KDU COLLEGE,MATRIX

To improve the effective tax rate of the group tax efficiency

PASB can do a tax planning to improve the effective rate.
The dividend income of RM 1 million received from its subsidiary is tax exempted due to
a single-tier system applied.
The provision of management and administrative service is tax deductible as it is a
specific provision related to business activity.
Party to secure loan
PCSB should be the party to secure loan due to it is a very profitable subsidiary and
loan can be borrowed easily.
Group relief
Effective from YA 2009, a loss making company(ie.PASB) is allowed to set off 70% of
the current year unabsorbed losses against the defined aggregate income of one or
more related companies within the same group.
In order to qualify for group relief, the following conditions have to be met:1) Tax resident and incorporated in Malaysia.
-Due to PCSB & PSSB both are tax resident and incorporated in Malaysia, they
met the condition.
2) Related companies throughout the year and 12-months period prior to that year
of assessment.
3) Having common 12-months period ending on the same day.
-Since only PCSB ending date on 30 June is not the same as the others on 31
December, PCSB should change to 31 December to qualify this criteria.
4) Make an irrevocable election to surrender or claim the business loss in their
respective tax return Form C.
-To claim the business loss, both PSSB and PCSB should make an irrevocable
election.
5) Subject to income tax at 25%.
-both PSSB and PCSB should subject to income tax at 25%.
6) The claimant company has defined aggregate income for that year of
assessment.

7) The claimant and the surrendering companies each have paid up capital of
ordinary shares of more than RM2.5 million.
-Since only PSSB paid up capital of RM 2.4 million is below RM 2.5 million,
PSSB should increase the paid up capital to RM 2.5 million.
8) The shareholding, whether direct or indirect, of the claimant and surrendering
companies in the group must not be less that 70%.
- Since only PASB have direct control of all of the subsidiaries, PASB should obtain 0.5
% more of PCSB in order to meet 70% condition.

Bionexus status
BioNexus company is a company involved in the business of life science (biotechnology
activity) that deals with living organisms and their organization, life processes,
relationship to each other and their environment which has been approved with
BioNexus status by the Malaysian Biotechnology Corporation Sdn Bhd.
A Company with BioNexus status will be exempted from the payment of income tax in
respect of its statutory income.
Pym Industries Sdn Bhd extracted special tissues from the plant sap of a local plant
which is capable to increase the yields in rice farms and grain based plants. It is
foreseen that there will be further research and development (R&D) done on the plant
sap as well.
Since the extraction of special tissues culture from the plant is an activity that comprises
ecology, life science, therefore Pym Industries Sdn Bhd is eligible for BioNexus status.
Expenditures incurred by a BioNexus Status Company(BSC) shall be given exemptions
for the purpose of :(a) First approved business undertaken by BSC , or,
(b) Expansion project, for a period of 5 consecutive years of assessment, if
refers to building used for the activity of R&D and plant and machinery used
on life science.
Tax incentives are given to an amount of allowance of 100% incurred in the basis period
and the amount of allowance to be exempted shall be equal to the amount of statutory
income for each year of assessment.
Provided that Pym Industries Sdn Bhd had generated income for the year 31 Dec 2015
and the R&D will be done for a period of 5 consecutive years of assessment, the
company will be entitled to allowance which is equivalent to the statutory income for the
year.
Any losses accrued before the exemption period or during the exemption period are
allowed to be carried forward and is deductible against statutory income of the postexemption year until they are fully utilized.

Permanent Establishment

Double taxation agreement is a result connecting factor of taxation law between two
relevant countries. The connecting factors are the residence, the income and the
property. Many countries primary aim is to try to eliminate double taxation. The other
aim is to encourage the inflow of capital and to improve trading in the country, especially
developing country.
In general, permanent establishment means a fixed place of business in which the
business is wholly or partly carried on. In a cross border transaction, the central issue in
all countries is who has the right to tax on the gains and profits earned for the company.
In the double taxation agreement between Malaysia and treaty countries such as
Australia, the permanent establishment concept is employees to resolve this issue.
Taxation is necessary to be imposed on the foreign enterprise profit when it participates
in the economic life of Malaysia in an independent and material way. On the other
hand, when the foreign enterprise does not establish a permanent establishment in
Malaysia, thus the profits many be exempted from tax. However, withholding tax issue
should be considered in situation where permanent establishment is not present. To
know whether a permanent establishment exist it has to go through 3 tests :1) the asset test
2) the agency/ relationship test
3) the activity test
Based on the information give, we are able to conclude that Neumann International Pte
Ltd (NI) is not a permanent enterprise in Malaysia. This is because:1) NI does not have a fixed place of business in Malaysia. They only send its employees
to perform technical consultancy support services for a period of 5 months. They will
only be in Malaysia temporary.
2) In normal circumstance, technical consultancy support services will be deemed that
the enterprise has a permanent establishment. However, as the service provided is less
than 6 months, thus, it will not fall under permanent establishment.

Withholding tax
ii) Withholding tax is a tax that is imposed on a non resident who has business dealings

in Malaysia. To ensure that the government is able to collect the tax efficiently, an act
has been establish to appoint the payer ,eg employer, to be the agent to collect the
income tax from such non residents. This is to withhold a portion of the payment and
pay to tax authorities. This portion of tax is call withholding tax.
Local labor and material cost of PCSB would not be liable to withholding tax as the labor
is a resident in Malaysia. The materials are also bought within Malaysia.
Leasing of heavy plant and machinery from Saporo( Japan ) limited is subject to a 10%
withholding tax which fall under the scope of section 4A (iii) . Section 4A (iii) covers the
lease rental for moveable properties such as plant and machinery.
RM2,000,000x 10% = RM200,000
The technical consultancy support service provided by Neumann International Pte Ltd
( NI ) will also be subject to 10% withholding tax under scope of Section 4A (ii). Section
4A (ii) covers the payment on services for technical advice, technical assistance, and
technical services. It also renders in connection with technical management and
administration. It also includes passing over or utilization of expert or specialized
knowledge, skills and expertise.
RM 500,000 x 10% = RM 50,000
Reimbursement of business class airfare to Malaysia is a an off pocket expenses. Thus,
it is subject to 10% withholding tax.
RM 20,000 x 10 % = RM 2,000
Training in Malaysia for NI is not subject to withholding tax as it is deemed derived from
Malaysia.
Royalties that are paid to a Singapore company are subject to 10% withholding tax.
However the offshore service are not subject to withholding tax as it is not deemed from
Malaysia.
RM 2,000,000 x 10% = RM 200,000
The annual maintenance of the refinery is not subject to withholding tax as the service is
deemed derive from Malaysia.

Three National Key Economic Areas (NKEA) chosen are Education, Tourism, and
Wholesale and Retail.

Education
Under this area, there will be four business activities of focus based on existing market
share and potential future growth which are:
1)
2)
3)
4)

Early Childcare and Education (ECCE)

Basic Education Primary and Secondary (BE)
Technical Education and Vocational Training (TEVT)
Tertiary Education Local and Abroad (TE)
The type of business activities opportunities to be promoted are as follows:
Discipline Clusters to support Education NKEA to meet global industry
requirements and trends. The discipline clusters focused on Islamic Finance and
Business, Health Sciences, Advanced Engineering and Hospitality Tourism.
There are also opportunities to venture into new discipline clusters such as oil,
gas and energy, etc.
Furthermore, there is opportunity to capitalize on Malaysias unique postion as a
multi-cultural and multi-lingual environment by incorporating Centre for
Excellence in Language Learning making Malaysia to become a Language Hub.
Tax incentives available for ECCE private institutions registered with Ministry of
Education (MOE) are:

Tax exemption on statutory income from the business of the preschool/kindergarten for a period of 5 years (from YA 2013)
IBA at annual rate of 10% for building used as pre-school/kindergarten
Tax benefits are also given to private childcare operators who establish
their facilities at workplaces

As for BE specifically related to profit oriented private or International School

registered with MOE tax incentives available are:

70% income tax exemption for a period of 5years or ITA of 100% on QCE
incurred within 5 years which can be used to offset 70% of statutory
income
Import duty and sales tax exemption for educational equipment
Double deduction for overseas promotional expenses
Also, for TE tax incentives available is:
Expenses on development of new courses which comply with regulatory
requirements relating to those courses are available for deduction over a
period of three years

Financial Services
The second NKEA is Financial Services. The importance of this sector to
Malaysias Economy has been growing over the past decade, with its GDP
share increasing.
The proposed development takes on a holistic approach of both financial
institutions and financial markets strengthening four key trusts; strengthen
the core, serve needs of a high income population, develop new sectors,
and develop a portfolio.
There are various of business activities opportunities available as follows:
I.

Commercial Banking segment can grow with innovation in delivery

of financial services such as branchless banking, increased
financial inclusion via national literacy programme and fast growing
personal finance segment

II.

Islamic Banking segment has a high potential growth leading to

opportunities such as Islamic broking and migration of money
lending business to Islamic banks to tighten money lending
business.

III.

Insurance and Takaful on the other hand is expected to contribute

by increased insurance take-up from Governments effort to
educate public on financial planning and importance of protection.

IV.

Investment Banking also has its business opportunities of increase

of Initial Public Offering issuance due to vigorous effort to be listed
of Bursa Malaysia. There are also effort of integration of capital
markets within Asia Pacific.

Tax incentives available for licensed Islamic banking and takaful business
are as follows:

Tax exemption on statutory income from business conducted in

international currencies

Stamp duty exemption on certain instruments relating to Islamic

banking, takaful activities and Islamic capital market to promote
Malaysia as an International Islamic Financial Centre

Underwriting, distribution or dealing in sukuk originating from

Malaysia is given tax exemption on statutory income.

The tax incentives where dividends from Real Estate Investment

Trust (REIT) at 10% remain for the next five years

No balancing charge on disposal of industrial building from a

company to a REIT

Stamp duty exemption on instruments of transfer/purchase in

relation to REIT

Newly establish Islamic stock broking company that applies to

Bursa Malaysia from 2/9/06 to 31/12/15 and commences its
business within 2 years from date of approval are given deduction
on establishment expenditure.

Suggestion to enhance the incentives are by providing incentives for use

of e-payment, financial courses provided by financial institutions

Healthcare
The final NKEA discussed is healthcare which aims to grow three main
subsectors namely, pharmaceuticals, health travel and medical
technology.
With this there are business opportunities as follows:
I.

Medical technology manufacturing which aim to attract multinational

companies to work with Malaysian companies in the manufacturing
of medical devices for the local and export market.

II.

The second opportunity is relating to senior living. Old folks centre

can be built to assist the elderly in going about their daily activities
independently.

Tax incentives available are as follows:

Refurbishment of existing private healthcare facility business

Incentive of tax exemption on statutory income of its qualifying
project equal to 100% of QCE incurred for 5 years

Health tourism where healthcare service provider offering services

to foreign clients in Malaysia are given tax allowance for increase in
export equal to 100% increase in export value to be offset 70%
against statutory income.

Medical tourism where modernization and refurbishment of

healthcare facilities to provide healthcare services to at least 5%
healthcare traveller of its total patients is given tax incentive of
exemption of statutory income equals to 100% of QCE incurred for
5years

Suggestion to enhance incentives are to provide import export duties relief

for equipment needed in developing the medical tech facilities.