Case Study # 1 Buy assets OR shares of my competitor?

𝐂𝐚𝐬𝐞 𝐬𝐭𝐮𝐝𝐲 #𝟏 𝐁𝐮𝐲 𝐚𝐬𝐬𝐞𝐭𝐬 𝐨𝐫 𝐬𝐡𝐚𝐫𝐞𝐬 𝐨𝐟 𝐦𝐲 𝐜𝐨𝐦𝐩𝐞𝐭𝐢𝐭𝐨𝐫?

𝐐𝐮𝐞𝐬𝐭𝐢𝐨𝐧 :

My competitor XYZ Sdn Bhd is closing his business.

I, ABC Sdn Bhd, consider to buy over the XYZ business.

1. Should I buy over the assets of XYZ? or

2. Should I become new shareholder of XYZ?

𝐎𝐩𝐢𝐧𝐢𝐨𝐧

Incorporate a new Sdn Bhd and buy over the asset is more tax saving and lesser risk.

𝟏. 𝐁𝐮𝐲 𝐨𝐯𝐞𝐫 𝐭𝐡𝐞 𝐚𝐬𝐬𝐞𝐭𝐬 𝐚𝐧𝐝 𝐈𝐧𝐜𝐨𝐫𝐩𝐨𝐫𝐚𝐭𝐢𝐨𝐧 𝐍𝐞𝐰 𝐒𝐝𝐧 𝐁𝐡𝐝

Tax savings:

-Tax rebate for company or limited liability partnership RM20,000 [New Section 6D]

-Tax incentive for company in qualified industry (PS or ITA)

-Plant & machinery – Capital allowance IA: 20% and AA 40% (Period: 1.3.2020 – 31.12.2021) [Accelerated capital allowance for machinery and equipment Including ICT equipment]

-Term loan interest for asset is tax deductible.

Cash outflow

-Land and building – incurred legal cost, stamp duty [not tax deductible]

-Additional cost for setting up the company – business license, SST registration etc.. [initial expenditure]

𝟐. 𝐒𝐡𝐨𝐮𝐥𝐝 𝐈 𝐛𝐞𝐜𝐨𝐦𝐞 𝐧𝐞𝐰 𝐬𝐡𝐚𝐫𝐞𝐡𝐨𝐥𝐝𝐞𝐫 𝐨𝐟 𝐗𝐘𝐙?

Tax saving:

1.Eligible for unutilized capital allowance and business loss

2.Tax incentive for RA extend from YA2020 – 2022

3.Stamp duty exemption on loan restructuring and rescheduling agreements

[Effective for loan restructuring and rescheduling agreements executed from 1 March 2020 to 31 December 2020]

Cash outflow

- Compensation for loss of employment

- Stamp duty on transfer of shares

- Finance loan from bank for purchase of shares is capital nature not deductible.

- Potential liabilities from creditor & irrecoverable of trade debtor [PR 4/2019 – Tax Treatment of Wholly & Partly Irrecoverable Debts and debt recoveries

𝐏𝐒 : We have complied our opinion on read cases from our clients lately during Covid 19 pandemic. We will share our thought and opinion from our senior management colleagues from audit, tax and secretary department in KTP/THK Group of Companies.

𝐏𝐒 : Today is the first opinion sheet on our case study #1 Buy assets or shares from our competitor

𝐃𝐢𝐬𝐜𝐥𝐚𝐢𝐦𝐞𝐫:

The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of KTP or THK Group of Companies. Examples of analysis performed within this article are only examples. They should not be utilized in real-world analytic products as they are based only on very limited and dated open source information.

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