taxavvy budget 2018 edition (part 1) - pwc · pdf filebudget 2018 edition (part 1) 27 october...

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TaXavvy

Welcome to our TaXavvyBudget 2018 Edition whichbrings to you the key taxproposals of Budget 2018

Budget 2018 Edition(Part 1)27 October 2017

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This TaXavvy edition is prepared based on the 2018Budget speech as announced by the Prime Ministeron 27 October 2017. A follow-up edition will beissued to include key tax proposals from theFinance Bill after the Finance Bill is issued.

3TaXavvy Budget 2018 Edition | 27 October 2017

Inside this issue

Corporate tax

• Thin Capitalisation Rules Replaced by Earning Stripping Rules• Capital Allowance for ICT Equipment and Software

5

Personal tax

• Reduction of Individual Income Tax Rates• Tax Exemption on Rental Income from Residential Homes Received by Malaysian

Resident Individuals• Extension of Period for Resident Individual Income Tax Relief on Net Savings in the

Skim Simpanan Pendidikan Nasional (SSPN)

6

• Tax Incentive for Women Returning to Work after Career Break

Tax incentives

• Expansion of Tax Incentives for Hiring the Disabled• Tax Exemption for Green Sustainable and Responsible Investments (Green SRI)

Sukuk Grant• Tax Exemption on Management Fee for Sustainable and Responsible Investment

(SRI) Funds• Extension of Tax Incentive for Medical Tourism• Double Deduction Incentive for Expenses Incurred in Obtaining Certification for

Quality System and Standard• Review of Tax Incentives for Export of Private Healthcare Services• Extension of Period of Tax Incentives for Tour Operating Companies• Extension of Period for Application of Incentives for New 4 and 5 Star Hotels• Review of Tax Incentives for Automation• Extension of Tax Incentive for Principal Hub• Tax Incentive for Transformation to Industry 4.0• Review of Tax Incentives for Venture Capital• Extension of Period for Tax Incentives for Angel Investors

7

Goods and services tax

• Streamlining the GST Treatment on Reading Materials

• Exempting Management & Maintenance Services by Housing Developers forStratified Residential Buildings

• GST Relief on Construction Services for School Buildings & Places of Worship

• GST Relief on the Importation of “Big Ticket” Items

• GST Relief on Importation of Goods under Lease Agreements from Designated Areas

• GST Relief on Handling Services Rendered to Operators of Cruise Ships

• Merger of Customs Appeal Tribunal & GST Appeal Tribunal

12


Inside this issue

Goods and services tax (Cont’d)

• Increase in the De Minimis Value for Imports• Review of the GST Treatment for Local Authorities

Stamp duty

• Extension of Period for Stamp Duty Exemption to Revive Abandoned HousingProjects

• Stamp Duty Exemption on Contract Notes for Trading of Exchange Traded Fundsand Structured Warrants

14

OECD Taxation Initiatives• Malaysia’s Participation in the OECD Taxation Initiatives

15

PwC Budget 2018 Seminar 16

Let’s talk 17


Corporate Tax

Thin Capitalisation Rules (TCR)Replaced by Earning Stripping Rules(ESR)

TCR was introduced during the 2009 Budgetbut its implementation has been deferred totake effect from 1 January 2018.

It is proposed that the ESR, a new methodintroduced by the Organisation for EconomicCooperation and Development (OECD), is to beimplemented in replacement for TCR to controlexcessive deductibility of interest expense onloans between related parties.

Under the ESR, the interest deduction on loansbetween related companies within the samegroup will be limited to a ratio as determined bya country’s tax authority, ranging from 10% to30% of the company’s profit before tax eitherusing the Earning Before Interest and Taxes(EBIT) or the Earning Before Interest, Tax,Depreciation, and Amortisation (EBITDA).

(Effective from 1 January 2019)

Capital Allowance for ICT Equipmentand Software

The existing capital allowance (20% initialallowance and 80% annual allowance) for thepurchase of any ICT equipment has ended inyear of assessment 2016.

It is proposed that capital allowances will begiven at 20% for initial allowance and 20% forannual allowance to the following expenditure:

• Purchase of ICT equipment and computersoftware packages, with effect from year ofassessment 2017

• Expenditure incurred on the development ofcustomised software comprisingconsultation fee, licensing fee and incidentalfee related to software development, witheffect from year of assessment 2018.


Personal Tax

Reduction of Individual Income TaxRates

As a measure to increase the disposable incomeof the lower and middle income group and toaddress the rising cost of living, it is proposedthat individual income tax rates for residentindividuals be reduced by 2% for the following3 chargeable income bands:

• RM20,001 to RM35,000, the rate is reducedfrom 5% to 3%



(Effective from year of assessment 2018)

Tax Exemption on Rental Income fromResidential Homes Received byMalaysian Resident Individuals

50% income tax exemption be given on rentalincome received by Malaysian residentindividuals for a maximum period of 3consecutive years of assessment, subject to thefollowing conditions:

• rental income received does not exceedRM2,000 per month for each residentialhome; and

• residential home must be rented under alegal tenancy agreement between the ownerand the tenant.

(Effective from year of assessment 2018 to2020)

Extension of Period for ResidentIndividual Income Tax Relief on NetSavings in the Skim SimpananPendidikan Nasional (SSPN)

It is proposed that the period of tax relief up toa maximum of RM6,000 in respect of the netsavings amount deposited into SSPN beextended for another 3 years.


Tax Incentive for Women Returning toWork after Career Break

Its is proposed that women who return to theworkforce after a career break of at least 2 yearsas at 27 October 2017 be given tax exemptionon, employment income up to maximum of 12consecutive months.

Eligible individuals must submit application toTalent Corporation Malaysia Berhad from 1January 2018 to 31 December 2019.

This incentive is available for women whoreturn to the workforce between the year ofassessment 2018 to 2020.


Tax Incentives

Expansion of Tax Incentives for Hiringthe Disabled

Currently, employers who employ disabledpersons certified by the Department of SocialWelfare are eligible for further deduction onsalary paid to the disabled persons.

It is proposed that the further deduction isextended to employers hiring workers affectedby accidents or critical illness and certified bythe Medical Board of the Social SecurityOrganisation (SOCSO) that they are still fit towork.


Tax Exemption for Green Sustainableand Responsible Investments (GreenSRI) Sukuk Grant

The Securities Commission (SC) provides theGreen SRI Sukuk grant to Green SRI Sukukissuers to finance the external reviewexpenditure in issuing Green SRI Sukuk.

To encourage the issuance of Green SRI Sukuk,it is proposed that Green SRI Sukuk issuers areto be given tax exemption on the receipt of suchGreen SRI Sukuk grant.

(Effective for applications received by the SCfrom 1 January 2018 to 31 December 2020)

Tax Exemption on Management Fee forSustainable and ResponsibleInvestment (SRI) Funds

Currently, companies providing managementservices of Shariah-compliant funds approvedby the SC are exempted from tax on thefollowing:

• Statutory income (SI) from fundmanagement services provided to foreigninvestors in Malaysia;

• SI from fund management services providedto local investors in Malaysia; and

• SI from fund management services providedto business trusts or real estate investmenttrusts in Malaysia.

To further promote fund managementactivities, it is proposed that tax exemption isalso extended to management fee income frommanagement of conventional and Syariah-compliant SRI funds approved by the SC.



Tax incentives

Extension of Tax Incentive for MedicalTourism

Currently, tax incentive in the form ofInvestment Tax Allowance (ITA) of 100% ofqualifying capital expenditure (QCE) incurredwithin 5 years which can be used to set off100% of SI is available for private healthcareservice providers carrying out new investment,expansion, modernisation or refurbishment inrelation to medical tourism. The tax incentiveis considered for applications submitted to theMalaysian Investment Development Authority(MIDA) by 31 December 2017.

It is proposed that the application period for thetax incentive be extended for another 3 years;i.e. for applications submitted to MIDA until 31December 2020, subject to the followingrevised conditions (amongst other conditions):

• At least 10% (currently 5%) of the totalnumber of patients receiving privatehealthcare services comprise qualifiedhealthcare travellers per year of assessment;and

• At least 10% (currently 5%) of the company’sgross income is derived from qualifiedhealthcare travellers for each year ofassessment.

(Effective for applications submitted to MIDAfrom 1 January 2018 to 31 December 2020)

Double Deduction Incentive forExpenses Incurred in ObtainingCertification for Quality System andStandard

To build confidence of healthcare travelers, it isproposed that companies registered with theMalaysia Healthcare Travel Council thatprovides dental and ambulatory healthcareservices be given double deduction for expensesincurred in obtaining certification for qualitysystems and standards from the followingcertification bodies:

• Malaysian Society for Quality in Health –Malaysia

• Joint Commission International – UnitedStates of America

• CHKS Accreditation Unit – United Kingdom

• The Australian Council on Health CareStandard – Australia

• Accreditation Canada – Canada



Tax incentives

Review of Tax Incentives for Export ofPrivate Healthcare Services

Currently, private healthcare companies areeligible for tax exemption on income fromexport of healthcare services to foreign patientseither in Malaysia or from Malaysia. The taxexemption is equivalent to 50% of the value ofincreased exports of services to be set-offagainst 70% of SI.

It is proposed that the tax incentive beincreased to 100% of the value of increasedexports, subject to the following conditions:

At least 10% of the total number of patientsreceiving private healthcare servicescomprise qualified healthcare travellers peryear of assessment; and

At least 10% of the company’s gross incomeis derived from qualified healthcaretravellers for each year of assessment.

(Effective year of assessment 2018 to 2020)

Extension of Tax Incentives for TourOperating Companies

The current 100% tax exemption on the SIderived by tour operating companies from thefollowing operating tour packages is to befurther extended for another 2 years ofassessment, i.e. until year of assessment 2020:

• Tour packages within Malaysia participatedby not less than 1,500 local tourists annually;and

• Tour packages to Malaysia participated bynot less than 750 foreign tourists annually.

(Effective for year of assessment 2019 to 2020)

Extension of Period of Application forTax Incentives for New 4 and 5 StarHotels

The period of application of the following taxincentives for hotel operators undertakinginvestments in new 4 and 5 star hotels are to beextended for another 2 years, i.e. to 31December 2020:

(Effective for applications submitted to MIDAuntil 31 December 2020)

PeninsularMalaysia

Sabah & Sarawak

ITA ITA of 60% on QCEincurred within 5years to be offsetagainst 70% of SI

ITA of 100% on QCEincurred within 5years to be offsetagainst 100% of SI

PioneerStatus

Exemption of 70%of SI for 5 years

Exemption of 100%of SI for 5 years


Tax incentives

Review of Tax Incentives forAutomation

Currently, manufacturing companies areeligible for Accelerated Capital Allowance(ACA) and Automation Equipment Allowance(AE) on purchase of automation equipment -

To further promote automation in themanufacturing sector, it is proposed that theincentive period for Category 1 be extended foranother 3 years.

(Effective for applications received by MIDAfrom 1 January 2018 to 31 December 2020)

Extension of Tax Incentive for PrincipalHub

The Principal Hub incentive was introduced in2015 where a 3-tier preferential tax rates (0%,5% or 10%) depending on certain criteria. It iscurrently effective for applications received byMIDA from 1 May 2015 to 30 April 2018.

It is proposed that this incentive be extendedfor another 3 years until 31 December 2020.

(Effective for applications received by MIDAuntil 31 December 2020)

Tax Incentive for Transformation toIndustry 4.0

Currently, there are no specific tax incentives toencourage companies to adopt advancedtechnology, commonly known as Industry 4.0which includes the following technologydrivers:

• Big data analytics

• Autonomous robots

• Simulation

• Industrial internet of things

• Cyber security

• Horizontal and vertical system integration

• Cloud computing

• Additive manufacturing

• Augmented reality

• Artificial intelligence

To encourage transformation to Industry 4.0 bythe manufacturing sector and its relatedservices, it is proposed that ACA and AE beprovided on the first RM10 million QCEincurred in the year of assessment 2018 to2020 and is fully claimable within 2 years ofassessment.

(Effective for applications received by MIDAfrom 1 January 2018 to 31 December 2020).

Category 1: Labour-Intensive Industry (rubber,plastic, wood and textile products)

• ACA of 100% and AE of 100% on the 1st RM4 millionQCE incurred during the year of assessment 2015 to2017

Category 2: Other Industries

• ACA of 100% and AE of 100% on the 1st RM2 millionQCE incurred during the year of assessment 2015 to2020


Tax incentives

Review of Tax Incentives for VentureCapital (VC)

Currently, there are tax incentives for:

• VC Management Corporation (VCMC);• VC Company (VCC); and• Investment in a VC.

Tax exemption be given for 5 years from year ofassessment 2018 to 2022

(Effective for applications received by the SCfrom 1 January 2018 until 31 December 2018)

Extension of Period for Tax Incentivesfor Angel Investors

Currently, the application period for angelinvestors incentive is from 1 January 2013 until31 December 2017. The incentive is income taxexemption equivalent to the amount ofinvestment made by an angel investor whoinvests in investee companies in the form ofordinary shares. The application has to besubmitted to the Ministry of Finance (MOF) andis subject to certain qualifying criteria.

To attract prospective angel investors tocontribute capital injection in investeecompanies, it is proposed that the applicationperiod for tax incentive for the angel investor beextended for another 3 years.

(Effective for applications submitted to MOFfrom 1 January 2018 until 31 December 2020)

Existing Proposal

VCMC Income tax exemptionon SI derived fromshare of profits receivedon investment made byVCC.

Income which isexempted from tax beexpanded to includeincome received frommanagement fees andperformance fees inmanaging VCC funds.

VCC

VC

Income tax exemption isgiven for 10 years oraccording to the life ofthe fund established forinvestment in the VC,whichever is shorter.The VCC must invest atleast 70% of seed, start-up and early stagefunds in VC or at least50% in the form of seedcapital.

Companies orindividuals withbusiness income thatmake an investment in aVC are given a taxdeduction on theamount of investmentmade in the VC at theadjusted income level.

Investment limit in VCat the seed, start-upand early stage bereduced from 70% to50% and the 50%balance is allowed forother investments; and

Companies orindividuals withbusiness incomeinvesting into the VCCfunds created byVCMC be given taxdeduction on theamount of investmentmade, restricted to amaximum of RM20million per year foreach company orindividual.


Goods and Services Tax

Streamlining the GST Treatment onReading Materials

It is proposed that the GST treatment onmagazines, journals, periodicals and comics betreated as zero-rated supplies, consistent withthe current zero-rating treatment for all types ofbooks which are reading materials.

The aim of this is to enhance GST compliancethrough harmonisation and to provide certaintyof treatment to consumers.


Exempting Management & MaintenanceServices by Housing Developers forStratified Residential Buildings

Management and maintenance services,including cost recovery of group insurance, quitrent and land assessments of stratifiedresidential buildings, supplied by housingdevelopers is proposed to be treated as anexempt supply.

Previously, only supplies of such services by thejoint management body and managementcorporation were treated as exempt supplies.


GST Relief on Construction Services forSchool Buildings & Places of Worship

GST relief will be given on construction ofschool buildings and places of worship financedthrough donations.

The eligibility for relief is conditional on:

• approval from the MOF;

• invoices not issued prior to the grant of therelief;

• obtaining an approval for the constructionfund under Section 44(6) of the Income TaxAct 1967;

• obtaining approvals fordevelopment/constructions from therelevant authorities;

• the school premise constructed is directlyused for teaching and learning purposes;

• the construction contract is signed on/after 1April 2017.

The relief does not apply to the purchase ofcommercial buildings.

(Effective for applications to the MOF from 27October 2017)


Goods and Services Tax

GST Relief on the Importation of “BigTicket” Items

Companies operating in the aviation, shippingand oil & gas industries will no longer have topay GST on the importation of high valueequipment such as aircraft, ships, oil rigs orfloating structures.


GST Relief on Importation of GoodsUnder Lease Agreements fromDesignated Areas (DA)

A relief from payment of GST will be given tocompanies especially in the oil & gas industryon goods imported from a DA to Malaysia (i.e.the Principal Customs Area) under a leaseagreement supplied by a company located inthe DA.

A list of goods and the terms/conditions forrelief will be stipulated by the MOF.


GST Relief on Handling ServicesRendered to Operators of Cruise Ships

Relief from payment of GST on handlingservices provided by sea port operators inMalaysia is given to cruise ship operators, asthe zero rating provision in relation to suchservices is not applicable to such ships.

(Effective from 1 January 2018 to 31 December2020)

GST Appeal Tribunal

It is proposed that the Customs AppealTribunal, established on 1 June 2007, and theGST Appeal Tribunal, which commenced on 1April 2015, will be amalgamated into a singletribunal which is the Customs Appeal Tribunal.


Increase in the De Minimis Value forImports

The de minimis value for GST/duty free importof goods (excluding cigarette, tobacco andintoxicating liquor) via air courier service willbe increased from RM500 per consignment toRM800.

(Effective date unknown)

Review of the GST Treatment for LocalAuthorities

All supplies made by local authorities will notbe subjected to GST (i.e. out of scope supply).Thus, local authorities will cease to be liable tobe registered for GST going forward, and willneed to notify Customs accordingly.

As the local authorities will not be eligible toclaim input tax credit, relief will be given tothem on the acquisition of all goods excludingpetroleum, commercial buildings/land and onthe importation of motor cars.

(Effective 1 April 2018 or 1 October 2018, asopted by the local authorities)


Stamp Duty

Extension of Period for Stamp DutyExemption to Revive AbandonedHousing Projects

To further ease the financial burden of theoriginal house purchasers and to encourage theinvolvement of rescuing contractors to reviveabandoned housing projects, it is proposed thatthe existing stamp duty exemptions beextended for another 3 years.

(Effective for loan agreements andmemorandum of transfers executed from 1January 2018 to 31 December 2020 forabandoned housing projects certified by theMinistry of Urban Wellbeing, Housing andLocal Government)

Stamp Duty Exemption on ContractNotes for Trading of Exchange TradedFunds (ETF) and Structured Warrants(SW)

Currently, stamp duty is charged at the rate ofRM1 for every RM1,000 and part thereof oncontract notes for the trading of shares of listedcompanies on Bursa Malaysia subject to a capof RM200 per contract note.

To further promote the development andcompetiveness of Malaysia’s capital market atinternational level, it is proposed that stampduty exemptions be given on the contract notesfor the trading of ETF and SW by investors.

(Effective for trading of ETF and SW executedfrom 1 January 2018 to 31 December 2020)

Instruments RescuingContractors

Original HousePurchasers in theAbandonedProjects

Loanagreements

To finance therevival ofabandonedhousing projects.

For additionalfinancing

Instrument oftransfer

To transfer thetitle for land andhouses inabandonedhousing projects.

To transfer thehouses in theabandonedhousing projects.


OECD Taxation Initiatives

Malaysia’s Participation in the OECDTaxation Initiatives

It is announced that Malaysia is committed toeconomic information sharing introduced bythe OECD.


Forging AheadBudget 2018 Seminar

The Academy brings to you…

Date: 8 November 2017

Venue: Connexion@The Vertical, Bangsar South,Kuala Lumpur

Contact: Fazlina Jaafar / Fiona Ren+ 60(3) 2173 3830 / + 60(3) 2173 1313

Email: [email protected]


Venue: G Hotel Penang

Contact: Ann Yew / Susan Ong+60(4) 238 9291 / +60(4) 238 9169

Email: [email protected]@my.pwc.com


Venue: DoubleTree By Hilton Johor Bahru

Contact: Brenda Beh / Chew Yiann+60(7)-218 6000



Venue: The Pines Hotel, Melaka

Contact: Roslena Yaakup / Lydia Chue Soh Lin+60(6) 284 4368


Kuala Lumpur

Johor Bahru

Melaka

Penang

TaXavvy is a newsletter issued by PricewaterhouseCoopers Taxation Services Sdn Bhd. Whilst every care has been taken in compiling this newsletter, wemake no representations or warranty (expressed or implied) about the accuracy, suitability, reliability or completeness of the information for any purpose.PricewaterhouseCoopers Taxation Services Sdn Bhd, its employees and agents accept no liability, and disclaim all responsibility, for the consequences ofanyone acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. Recipients should not act upon itwithout seeking specific professional advice tailored to your circumstances, requirements or needs.

© 2017 PricewaterhouseCoopers. All rights reserved. “PricewaterhouseCoopers” and/or “PwC” refers to the individual members of thePricewaterhouseCoopers organisation in Malaysia, each of which is a separate and independent legal entity. Please see www.pwc.com/structure for furtherdetails.

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Let’s talk

Our offices Name Email Telephone

Kuala Lumpur Jagdev Singh [email protected] +60(3) 2173 1469

Penang / Ipoh Tony Chua [email protected] +60(4) 238 9118

Johor Bahru Benedict Francis [email protected] +60(7) 218 6000

Melaka Benedict FrancisAu Yong Paik Hup

[email protected]@my.pwc.com

+60(7) 218 6000+60(6) 283 6169

Labuan Jennifer Chang [email protected] +60(3) 2173 1828

Our services Name Email Telephone

Corporate TaxCompliance & Advisory

Consumer & IndustrialProduct Services

Margaret LeeSteve Chia


+60(3) 2173 1501+60(3) 2173 1572

Emerging Markets Fung Mei Lin [email protected] +60(3) 2173 1505

Financial Services Jennifer Chang [email protected] +60(3) 2173 1828

Technology, InfoComm& Entertainment

Heather KhooLavindran Sandragasu


+60(3) 2173 1636+60(3) 2173 1494

GST / Indirect Tax Raja Kumaran

Chan Wai Choong

Yap Lai Han

[email protected]

[email protected]

[email protected]

+60(3) 2173 1701

+60(3) 2173 3100

+60(3) 2173 1491

International TaxServices / Mergers andAcquisition

Frances Po [email protected] +60(3) 2173 1618

Transfer Pricing, TaxAudits & Investigations

Jagdev Singh [email protected] +60(3) 2173 1469

InternationalAssignment Services

Hilda Liow

Lim Phing Phing

[email protected]

[email protected]

+60(3) 2173 1638

+60(3) 2173 1651

Corporate Services Lee Shuk Yee [email protected] +60(3) 2173 1626

Japanese BusinessConsulting

Yuichi Sugiyama [email protected] +60(3) 2173 1191

China Desk Lorraine Yeoh [email protected] +60(3) 2173 1499

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©2017 PwC. All rights reserved. “PricewaterhouseCoopers” and/or “PwC” refers to the individual members of the PricewaterhouseCoopers

organisation in Malaysia, each of which is a separate and independent legal entity. Please see www.pwc.com/structure for further details.

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taxavvy budget 2018 edition (part 1) - pwc · pdf filebudget 2018 edition (part 1) 27 october...

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