Changes to Corporate Tax in Malaysia Budget 2020 – All Businesses Must Know
Small and Medium-Sized Enterprises (SMEs) and entrepreneurs are the key beneficiaries in the newly tabled Malaysia Budget 2020. The Malaysian government has proposed a range of tax enhancements to boost the growth of SMEs.
Review of Corporate Income Tax Treatment for Small and Medium-sized Enterprises (SMEs) (Effective: Year of Assessment 2020)
Currently, a resident company with a paid-up capital of up to RM2.5 million or a limited liability partnership (LLP) with total contribution of capital of up to RM2.5 million which is categorised as SME will need to file for income tax return at the rate of 17% on the first RM500, 000 of chargeable income and 24% on the remaining chargeable income.
Under Malaysia Budget 2020, it is proposed that:
- the threshold of the first chargeable income (that is subject to 17% concessionary income tax rate) will be increased from RM500,000 to RM600,000; and
- the aforementioned income tax rate will be given only to a company or LLP with an annual sales of not more than RM50 million (on top of the ordinary share capital / capital contribution requirement).
Review of Capital Allowances for Small Value Assets (Effective: Year of Assessment 2020)
Capital allowances for small value assets have been reviewed under Malaysia Budget 2020. Before this, a person who has spent qualifying expenditure on assets with individual value not more than RM1,300 (small value assets) in a basis period of a year of Assessment is entitled to 100% capital allowance on that qualifying expenditure. The total qualifying expenditure is capped at RM13,000 in a Year of Assessment.
The review has proposed that:
- the qualifying expenditure of small value assets be increased from RM1,300 to RM2,000; and
- the maximum limit of total qualifying expenditure will be increased from RM13,000 to RM20,000 for each Year of Assessment.
Review of Tax Treatment for Expenses Incurred on Secretarial Fee and Tax Filing Fee (Effective: Year of Assessment 2020)
Under the new Budget, tax deduction on expenses incurred on secretarial fee and tax filing fee by taxpayers will have a combined limit up to RM15,000 in each Year of Assessment. Previously, all expenditure on secretarial fee and tax filing fee by taxpayers were eligible for tax deduction for each Year of Assessment as below:
- secretarial fee – capped at RM5,000;
- tax filing fee – capped at RM10,000.
Tax Deduction on the Cost of Listing in Bursa Malaysia (Effective: Years of Assessment 2020 to 2022)
This is good news for technology-based companies and SMEs. Technology-based companies and SMEs seeking to raise capital through listing in the ACE Market or the LEAP market are eligible for tax deduction up to RM1.5 million. With this, the following listing costs will be given tax deduction:
- fees to authorities;
- professional fees; and
- underwriting, placement and brokerage fees.
Expansion of Tax Incentive for Structured Internship Programme (Effective: Years of Assessment 2020 to 2021)
Aimed to increase the employability of local graduates via early exposure to the workplace, it is proposed in Budget 2020 that existing incentive for structured internship programme to be expanded to include students from all academic fields (instead of hiring interns from engineering and technology fields under the existing incentive).
Extension of Period of Tax Incentive for Company Participating in National Dual Training Scheme (Effective: for Programmes Approved by Mohr From 1 January 2020 Until 31 December 2021)
To increase the Industry4WRD-ready workforce, the period of double deductions on expenses incurred by companies that participate in National Dual Training Scheme for Industry4WRD programmes approved by the Ministry of Human Resources (MOHR) will be extended to another additional two years from 1 January 2020 to 31 December 2021.
Extension of Income Tax Deduction for Employers on Loan Amount Paid to Perbadanan Tabung Pendidikan Tinggi Nasional on Behalf of Their Employees (Effective: 1 January 2020 to 31 December 2021)
In a bid to encourage more employers to make PTPTN loan repayments on behalf of their employees, the Malaysia Budget 2020 has proposed an extension of income tax deduction for employers on amount of loan repayment made on behalf of their employees. Under the new Budget, tax deduction will be extended for repayment made by the employer from 1 January 2020 until 31 December 2021.
Income Tax Exemption to a Religious Institution or Organisation Registered as a Company Limited by Guarantee (Effective: Year of Assessment 2020 Onwards)
The Malaysia Budget 2020 has proposed that the existing income tax exemption on all income given to an approved religious institution or organisation registered under the Registrar of Societies Malaysia to be extended to a religious institution or organisation registered as a Company Limited by Guarantee with the Companies Commission of Malaysia.
Tax Deduction Limit for Sponsorship or Arts, Cultural and Heritage Activities in Malaysia (Effective: Year of Assessment 2020)
The abovementioned tax incentive proposal is part of the initiatives for the Visit Malaysia Year 2020, as well as to encourage local arts, cultural and heritage activities in Malaysia. With this, it is proposed that companies funding arts, cultural and heritage activities will be eligible for a tax deduction to RM1,000,000 a year. Meanwhile, the tax deduction limit for funding foreign arts, cultural and heritage activities remains unchanged – up to RM300,000 a year.
Tax Incentive for Organising Arts, Cultural, Sports, and Recreational Activities in Malaysia (Effective: Years of Assessment 2020 to 2022)
To encourage the organising of arts and cultural activities as well as international sports and recreational competitions, especially to attract foreign tourists in conjunction with Visit Malaysia Year 2020, it is proposed that the income tax exemption of 50% be given on statutory income of the company that organise:
- arts and cultural activities approved by Ministry of Tourism, Arts and Culture; and
- international sports and recreational competitions approved by Ministry of Youth and Sports.