The Inland Revenue Board of Malaysia (IRBM) released its answer on 29 July 2022 to the following issues that were brought up in the CTIM Feedback and Comments on Form e-C 2022 on 20 July 2022.
Issue No 1
Form e-C for Y/A 2022:
The accompanying attachments provide a summary of the statutory income received in Malaysia from a source outside of Malaysia.
This income could have come from a business, partnership, or other statutory sources.
Item A2
Aggregate statutory income from sources of business(es) and partnership(s) outside Malaysia received in Malaysia effective from 01.07.2022 (If 7 = MY)
Item A7
aggregate of other statutory income from sources outside Malaysia received in Malaysia effective from 01.07.2022 (If 7 = MY) – Dividends, interest, discounts, rents, royalties, premiums and other income.
The issue arises when the amount of income from overseas to be sent back and received may not correspond precisely to the amount mentioned in the company's audited financial statements.
CTIM would like to seek IRBM's clarification on the concept of statutory income ("SI") and hopes that IRBM can assist in computing the aforementioned statutory income.
IRBM Response:
Determination of statutory income for income received in Malaysia from abroad is subject to subsection 42(1) of the ITA.
The taxpayer must state the amount remitted by type of income.
If there is a difference between the amounts in the financial statements and the remitted amount, it must be proven with supporting documents.
The IRBM explains that "Income Received in Malaysia" refers to income transferred or brought into Malaysia, either in the form of cash or via transfer of electronic funds; or both.
Technical guidelines related to the treatment of foreign source income in Malaysia are prepared and will be issued for guidance to taxpayers.
For banking, insurance, shipping and air transport According to the specific provisions on banking business (S.60C), insurance business (S.60), and sea and air transport undertakings (S.54), the gross income of these taxpayers should generally be determined by reference to their income wherever it has accrued or been derived. This is required to comply with the provisions of specific sections (i.e., worldwide income scope).
These taxpayers don't need to have received their income earned outside of Malaysia to be subject to taxation in Malaysia.
As a result, the above attachments do not apply to these categories of companies.
Foreign Exchange Rates
The amount of income acquired from overseas that was received in Malaysia needs to be reported using the foreign currency exchange rate that was in effect on the day the income was received in Malaysia.
Taxpayers have the option of using the exchange rate that is displayed on the Official Portal of the National Accountant's Department (AGD), or if they are transacting through a financial institution, they can use the rates of foreign currency exchange that are employed by the bank.
Taxpayers in Malaysia are required to retain records of any foreign source of income.
In a situation where the foreign source income (FSI) is from multiple countries in one business source (e.g., Business 1), the income reporting should be conducted separately for each country. When filing electronically, users can record their business income from many countries using the same business code.
Issue No 2
Generally, a company will have a pool of funds or the same bank account overseas.
When the funds are received in Malaysia, it is difficult for taxpayers to identify whether the funds remitted are:
At gross income level or statutory income level
From business source (if more than one business source, the taxpayer is also required to identify the amount – see Item A2 (attachment))
From other sources of income
From a source of income that is exempted from tax
IRBM Response:
The explanation provided by IRBM is that it is the taxpayer's responsibility to determine and declare the amount of income that must be reported for tax purposes.
Therefore, each income brought into Malaysia from overseas needs to be recorded separately according to the type of income.
Issue No 3
On December 30, 2021, the Minister of Finance announced that foreign-source dividend income received by Resident Companies and Limited Liability Partnerships from 1.1.2022 to 31.12.2026 (5 years) would continue to be exempt from Malaysian income tax, subject to conditions set out in guidelines that issued by the IRBM.
The Company Return Form Guidebook 2022 has mandated that to qualify for exemption dividend income, the headline tax rate in the country of origin must be at least 15%.
This requirement can be found in Item F9 of the form.
IRBM Response:
IRBM confirmed that the dividend income from a foreign source where the headline tax rate is at least 15% qualifies for exemption, and such dividend income exempted from the tax shall be disclosed/declared in Item F9.
Overseas income received in Malaysia from 1.1.2022 to 30.6.2022 should refer to gross income.
Item A20
Income from sources outside Malaysia received in Malaysia for the period from 01.01.2022 to 30.06.2022 [If 7 = MY]
IRBM Response:
The explanation provided by IRBM is that it is the taxpayer's responsibility to determine and declare the amount of income that must be reported for tax purposes.
Therefore, each income brought into Malaysia from overseas needs to be recorded separately according to the type of income.
Issue No 4
In the past, this section was utilised to record normal business and pioneer losses under the heading of the appendix: Summary of Losses (Including Pioneer Losses after tax relief period).
Part E (Attachment)
However, it has been renamed to reflect the fact that it now applies to losses that are restricted by Section 44(5F), even though the Guidebook 2022 continues to state that the purpose of this section is to "Include Pioneer Losses After the Tax Relief Period" (see the screenshot below):
Guidebook 2022
IRBM Response:
When the company is in the pioneer status, the company is exempt from the requirements of Section 44(5F), and instead, the company must compute the loss adjustment using the HK-F2 worksheet.
The pioneer losses carried forward will be subject to Section 44(5F) after the expiration of the pioneer status, and the amount will be stated in the HK-F1 and HK-F spreadsheets as a normal loss to section 44(5F).
It is necessary to include the amount that can be seen on this HK-F worksheet in section E of form C 2022.
Issue No 5
CTIM is seeking clarification on:
whether the question was intended for the taxpayer to confirm the necessity to prepare the transfer pricing documentation (TP doc), or
if the question was intended for the taxpayer to confirm whether or not they have prepared the TP doc for YA 2022.
IRBM Response:
It is the responsibility of the taxpayer to declare whether or not they are needed to prepare the TP documentation.
They can make this assessment by using the TPD Flowchart and Self-test that is available on the website of the IRBM (under the Transfer Pricing section).
The answer to this question would be "yes" if it were determined that a taxpayer was obliged to compile transfer pricing documentation.
Issue No 6
What should be done if more than one option applies to the taxpayer?
To check the "Others" box? Or to pick which activity will serve as the "primary" one?
It is strongly recommended that a full explanation be provided for the respective terms of the characteristics listed on Form C regarding the activities of manufacture, distribution, and service, among other things, for subsequent reference by CTIM.
IRBM Response:
The taxpayer must choose the activity that constitutes their "main" activity.
In the Company Return Form Guidebook 2022, IRBM will soon provide an updated explanation of the characteristics such as production, distribution, or service activity.
Issue No 7 - Dividend
IRBM Response:
If a taxpayer has paid the dividend to any related person in Malaysia or outside Malaysia, they must record that amount in Part B16 of their tax return.
Issue No 8 - Particulars of Auditor and Tax Agent
Parts H & J
Taxpayers were obliged to provide the tax reference number for the auditor and tax agent on the YA 2022 Form e-C.
The CTIM would like to hear the reasoning behind seeking the information on the tax reference number for the auditor and tax agent.
IRBM Response:
Although filling out the information in this column is not required at the moment, taxpayers and tax representatives are strongly advised to do so.
The information is necessary for identity verification when dealing with taxation matters. It follows the proposal to broaden the MyTax application's access to tax agents.
Issue No 9 - Declaration Section
Option 2 in the YA 2022 Form C declaration section was worded as “This return form is prepared based on unaudited financial statements which are exempted under the Companies Act 2016.”
CTIM enquired if it is acceptable for the company to file its tax return for YA 2022 based on draft audited financial statements, even though audit exemption has not been approved.
IRBM Response:
Companies established under the Companies Act 2016 are required to submit form C based on the audited financial statements that have been signed.
This is the case even if the company is granted an exemption from the requirement to submit audited financial statements under the Companies Act 2016. As a result, option 1 must be selected when submitting Form C.
If the submission of form C is not based on audited financial statements, the submission of form C is invalid.
Issue No 10 - Income Tax (Deduction for Expenses in relation to Secretarial Fee and Tax Filing Fee) (Amendment) Rules 2021 [Appendix D1 Code 157]
The words "and paid" have been removed from the phrase "secretarial fees and tax filing fees are deducted in the YA when the fees are incurred" due to the 2021 Rules.
According to the 2021 Rules, the secretarial and tax filing fees are deductible in the YA when the fees are incurred.
This change will take effect beginning in the year YA 2022. However, the fees must first be paid to claim a deduction for secretarial fees and tax filing fees incurred for 2020 and 2021.
Scenario
Tax and secretarial fees incurred for YA 2020 or YA 2021 and paid in YA 2022 = RM10,000 (special deduction based on 2020 Rules applies).
Tax and secretarial fees incurred for YA 2022 = RM8,000 (special deduction based on 2021 Rules applies).
Whether the total deduction allowed on tax fees and secretarial fees in the Form e-C for YA 2022 is restricted to RM15,000, or is it RM18,000 (RM10,000 + RM8,000) instead?
IRBM Response:
There is a cap of RM15,000 on the total allowable expenses concerning secretarial fees and tax filing fees for YA 2022.
This cap applies to expenses incurred for both YA 2022 as well as YAs 2020 and 2021 that can be claimed when paid on YA 2022.
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