Regarding Form e-C 2022, CTIM has offered feedback and comments to the Inland Revenue Board of Malaysia (IRBM).
The Inland Revenue Board of Malaysia issued its response on 29 July 2022 and 2 August 2022, respectively.
Despite this, on 11 August 2022, CTIM provided IRBM with additional feedback and comments on the form e-C 2022 after IRBM's responses were provided.
The IRBM issued their responses on September 9, 2022, to the following sections of Form e-C 2022 mentioned in the CTIM Additional Feedback and Comments on 11 August 2022.
Issue No 1: Item A2 and A7 - Disclosure in the Form e-C relating to Foreign Source Income
1.1 Referred to the "Summary of Statutory Income from sources of business(es) and partnership(s) outside Malaysia received in Malaysia starting from 1 July 2022."
Currently, the TAeF allows disclosure of 1 country under 1 business source only.
How do the taxpayers disclose the information in a situation where the foreign source income (FSI) is from multiple countries in one business source (e.g., Business 1)’?
IRBM's response on 2 August 2022:
Income reporting should be done separately by the country. For e-Filing, the system allows the use of the same business code for each reporting business income from different countries.
CTIM additional feedback and comments on 11 August 2022:
Based on IRBM’s response above, CTIM notes that the system allows the same business code for different countries. However, Form e-C only allows disclosure of 1 business source for 1 country.
IRBM's response on 9 September 2022:
Income from similar activities from the same country should be combined and reported in the same row and space. Income segregation for the same business code from the same country does not need to be done for FSI reporting in e-C 2022.
CTIM additional feedback and comments on 11 August 2022:
Based on the A2 of the e-Form C 2022 (i.e., Summary of statutory income from sources of business(es) and partnership(s) outside Malaysia received in Malaysia effective from 1 July 2022), the e-Form C 2022 system seems to have not been updated to allow disclosure of foreign business income for more than 1 country under 1 business source.
As extracted below, it appears that row 2 has been fixed as Business 2, row 3 as Business 3, and so on.
CTIM would like to seek further clarification from IRBM on whether:-
IRBM will update its system to allow taxpayers to select “business identification” manually, or
As long as the taxpayers inserted the same business code in different rows, the IRBM will take these disclosures as foreign business income under 1 business source (even though the business identification column does not match).
IRBM's response on 9 September 2022: Taxpayers can use the same business code for each country concerned on different rows to indicate companies doing the same business in those countries.
The proposal from CTIM will be considered when designing e-C for the subsequent assessment year.
CTIM additional feedback and comments on 11 August 2022:
Example: ABC Sdn Bhd has two business sources:
providing engineering services and
trading machines.
ABC Sdn Bhd has branches in Singapore and Hong Kong that provide the same engineering services.
In YA 2022, the following information is available for the Form e-C disclosure:
Based on the example given above, can IRBM guide how the “Summary of statutory income …. In Malaysia” and the “Summary of Statutory Income from sources …. received in Malaysia from outside Malaysia” be completed?
IRBM's response on 9 September 2022:
Based on the limited information above, the following are general guidelines for reporting in e-C 2022:
The statutory income of business 1 in Malaysia is reported in column A1 and appendix A1 respectively.
The statutory income of business 1 in Singapore and Hong Kong is reported either in column A2 and appendix A2 or column A 20 and appendix A20 depending on when the income is remitted. This reporting is subject to the business income in Singapore and Hong Kong having been taxed in those countries.
Interest income from Singapore and Hong Kong must be reported in either column appendix A7 and appendix A7 or columns A 20 and appendix A20, depending on when the income is remitted.
The ultimate tax reporting and calculation will be determined by the relevant circumstances in connection with:
the management of company activities,
the date of remittance of income sourced outside of Malaysia, and
the income tax status in the place of origin.
1.2 Capital Allowance disclosure
CTIM additional feedback and comments on 11 August 2022:
Using the same example above –
How does a taxpayer complete Item C1a (Attachment) of Form e-C for YA 2022?
If the remaining portion of the FSI is received in Malaysia in YA 2023, how does a taxpayer complete Item C1a (Attachment) in Form e-C for YA 2023?
Only a portion of the statutory FSI is received in Malaysia in YA 2022. In this case, how do we disclose the amount of the CA utilised (absorbed) under Item C1a (Attachment) of Form e-C for YA 2022?
IRBM's response on 9 September 2022:
The disclosure of information regarding capital allowances in schedule 3 of appendix C1a for form e-C2022 is only required if the business income was derived from Malaysia (referring to column and Appendix A1).
Issued No 2: Item A20 - Income from sources outside Malaysia received in Malaysia for the period from 01.01.2022 to 30.06.2022 [If 7 = MY]
CTIM additional feedback and comments on 11 August 2022:
Referring to IRBM's response on 2 August 2022 (as follows), it appears that a direct translation of the sentence means "the FSI received in Malaysia shall refer to the gross amount".
Kindly confirm that the actual FSI remitted shall be taken as the gross income instead, i.e., there is no requirement to re-compute the gross income of which the FSI is remitted into Malaysia.
IRBM's response on 9 September 2022:
There is no need to re-compute the remitted income because it is gross income based on the provisions of Section 6, Part XX of the ITA 1967.
Issue No 3: Part E - Summary of losses for business and partnership that are subject to restriction under Section 44(5F)
Previously, this section was used to report normal business and pioneer losses with the heading of the appendix: Summary of Losses (Including Pioneer Losses after tax relief period).
It is now renamed to cover losses subject to restriction under Section 44(5F).
However, the Guidebook 2022 still stipulates that this section is “Including Pioneer Losses After Tax Relief Period” (see screenshot below):
CTIM additional feedback and comments on 11 August 2022:
As highlighted before, the query concerns the disclosure of the pioneer loss that is subject to the Promotion of Investment Act 1986 ("PIA").
The tax treatment of the unabsorbed pioneer loss after the expiry of the pioneer status period is governed under Section 25(5) of the PIA (not Section 44(5F) of the ITA).
As such, kindly confirm that taxpayers are not required to disclose the unabsorbed pioneer loss that is governed under the PIA in Part E Attachment of Form e-C YA 2022.
This is because Part E Attachment is only for disclosure of business loss and any pioneer loss that is governed under the ITA.
As mentioned before, the taxpayers can still continue to maintain the movement of the pioneer losses after the tax relief period (that is governed under the PIA) separately using the HK-F2 (not part of the Form e-C YA 2022 to be submitted to the HASIL) for tax audit purposes.
IRBM's response on 9 September 2022:
This column is intended to report loss positions subject to restrictions under section 44(5F) of the ITA 1967 and includes losses post-pioneer status period.
IRBM will amend the label of this attachment so that it is more applicable to all circumstances when they develop the future return form.
Issue No 4: Declaration Section
Option 2 in the declaration section of the YA2021 Form C was worded as "This return form is prepared based on unaudited accounts.‘
If a company cannot get its audited financial statements signed by the filing due date but still wishes to submit its tax return, it would select “Option 2'.
Option 2 also applies to a Permanent Establishment (‘PE’) that is not registered with the Companies Commission of Malaysia ("SSM") and would not have audited financial statements for tax purposes.
However, the scenario would no longer fit into any of the above options in the YA 2022 Form C.
CTIM understand that under the law, unless an audit exemption is granted, a company must submit its tax return based on signed audited financial statements. However, it is not uncommon that the audited accounts could not be ready by the filing due date due to various reasons.
CTIM's initial feedback and comments:
In these circumstances, we would like to seek clarification, particularly:
Is the company permitted to submit its tax return for YA 2022 based on draft audited financial statements without an audit exemption?
IRBM's response on 2 August 2022:
Form C needs to be drawn up based on the financial statements prepared according to the act of its establishment as provided under section 77A of the ITA 1967.
For companies incorporated under the Companies Act 2016, form C needs to be submitted based on the audited financial statements signed by the approved company auditor unless the company gets an exemption under the Companies Act 2016 from submitting audited accounts.
Therefore, the submission of Form C must be based on option 1.
If the form C submission is not based on audited financial statements, the form C submission will be rejected.
CTIM additional feedback and comments on 11 August 2022:
The above response does not address the issue of a PE which is not registered with SSM.
Kindly clarify
IRBM's response on 9 September 2022:
Sections 561 and 562 of the Companies Act 2016 apply to foreign companies that conduct business in Malaysia.
The company must submit a tax return form per section 77A(4) of the Income Tax Act 1967, and it must be based on financial statements that have been compiled in line with the act of its establishment.
Because of this, PEs in Malaysia are required to submit Form C based on audited financial statements under the rules of the PE establishment statute in Malaysia or the act governing the parent company of the PE.
Submission of tax return forms based on management accounts is invalid and will be subject to penalty under section 112 of the ITA 1967.
With that, the choice in the Declaration Section of form C has remained.
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