issue to the MOF.



Assets Held for Sale (AHFS)

The Bill proposes that assets classified as AHFS shall be deemed to have ceased to be used for business for Schedule 3 of ITA purposes. Consequently, such classification will lead to a deemed disposal and computation of balancing allowance/balancing charge has to be done.

The legislation is silent on what happens if such as asset is then reclassified (back) as an asset that is being used again: will the balancing allowance/balancing charge calculated be reversed? The mechanism for this reversal is missing.

Again CTIM will raise this issue to the MOF

Meanwhile, we would be pleased if you could also forward your suggestions, comments and feedback on the 2013 Budget proposals to the Institute as soon as possible. The Technical Committees (both direct tax and indirect tax) will review all suggestions, comments and proposals and where appropriate, include them in the Memorandum for submission to the Ministry of Finance, Inland Revenue Board and Royal Malaysian Customs.

Please submit all comments and proposals to technical@ctim.org.my or fax to 03-2162 8990.

IRB Media Release IRB is Not Involved in the Payment of the RM500 Cash Assistance [BR1M]

Further to our e-CTIM No.10/2012, the Inland Revenue Board (IRB) has issued a media release on 19 January 2012 to inform the public that the IRB does not dispense the “cash assistance” under the Bantuan Rakyat 1Malaysia [BR1M] Programme.

The IRB has provided the following clarification:

i)              It has been designated with the responsibility of assisting in the implementation of the BR1M   programme, in terms of the acceptance and registration of all BR1M application forms.

ii)                     The payment mechanism is the responsibility of other parties, as follows:-

a)      for the states of Selangor, Pulau Pinang, Kedah and Kelantan, the payment mechanism will be managed by the respective Directors of Federal Development Department [Jabatan Pembangunan Persekutuan] (JPP); and

b)    for all other states, it is handled by the respective State Government Secretaries [Setiausaha Kerajaan Negeri] (SUK).

iii)           The SUK and JPP will issue a letter of notification of the status, in respect of each BR1M application (including the unsuccessful applications).

iv)           For applicants who qualify for the assistance, the arrangement for the delivery of the cash vouchers will be made by the offices of the relevant Parliamentary Constituencies or State Assemblymen, as stated in the notification letter.

In view of the above, the public is advised not to go to the IRB Branch offices for BRIM purposes.

However, other than calling the MOF hotline 1-800-222-500, the public may still call the IRB Customer Service Centre at 1-300-88-3010 to check up on the status of their BR1M applications.

In addition to the above, MOF has also issued the Frequently Asked Questions on BR1M. You may view the information provided at the website of the Institute. 

MOF 2013 Budget Portal

The Ministry of Finance has developed an official website for the 2013 Budget. Members may view the live telecast of the 2013 Budget Speech announcement at the http://www.treasury.gov.my/media_bi.html. The 2013 Budget Speech & Appendices, Economic Report 2012/2013 and the 2013 Estimated Federal Expenditure are also available for download on 28 September, 2012 from 6.00 pm.

Members may also download the 2013 Budget Speech & Appendices from the following agencies:



1) Royal Malaysian Customs Department at www.customs.gov.my
2) Inland Revenue Board of Malaysia at www.hasil.gov.my
3) Securities Commission Malaysia at www.sc.com.my
4) Central Bank of Malaysia at www.bnm.gov.my

GOOD AND SERVICES TAX (GST) TRAINING COURSE

CTIM is pleased to present to our members a 10-day modular course followed by a 3-day revision session and a 1-day examination which will commence on 1 November 2012 and end on 15 December 2012 with the cooperation and support of the Royal Malaysian Customs Department.

The speakers for this GST training course are representatives from the GST Implementation Unit of the Royal Malaysian Customs Department.

Click here for brochure and registration form.

If you need further information or clarification on the above, kindly contact the CPD Secretariat, Mr Jason/Ms Fadeah/Ms Yus/Ms Ally/Ms Nur at 03-2162 8989 ext 108/113/121/123/106 respectively.

GUIDELINES ON APPLICATION FOR APPROVAL UNDER SECTION 44(6) OF THE INCOME TAX ACT 1967 FOR DONATIONS TO A SCHOOL FUND

Further to the 2012 Budget announcement (Paragraph 45 of the Budget Speech, refer to our e-CTIM No.42/2012) and the subsequent amendment by way of Income Tax (Amendment) Act 2012 (Act A1429) (refer to our e-CTIM No.108/2012), the Inland Revenue Board (IRB) issued Guidelines On Application For Approval Under Section 44(6) Of The Income Tax Act 1967 For Donations To A School Fund on 16 July, 2012.


The Guidelines provide guidance in respect of application for approval of a public donation fund for a school. Below are some of the salient points:
The school must be registered with the Ministry of Education or the State Islamic Religious Council [Majlis Agama Islam Negeri]/ State Islamic Religious Department [Jabatan Agama Islam Negeri]


The headmaster/headmistress or principal of the school shall make the application in writing for the approval under Section 44(6) for the Fund. He/she shall be responsible for the Fund and shall prepare separate accounts for the Fund.


The funds received must be utilised for the purpose of learning and teaching/education (pembelajaran dan pengajaran or P&P) of the pupils of the school as laid down by the Education Ministry of Malaysia.


Approval will only be granted for programs approved by the Education Policy Planning and Research Division [Bahagian Perancang dan Penyelidikan Dasar Pendidikan” (BPPDP)], Education Ministry of Malaysia. An estimated expenditure together with quotations for each programme must be submitted to the Inland Revenue Board (IRB) for review. The IRB will inform the applicant of the amount approved.


There is no special form for making an application for approval under subsection 44(6) of the ITA.


Members of the Board of Governors of the school, their families and school staff should not enjoy the benefits from the Fund.


At least 50 percent of the committee members of the Fund must be made up of parents of students.


The approved Fund will be exempted from income tax on its income (except for income from dividends) under paragraph 13, Schedule 6 of the ITA.


A donor to the approved Fund will be given a deduction for the donation in arriving at the donor’s total income. Only cash donations supported by an official receipt from the school will be allowed for deduction. Donations in kind are not allowed.

For detailed information, members may view the document from the Institute’s website or IRB website