A sole proprietor is a single person who owns a sole proprietorship business.
All sole proprietor is required to file their income tax return every year.
Here are the steps that a sole proprietorship in Malaysia can follow to declare its personal income tax:
Step 1: Register for a Tax File Number (TIN)
The sole proprietor must first register for a TIN with the Inland Revenue Board (IRB) of Malaysia. The TIN will be used for all tax-related transactions.
Step 2: Keep proper Records
The sole proprietor should keep accurate records of all business income and expenses. This includes receipts, invoices, bank statements, and other financial documents.
Step 3: Determine Gross Business Income
The gross business income is the total revenue the sole proprietorship business earned during the year.
Step 4: Identify Business Expenses
Business expenses are expenses incurred in the course of carrying on the business.
These expenses may include rental, utilities, salaries and wages, cost of goods sold, professional fees, and other necessary expenses. It is important to note that only expenses directly related to the business and having proper documentation are allowable.
Step 5: Deduct Business Expenses from Gross Business Income
Deduct the expenses from the gross business income to arrive at the Net Income or Net Profit. This is the amount of income that is subject to income tax.
If the sole proprietor prepares a full set of accounts, a profit or loss account and balance sheet will be available.
Net profit is the total amount earned after deducting all expenses, which comes last on the profit or loss account.
Step 6: Adjustments for Non-Deductible Expenses
Certain expenses may not be deductible for tax purposes, such as personal expenses or expenses which are not necessary and directly related to the production of the gross business income.
These Non-Deductible Expenses must be added back to the net income or profit to arrive at the Adjusted Business Income.
Step 7: Determine Capital Allowance (initial allowance, annual allowance)
capital allowance is a tax deduction for the depreciation of capital assets used in a business. It is a tax deduction that a business owner can claim on the cost of qualifying capital assets used to produce income.
The amount of capital allowance that can be claimed in a year is determined by the type of asset and the percentage of the cost that can be claimed each year.
For example, the capital allowance for motor vehicles is typically 20% of the cost per year (in the form of an annual allowance), other than an initial allowance of 20%.
Step 8: Determine the Statutory Income
Capital Allowances are deducted from Adjusted Business Income to arrive at the statutory income. Business losses and capital allowances are not available for deduction against other sources of income, such as employment or rental income.
Step 9: Determine the Total Income
Calculate the total income for the assessment year, including all income earned in Malaysia, other than business income, also including employment income, rental income, investment income (currently, most of the dividend and interest income are tax exempted), and other income sources.
Step 10: Deduct Tax Reliefs
Certain Tax Reliefs may be available to reduce taxable income.
For example, individuals may be eligible for personal tax reliefs, EPF contributions, life insurance premiums, education fees, etc.
Step 11: Calculate the Chargeable Income
After deducting the tax reliefs, the chargeable income is calculated. This is the amount of income that is subject to tax.
Step 12: Calculate Personal Income Tax
The personal income tax for an individual taxpayer (sole proprietor) in Malaysia is based on a progressive tax rate. The tax rate ranges from 0% to 30%, depending on the amount of chargeable income earned.
Step 13: File Tax Return
The sole proprietor must file his personal income tax return with the IRB by 30 June 2023.
But he will get a grace period of 15 days if you submit your file via e-Filing.
The tax return must include details of all sources of income, including business income and deductions claimed.
Step 14: Pay Taxes Owed
If the sole proprietor owes taxes, he must pay them to the IRB by 30 June 2023. But he will get a grace period of 15 days if you submit your file via e-Filing.
Failure to pay taxes on time can result in penalties.
How do Malaysian Tax Practitioners charge a Tax Filing Fee for a Sole Proprietorship business?
The fees charged by tax practitioners in Malaysia for filing tax returns for sole proprietorship businesses can vary depending on several factors, such as:
the complexity of the business operations;
the volume of transactions;
the level of expertise;
experience of the tax practitioner; and
staff costs [Employee turnover is another major reason why hiring is so hard right now].
Some tax practitioners may charge a fixed fee based on the scope of the services provided, while others may charge an hourly rate for the time spent on the work.
It is common for tax practitioners to estimate the total fee upfront based on the information provided by the sole proprietor.
Generally, the fee for preparing and filing a tax return for a sole proprietorship business in Malaysia can range from a few hundred to a few thousand Malaysian ringgit, depending on the abovementioned factors.
It is important to note that the fees charged by tax practitioners should be reasonable and commensurate with the level of services provided.
Obtaining a fee quote in writing from the tax practitioner and clarifying any questions or concerns before engaging their services is recommended.
We put a lot of emphasis on ensuring that our team members enjoy a balanced life outside work.
Hence, our firm's Sports and Social Committee is responsible for actively organising an exciting variety of events, such as the Annual Dinner, Annual Trips and Inter-accounting Firm Tournament.
These events are planned so that our professionals can take some time off to relax and, more importantly, come together to strengthen their sense of community and teamwork.
This year's Inter-Accounting Firm Tournament will be held on February 25 and 26, 2023 (Saturday and Sunday). We welcome your support!
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