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Taxation of Business Income in Malaysia

Generally, the principal tax in Malaysia is income tax. The Notes below are intended only as a general information. If further information or explanation is required, enquiries may be made to the COMPTROLLER OF INLAND REVENUE BOARD MALAYSIA (IRB)

INCOME TO BE DECLARED
is all income accruing in or derived from Malaysia or received in Malaysia from sources outside Malaysia whether that income is the subject of charge to tax or not, to enable a proper assessment to be made and to give those deductions, reliefs, reductions, refunds and exemptions applicable.

BUSINESS
includes 'profession, vocation and trade and every manufacture, adventure or concern in the nature of trade, but excludes employment'. This definition applies to limited companies as well as non-limited companies such as partnerships, sole proprietors and petty traders.

BUSINESS EXPENSES
any expenses incurred by the business can be deducted provided that [1] it must be wholly and exclusively incurred in the production of income; [2] it must be an income expenditure and not a capital in nature; and [3] it must not be prohibited by statute.

Startup business expenses (except for certain permitted incorporation expenses), domestic or private expenses,expenses associated with cessation of business, capital withdrawn, or other capital expenses are disallowed.

NON-CHARGEABLE INCOME
The following capital gains/receipts are not subject to either the Income Tax/Real Property Gains Tax: [1] gains on disposals of shares (provided that the nature of business is not that of trading of stocks); [2] gains on disposals of fixed assets other than real property; [3] compensation received on insurance claims; or [4] any other capital receipts.

CAPITAL ALLOWANCES
are allowances given on wear and tear of a fixed asset. For tax purposes, depreciation of fixed assets is not a deductible charge against profit. Instead, capital allowances, calculated at the prescribed rates on a straight line basis, are given in lieu of depreciation.

BALANCING CHARGE / ALLOWANCE
If the disposal value of a fixed asset exceeds the tax written down value, the excess is known as a balancing charge (the amount is restricted to the actual capital allowances claimed previously). If the disposal value of a fixed asset is less than the tax written down value, the deficit then gives rise to a balancing allowance.

ABATEMENT / ITA
manufacturing company may claim reinvestment allowance (RA), investment tax allowance (ITA), and/or normal capital allowance (CA).

Other taxes include property gains tax, stamp duty and indirect taxes such as sales tax, import and export duties and service taxes.

Please refer to the ROYAL CUSTOMS & EXCISE DEPARTMENT (RCED) for indirect taxes.

 

External Links : Global Tax Information

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