Avoiding Pitfalls When Claiming Tax Incentives

How one seminar amazed me!

On 30 November 2022, I attend Ms Yong Mei Sim webinar "Avoiding Pitfalls When Claiming Tax Incentives" conducted by the Chartered Tax Institute of Malaysia.

When it comes to tax incentives, I thought to myself "What else can tax incentives changes since I have been doing for more than 20 years? Now what?"

Nevertheless, I am truly surprised to realise there are some insights or changes from MIDA or IRBM relating to tax incentives policy.

The key takeaways from the webinar can be summarised as follow :

1. Intellectual property (IP) income is excluded from tax incentives due to "compliance" with the OEDC ruling on preferential tax treatment!

2. The use of tax incentives to attract foreign investment is considered "harmful tax competition" under the current global tax environment-BEPS (not K-Pop boy band).

3. Taxpayers are to comply MIDA annual declaration as duly certified by the external auditor on pre-determined operating/capital expenditure and employment, local value add %, preparation of transfer pricing documentation & etc.

4. IRBM shall "tarik balik"/revoke tax incentive shall those conditions from MIDA are not met.

5. Discuss with MIDA the relaxation of terms and conditions with relevant facts and documentary justification ASAP.

6. With effect from 7 July 2019, a Malaysian company with corporate shareholders is no longer eligible for the Allowance of Increased Export. For the AIE incentive, at least 60% of the shareholders must be Malaysian citizens.

7. Trading of agriculture products is not eligible for the Allowance of Increased Export.

8. "Contract R&D company" and "R&D company" must be approved by MITI under the new Section 4H of the Promotion of Investment Act 1986.

9. Full documentation from the project paper, feasibility study, board resolution, and other documents (engineering report, cost-saving report, financing report & etc) to support the Reinvestment Allowance claim.

Maybe it is a good time to conduct a risk assessment review before IRBM knock on your door for a tax audit.

In short, don't play play with tax incentives.

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