SME Tax Rate Malaysia 2020

SME Tax Rate Malaysia 2020

SME Tax Rate Malaysia 2020

IRB Practice Note No.4/2020 (updated on 21.12.2020)

Clarification on determining the gross income from business sources of not more than 50 million of a company or limited liability partnership

Special tax treatment for SME

A SME company/ limited liabilities partnership (LLP) is eligible to enjoy:

1.       Lower income tax rate

-          17% on the first RM600,000 of chargeable income.

2.       100% capital allowance on small value assets

-          Assets costs not exceeding RM2,000.00.

-          No maximum limit of RM20,000 per year.

Criteria for SME

The followings are the criteria for a company or LLP to be regarded as SME:

1.       Share capital / capital contribution

At the beginning of the basis period for a year of assessment:

-          A resident company: paid-up capital of RM2.5 million and less;

-          LLP: Total contribution of capital of RM2.5 million and less.

AND

2.       Gross business income

-          Gross business income not exceeding RM50 million.

-          The Gross income shall be determined as follows:

a) If engaged in manufacturing, trading or services activities

●     Section 22 of the Income Tax Act (ITA) 1967 – Gross income generally

●     Section 24 of the ITA 1967 – Basis period to which gross income from a business is related

●     Section 30 of the ITA 1967 – Special provisions applicable to cross income from a business

b) if carrying out activities such as banking, insurance, developers or contractors

●     Specific provisions under the ITA or specific regulations for certain industries

Practice Note No.4/2020

The Practice Note clarified the issues arising on determine the gross income from business source:

1. Investment holding company (Not listed on Bursa Malaysia) - Section 60F of ITA 1967

 The entity is deemed to have no gross income from business source

 2. Investment holding company (Listed on Bursa Malaysia) - Section 60FA of ITA 1967

 The entity is deemed to have gross income from business source

 3. Rent or interest as other source of income

The rent or interest Is not under paragraph 4(a) of the ITA 1967, the entity is deemed to have no gross income from a business source

 4. Income from foreign business sources

Gross income from foreign business sources shall be taken into account in determining gross business income.

 5. Company/LLP enjoying tax incentives - such as pioneer status or investment tax allowance

Exempted gross income from business source shall be taken into account in determining gross business income.

6.* Company/ LLP carries out a business activity.- No gross income from business sources due to current year business losses

The company/ LLP is deemed to have gross income from a business source equivalent to NIL.

7.* Company/ LLP is temporary closure of business operation - No gross income from business sources due to current year business losses

*No 6 and No 7 are updated on 21.12.2020.

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