Subsection 54A(1) of the ITA 1967
Under Section 54A(1) of the ITA 1967, where a person who is resident in Malaysia for the basis year for a year of assessment carries on the qualifying business of –
transporting passengers or cargo by sea on a Malaysian Ship, or
letting out on charter a Malaysian Ship owned by him on a voyage or time charter basis,
the statutory income for that year of assessment from that business shall be exempt from tax.
Footnotes
Business of transporting passengers or cargo by sea
Under Section 54(2)(a) of the ITA 1967, the gross income of a resident person from the business of transporting passengers or cargo by sea shall be ascertained by reference to his income from wherever derived or accrued.
It implies that the World Income Scope Basis is used in the calculation of a resident person's income from an entity engaged in the business of transporting passengers or cargo by sea.
Income of a resident person from the business of transporting passengers or cargo by sea from wherever derived or accrued includes -
income received and receivable in Malaysia, and
income received and receivable outside Malaysia, irrespective of whether it is remitted to Malaysia.
The world income of a resident person from the business of transporting passengers or cargo is taxable within the scope of subsection 4(a) of the ITA 1967 unless it qualifies for exemption under Section 54A(1)(a) of the ITA 1967
Letting out on Charter a Malaysian Ship owned by him on a Voyage or Time Charter Basis
With effect from the year of assessment 1999, tax exemption is extended to a resident person carrying on the business of letting out on charter a Malaysian Ship owned by him on a voyage or time charter basis under Section 54A(1)(b) of the ITA 1967.
In addition, the Income Tax (Exemption) (No. 29) Order 1998 [P.U.(A) 473] provides a retrospective exemption for the years of assessment 1984 to 1998.
Income Tax (Exemption) (No. 7) Order 2022 [P.U. (A) 312/2022]
IN exercise of the powers conferred by paragraph 127(3)(b) of the Income Tax Act 1967 [Act 53], the Minister makes Income Tax (Exemption) (No. 7) Order 2022 [P.U. (A) 312/2022], which was gazetted on October 6, 2022.
This Order shall have effect from the year of assessment 2021 until the year of assessment 2023.
Under the Order, a person resident in Malaysia who carries on the business of transporting passengers or cargo by sea on a Malaysian ship; or letting out on charter a Malaysian ship owned by him on a voyage or time charter basis (Collective known as "Qualified Person") is exempted in the basis period for a year of assessment from:
the provisions of subsections 54A(1) and (2) of the Act; and
the payment of income tax in respect of the statutory income derived from a source of business consisting of a Malaysian ship.
The qualified person is required to acquire annual verification from the Ministry of Transport Malaysia that the following conditions have been satisfied to be eligible for the exemption:
incurs annual operating expenditure of at least two hundred and fifty thousand ringgit (RM250,000.00) for each Malaysian ship; and
has a number of full-time employees in Malaysia for each Malaysian ship—
in the case of shore employees, at least 4 of the following employees and the majority of the employees shall be Malaysian citizens:
a chief executive officer;
an administrative and finance officer;
an operating officer; and
an officer in charge of the health, protection, safety and environmental affairs; and
in the case of employees who are ship personnel as provided under Part III of the Merchant Shipping Ordinance 1952 [Ord. 70/1952], shall be subject to the minimum requirement as specified in the Safe-Manning Certificate issued by the Marine Department Malaysia.
In short
Effective from the year of assessment 2021 until the year of assessment 2023, where a person who is resident for the basis year for a year of assessment carries on the business of transporting passengers or cargo by sea on a Malaysian ship; or carries on the qualifying business of letting out on charter a Malaysian Ship owned by him on a voyage or time charter basis, the statutory income for that year of assessment from that business shall be exempt from tax
Nothing in this Order shall absolve or is deemed to have absolved the qualified person from complying with any requirement to submit any return or statement of account or to furnish any other information under the Income Tax Act 1967.
Income Tax (Exemption) (No. 7) Order 2022 [P.U. (A) 312/2022] can be found here:-
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