Question

BG Ltd, a company resident in the United Kingdom and MCT Ltd, a company resident in Germany have been awarded contracts by RJ Sdn.Bhd, in connection with the construction of a bridge in Malaysia. RJ Sdn.Bhd carries on the business of construction in Malaysia.

BG Ltd engineers will design the bridge wholly in United Kingdom. It will not be necessary for BG Ltd to send its engineers to Malaysia, BG does not have any branch in Malaysia.

MCT would be responsible for the supply of equipment valued at RM5 million and the provision of project management and supervisory services valued at RM7 million. Employees of MCT will be seconded to Malaysia for the duration of the project, which will be completed in two years.

Required:

1. Advise BG Ltd and MCT Ltd on their liability to Malaysian income tax arising from the contract with RJ Sdn.Bhd.

2. What are the requirements of the Income Tax Act 1967 on RJ Sdn Bhd in respect of the payments due to BG Ltd and MCT Ltd and the implications if the companies do not comply with the requirements?

(Total: 25 marks)

Answer 1

The Malaysian government considers expatriates working in the country for more than 60 days but less than 182 days as “non-residents” and subjects them to a flat taxation rate of 30 percent.

Guidelines for Non-Resident Status Eligibility for individual foreigners:

• Stay in Malaysia less than 182 days in a calendar year, no tax incentives and relief allowed
• Income on salaries and fees, tax rate is flat at 28%
• Withholding Tax is applicable range from 5% to 15% disregards whether the service is performed in Malaysia or not.

• Malaysia adopts a territorial principle of taxation, meaning only incomes which are earned in Malaysia are taxable.
• Expatriates working in Malaysia for more than 60 days but less than 182 days are considered non-tax residents and are subject to a tax rate of 30 percent.
• Foreign workers should seek help from registered local tax advisors to better understand their tax liabilities.

Malaysia uses both progressive and flat rates for personal income tax (PIT), depending on an individual’s duration and type of work in the country. As expatriates may fall into either tax category, it is important to understand Malaysia’s basic tax structure.

The Income Tax Act of 1967 structures personal income taxation in Malaysia, while the government’s annual budget can change the rates and variables for an individual’s taxation.

As both BG Ltd & MCT ltd gives their services to RJ Sdn. BHd. It means they both are earning from the malysia & hence bothe BG Ltd & MCT Ltd are taxable in Malaysia as per Income Tax Act.

RJ Sdn. Bhd shall deduct a tax on due basis or payment basis whicever is earlier & submitted to the government before due date. In case of failure penaly will be attracted.

For BG Ltd & MCT Ltd, they have to calculate all their tax liability & should pay all his tax liability as & when contact caese to end. Further they have to file thier income tax return on time. Incase of failure penalty will be attracted.