What is the Malaysian Tax for Foreign Owned Companies?
What Happens When A Sdn Bhd Experiences A Loss?
- Taxation regulations allow business losses to be offset against income in the current financial year.
- Non-utilized losses can also be carried forward indefinitely and get offset when income is available. For a dormant company, loss offsetting is only allowed when the shareholders meet conditions of continuity.
- The tax code also allows unabsorbed capital allowances be carried forward and get utilized against income indefinitely when the income is from the same business source. Again, for a dormant company, this is only allowed if shareholders meet the continuity conditions.
What About Companies In A Tax-Paying Position?
- The tax code allows capital allowances be utilized to reduce chargeable income. If the arrangement
- Contractor/director fees can be declared if this contributes to potential tax savings
- Debt financing can be considered instead of equity financing to take advantage of the tax deductible interest expenses when monies are borrowed for business purposes.
- Irrecoverable outstanding debts can be reviewed for write off
- Bonus expenses are tax deductible. This is the annual bonus offered to the employees. However, the actual amounts must be stated and the employees must be aware of this bonus.
- Omitted accrual accounts can be reviewed and included in the revised estimates of chargeable income.
What About A New Company?
A new company does not need to pay income tax before commencing trade. However, the requirements for taxation are:
- Tax estimations have to be submitted within 3 months of the first sale. This is done on Form CP 204 submitted to the Inland Revenue Board (LHDN)
- If the company has paid up capital of less than RM 2.5 million, Form CP204 should be submitted in the first year.
- A tax installment is to be paid to the LHDN every month if there is the company’s financial forecasts predict a profit.
- A new company has to file income tax Form C to the IRB within 7 months of the end of the financial year
- All unpaid taxes have to be paid within 7 months of the financial year after correct calculation of the tax payable.
Who Can Submit Tax Returns?
While some companies make submissions to avoid paying tax agency fees, many opt to use tax agents to avoid the following costly mistakes:
- Improperly filled tax return Form C
- Overlooking submission of crucial documents like CP 204 and CP204A
- Late filing taxes
Will Hiring A Tax Agent Be Beneficial?
Foreign-owned companies are advised to seek the services of a licensed tax agent. The tax agent takes on tax related duties like:
- Submitting tax returns on behalf of the company. The company has to sign on the returns
- Representing the company in any tax related communications with the IRB.
- Representing the company in legal matters related to tax like tax appeals.
A tax agent will charge differently for dormant, semi-dormant and an active company. As of 2016, the charges were:
- RM 1,000 for a dormant company
- RM 1500-3000 for a semi-dormant company
- RM 3000 and above for an active company
There are numerous benefits of engaging the services of a licensed tax agent in Malaysia:
This is very crucial when filing tax returns as underestimation can lead to penalties while overestimation loses the company money. Wrongful classification of income and expenses can also have a big change in the tax liability of the company.
- Tax benefits
Malaysia has various tax benefits and incentives. Using a tax agent can make the company enjoy these benefits and have a lower tax burden.
For a foreign company, navigating the Malaysian bureaucracy can be a challenge. Engaging a tax agent clears this headache and leaves the directors to concentrate on business.
- Legal troubles
Simple oversight can be costly. Having a tax agent ensures that all documents are filed properly and that all information is accurate.