Commencement of amendments to the Income Tax Act 1967
(1) Sections 10, 11, 12, 15, 16, 17, 18, 19, 24, 27, 28, 29 and 30 and paragraphs 23(a), (b), (c) and (d) have effect from the year of assessment 2019 and subsequent years of assessment.
(2) Section 13 has effect for the years of assessment 2019, 2020 and 2021.
(3) Section 14 has effect for the years of assessment 2019 and 2020.
(4) Paragraph 4(b) and sections 5, 6, 6 a , 7, 8, 19 a and paragraph 23(aa) come into operation on the coming into operation of this Act.
(5) Paragraph 4(a) and sections 9, 20, 21, 22 and 26 come into operation on 1 January 2019.
Amendment of section 2
The Income Tax Act 1967, which is referred to as the “principal Act” in this Chapter, is amended in subsection 2(1)—
(a) by substituting for the definition of “Labuan company” the following definition:
‘ “Labuan company” means a Labuan entity as provided under subsection 2b(1) of the Labuan Business Activity Tax Act 1990;’; and
(b) by inserting after the definition of “rent” the following definition:
‘ “research and development” means any systematic, investigative and experimental study that involves novelty or technical risk carried out in the field of science or technology with the object of acquiring
new knowledge or using the results of the study for the production or improvement of materials, devices, products, produce, or processes, but does not include—
(a) quality control or routine testing of materials, devices or products;
(b) research in the social sciences or the humanities;
(c) routine data collection;
(d) efficiency surveys or management studies;
(e) market research or sales promotion;
(f) routine modifications or changes to materials, devices, products, processes or production methods; or
(g) cosmetic modifications or stylistic changes to materials, devices, products, processes or production methods;’.
Amendment of section 4a
Section 4a of the principal Act is amended by substituting for paragraph (ii) the following paragraph:
“(ii) amounts paid in consideration of any advice given, or assistance or services rendered in connection with the management or administration of any scientific, industrial or commercial undertaking, venture, project or scheme; or”.
Amendment of section 12
Section 12 of the principal Act is amended by inserting after subsection (2) the following subsections:
“(3) Notwithstanding subsections (1) and (2), the income of a person from a business that is attributable to a place of business in Malaysia shall be deemed to be the gross income of that person derived from Malaysia from the business.
(4) For the purpose of subsection (3), a place of business includes—
(a) a place of management;
(b) a branch;
(c) an office;
(d) a factory;
(e) a workshop;
(f) a warehouse;
(g) a building site, or a construction, an installation or an assembly project;
(h) a farm or plantation; and
(i) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources,
and without prejudice to the generality of the foregoing, a person shall be deemed to have a place of business in Malaysia if that person—
(i) carries on supervisory activities in connection with a building or work site, or a construction, an installation or an assembly project; or
(ii) has another person acting on his behalf who—
(A) habitually concludes contracts, or habitually plays the principal role leading to the conclusion of contracts that are routinely concluded without material modification;
(B) habitually maintains a stock of goods or merchandise in that place of business from which such person delivers goods or merchandise; or
(C) regularly fills orders on his behalf.”.
Amendment of section 15a
Section 15a of the principal Act is amended by substituting for paragraph (b) the following paragraph:
“(b) amounts paid in consideration of any advice given, or assistance or services rendered in connection with the management or administration of any scientific, industrial or commercial undertaking, venture, project or scheme;”.
Amendment of section 34
Subsection 34(7) of the principal Act is amended by substituting for the words “scientific research” the words “research and development”.
Amendment of section 34a
Section 34a of the principal Act is amended—
(a) in the shoulder note, by inserting after the word “research” the words “and development”; and
(b) in subsections (1), (2) and (5), by inserting after the word “research” the words “and development”.
Amendment of section 39
Subsection 39(1) of the principal Act is amended—
(a) by deleting the word “or” at the end of paragraph (p);
(b) by substituting for the full stop at the end of paragraph (q) the words “; or”; and
(c) by inserting after paragraph (q) the following paragraph:
“(r) subject to any rules as may be prescribed by the Minister, any amount in respect of a payment made by a person, who is a resident, to any Labuan company.”.
Amendment of section 44
Section 44 of the principal Act is amended by inserting after subsection (5e) the following subsection:
“(5f) Notwithstanding subsection (4) or (5), the amount ascertained under either of those subsections for any relevant year shall only be deductible in accordance with subsection 43(2) for a period of seven consecutive years of assessment and that period commences immediately following the relevant year of assessment and any amount or balance of the amount which is not deductible at the end of that period shall be disregarded for the purposes of this Act.”.
Special provision relating to sections 43 and 44
Notwithstanding sections 43 and 44 of the principal Act—
(a) any amount ascertained under subsection 44(4) or (5) of the principal Act for the year of assessment 2017 and the preceding years of assessment which has not been deducted pursuant to subsection 43(2) of the principal Act for the year of assessment 2018; or
(b) any amount ascertained under subsection 44(4) or (5) of the principal Act for the year of assessment 2018,
may be accounted for the purpose of deduction under subsection 43(2) of the principal Act for the year of assessment 2019 and subsequent years of assessment until the year of assessment 2025 and any amount which has not been deducted pursuant to subsection 43(2) of the principal Act after the end of the year of assessment 2025 shall be disregarded for the purposes of the principal Act.
Amendment of section 44a
Section 44a of the principal Act is amended—
(a) in subsection (1), by inserting after the word “may” the words “, for the basis period for three consecutive years of assessment,”;
(b) by inserting after subsection (1) the following subsection:
“(1a) For the purpose of subsection (1), the basis period for three consecutive years of assessment commences—
(a) immediately following the basis period for a year of assessment the surrendering company first commences operation, provided that the basis period consists of a period of twelve months; or
(b) immediately following the second basis period the surrendering company first commences operation (in this paragraph referred to as the “second basis period”), if the basis period for a year of assessment the surrendering company first commences operation is less or more than twelve months and the second basis period consists of a period of twelve months.”;
(c) in subsection (10), by inserting after paragraph (a) the following paragraph:
“(aa) has unutilized investment tax allowance or adjusted loss from a pioneer business under the Promotion of Investments Act 1986;”; and
(d) in subsection (12)—
(i) in the definition of “ordinary shares”, by deleting the word “nominal”; and
(ii) in the definition of “residual profits”, by deleting the word “nominal”.
Special provision relating to section 44a
Notwithstanding subsection 44a(1) of the principal Act as amended in this Act, a surrendering company may surrender its adjusted loss for the basis period for a year of assessment in accordance with that subsection for the basis period of—
(a) the year of assessment 2019, in relation to a surrendering company which first commences its operation in the year of assessment 2015;
(b) the years of assessment 2019 and 2020, in relation to a surrendering company which first commences its operation in the year of assessment 2016; and
(c) the years of assessment 2019, 2020 and 2021, in relation to a surrendering company which first commences its operation in the year of assessment 2017.
Amendment of section 46
Paragraph 46(1)(k) of the principal Act is amended by substituting for the word “six” wherever appearing the word “eight”.
Amendment of section 49
Section 49 of the principal Act is amended—
(a) by substituting for subsection (1) the following subsection:
“(1) Subject to this section, in the case of an individual resident for the basis year for a year of assessment, there shall be allowed for that year of assessment a deduction—
(a) not exceeding three thousand ringgit, in respect of premium paid by that individual for any insurance;
(b) not exceeding four thousand ringgit, in respect of contribution to approved scheme (other than a private retirement scheme) made or suffered by that individual who is an employee or a self-employed person within the meaning of the Employees Provident Fund Act 1991 [Act 452]; or
(c) not exceeding four thousand ringgit, in respect of any amount made or suffered by that individual on any contribution under any written law relating to widow, widower and orphan’s pension or under any approved scheme within the meaning of any such law.”; and
(b) by substituting for subsection (1a) the following subsection:
“(1a) For the purpose of subsection (1)—
(a) the total amount of deduction under subsection (1) shall not exceed seven thousand ringgit;
(b) where subsection 50(2) or 50(3) applies, the amount of deduction to be allowed shall be in accordance with paragraphs (1)(a), (b) and (c) and the total deduction under subsection 50(2) or (3) shall not exceed seven thousand ringgit;
(c) in the case of an individual who is a pensionable officer within the meaning of section 2 of the Pensions Act 1980 [Act 227] and no deduction is made under paragraph (1)(b) or (c) to that individual, the amount of deduction under paragraph (1)(a) shall not exceed seven thousand ringgit.”.
Amendment of section 60
Section 60 of the principal Act is amended—
(a) in subsection (2)—
(i) by substituting for paragraph (b) the following paragraph:
“(b) where an insurer carries on re-insurance business, the re-insurance business and the general business (excluding the re-insurance business) shall be treated as separate general businesses;”; and
(ii) in paragraph (c), by substituting for the proviso the following proviso:
“Provided that where the insurer also carries on life re-insurance business, the life re-insurance business shall be a separate source from life business and shall be treated as a general business;”;
(b) in subsection (5a), by deleting the word “inward” wherever appearing;
(c) by deleting subsection (5b);
(d) in subsection (6a), by deleting the word “inward” wherever appearing;
(e) by deleting subsection (6b);
(f) in subsection (7), by substituting for the words “, (6a) or (6b)” the words “or (6a)”; and
(g) in subsection (11)—
(i) by substituting for the words “, sections 60a and 60b” the words “and section 60a”; and
(ii) b y d e l e t i n g t h e d e f i n i t i o n s o f “ i n w a r d re-insurance”, “inward re-insurance contract”, “offshore insurance” and “offshore insurance policies”.
Amendment of section 60a
Section 60a of the principal Act is amended—
(a) in the shoulder note, by substituting for the words “Inward re-insurance” the word “Re-insurance”;
(b) by deleting the word “inward” wherever appearing;
(c) in subsection (2), by substituting for the words “5 per cent” the words “8 per cent”; and
(d) by inserting after subsection (2) the following subsection:
“(3) This section shall apply to an insurer who has an adequate number of full time employees and has incurred an adequate amount of annual operating expenditure in Malaysia as prescribed by the Minister.”.
Amendment of section 60aa
Section 60aa of the principal Act is amended—
(a) by substituting for subsection (1) the following subsection:
“(1) This section shall apply—
(a) for ascertaining the adjusted income for the basis period for a year of assessment from the takaful business of a takaful operator; and
(b) to a takaful operator who has an adequate number of full time employees and has incurred an adequate amount of annual operating expenditure in Malaysia as prescribed by the Minister.”;
(b) in subsection (2)—
(i) by substituting for paragraph (b) the following paragraph:
“(b) where the takaful operator carries on a re-takaful business, the re-takaful business and the general takaful business (excluding the re-takaful business) shall be treated as separate general takaful businesses;”;
(ii) in paragraph (c), by substituting for the proviso the following proviso:
“Provided that where the takaful operator also carries on family re-takaful business, the family re-takaful business shall be a separate source from the family business and shall be treated as a general takaful business;”; and
(iii) by substituting for paragraph (e) the following paragraph:
“(e) where a takaful operator carries on re-takaful business which includes family re-takaful business and general takaful business (excluding those businesses), the income of the fund
established in respect of each of the businesses (in this section referred to as “re-takaful fund”, “family re-takaful fund” and “general fund” respectively) shall be treated as a separate source of income from the income of the shareholders’ fund in respect of those businesses.”;
(c) by substituting for subsection (6) the following subsection:
“(6) The adjusted income of the re-takaful fund or family re-takaful fund for the basis period for a year of assessment in respect of re-takaful business, or family re-takaful business respectively of a takaful operator resident for the basis year for that year of assessment shall consist of an amount arrived at by applying subsection (5) and references in that subsection to—
(a) “general takaful certificate” shall be construed as references to “re-takaful contract” or “takaful certificate in relation to its family re-takaful business”, as the case may be;
(b) “general takaful business” shall be construed as references to “re-takaful business” or “family re-takaful business”, as the case may be; and
(c) “reserve fund for unexpired risks” and “takaful operator” shall, in the case of family re-takaful business, be construed as references to “actuarial valuation reserve” and “family takaful operator” respectively:
Provided that in the case of re-takaful business, no deduction shall be allowed on any share of profits distributed or credited to the takaful participant or shareholders’ fund for that period out of any of the takaful operator’s fund, as the case may be.”;
(d) by substituting for subsection (8) the following subsection:
“(8) The adjusted income of the re-takaful fund, or family re-takaful fund for the basis period for a year of assessment in respect of re-takaful business or family re-takaful business respectively of a takaful operator not resident for the basis year for that year
of assessment shall, where that business is wholly or partly carried on in Malaysia, consist of an amount arrived at by applying subsection (7) and references in that subsection to—
(a) “Malaysian general takaful certificate” shall be construed as references to “re-takaful contract” or “Malaysian takaful certificate in relation to its family re-takaful business”, as the case may be;
(b) “general takaful business” shall be construed as references to “re-takaful business” or “family re-takaful business”, as the case may be; and
(c) “reserve fund for unexpired risks” and “takaful operator” shall, in the case of family re-takaful business, be construed as references to “actuarial valuation reserve” and “family takaful operator” respectively:
Provided that in the case of re-takaful business, no deduction shall be allowed on any share of profits distributed or credited to the takaful participant or shareholders’ fund for that period out of any of the takaful operator’s re-takaful fund, as the case may be.”;
(e) in subparagraph (9)(a)(iii), by deleting the words “inward” and “offshore fund”;
(f) in subparagraph (10)(a)(iii), by deleting the words “inward” and “offshore fund”;
(g) in subsection (20), by deleting the words “inward” and “or offshore takaful business” wherever appearing;
(h) in subsection (21), by deleting the words “inward” and “or offshore takaful business”;
(i) in subsection (22)—
(i) by deleting the words “inward” and “or offshore takaful business” wherever appearing; and
(ii) by substituting for the word “five” the word “eight”; and
(j) in subsection (23), by deleting the definitions of “inward re-takaful”, “inward re-takaful contract” and “offshore takaful”.
Deletion of section 60b
The principal Act is amended by deleting section 60b.
Amendment of section 109b
Section 109b of the principal Act is amended by substituting for paragraph (b) the following paragraph:
“(b) for any advice given, or assistance or services rendered in connection with the management or administration of any scientific, industrial or commercial undertaking, venture, project or scheme;”.
Amendment of section 140a
Section 140a of the principal Act is amended—
(a) in paragraph (5)(c), by inserting after the word “person” the words “(in this section referred to as “third person”)”; and
(b) by inserting after subsection (5) the following subsection:
“(5 a ) Without prejudice to the generality of section 139, for the purpose of subsection (5), “control” refers to persons one of whom owns shares of the other person, or a third person who owns shares of both persons, where the percentage of the share capital held in either situation is twenty per cent or more and—
(a) the business operations of that person depends on the proprietary rights, such as patents, non-patented technological know-how, trademarks, or copyrights, provided by the other person or a third person;
(b) the business activities, such as purchases, sales, receipt of services, provision of services, of that person are specified by the other person, and the prices and other conditions relating to the supply are influenced by such other person or a third person; or
(c) where one or more of the directors or members of the board of directors of a person are appointed by the other person or a third person.”.
New section 140c
The principal Act is amended by inserting after section 140b the following section:
“Restriction on deductibility of interest
140 c . (1) This section shall apply without prejudice to section 140 or 140a and subject to any rules made under this Act.
(2) In ascertaining the adjusted income of a person from each of his sources consisting of a business for the basis period for a year of assessment, no deduction from the gross income from that source for that period shall be allowed in respect of any interest expense in connection with or on any financial assistance in a controlled transaction granted directly or indirectly to that person which is in excess of the maximum amount of interest as determined under any rules made under this Act.
(3) In this section—
“control” has the meaning assigned to it in subsection 140a(5a);
“controlled transaction” shall be construed as a financial assistance—
(a) between persons one of whom has control over the other; or
(b) between persons both of whom are controlled by some other person (in this section referred to as “third person”);
“financial assistance” includes loan, interest bearing trade credit, advances, debt or the provision of any security or guarantee;
“interest expense” means—
(a) interest on all forms of debt; or
(b) payments economically equivalent to interest (excluding expenses incurred in connection with the raising of finance).”.
Amendment of section 154
Paragraph 154(1)(ed) of the principal Act is amended by substituting for the words “section 140 a ” the words “sections 140a and 140c”.
Amendment of Schedule 1
Schedule 1 to the principal Act is amended—
(a) in Part I—
(i) in paragraph 2a, in the column Rate of income tax in item 1, by substituting for the words “18 per cent” the words “17 per cent”;
(ii) in paragraph 2d, in the column Rate of income tax in item 1, by substituting for the words “18 per cent” the words “17 per cent”;
(iii) by substituting for paragraph 3 the following paragraph: “3. Income tax shall be charged for a year of assessment on the chargeable income of an insurer from a re-insurance business at the rate of 8 per cent on every ringgit of the chargeable income.”; and
(iv) by substituting for paragraph 4 the following paragraph: “4. Income tax shall be charged for a year of assessment on the chargeable income of a takaful operator from a re-takaful business at the rate of 8 per cent on every ringgit of the chargeable income.”;
(aa) in Part V, by substituting for paragraph (ii) the following paragraph:
“(ii) amounts paid in consideration of any advice given, or assistance or services rendered in connection with the management or administration of any scientific, industrial or commercial undertaking, venture, project or scheme; or”;
(b) by substituting for Part VIII the following Part:
“part VIII
Notwithstanding Part I and Part II, income tax shall be charged on the chargeable income of a life fund, other than income arising from life re-insurance business of a resident or non-resident insurer at the rate of .. .. .. 8 per cent.”;
(c) in Part IX, by inserting after the words “10 per cent” the words “for the years of assessment 2019 and 2020 and 24 per cent for the subsequent years of assessment”; and
(d) by substituting for Part XII the following Part:
“part XII
Notwithstanding Part I and Part II, income tax shall be charged on the chargeable income of a family fund referred to in section 60aa, other than income arising from a family re-takaful business of a resident or non-resident operator at the rate of .. .. .. .. .. .. ..8 per cent.”.
Amendment of Schedule 3
Schedule 3 to the principal Act is amended—
(a) in paragraph 37b—
(i) in subparagraph (a), by inserting after the word “research” the words “and development”;
(ii) in subparagraph (e), by inserting before the word “undertaken” the words “and development”;
(iii) by inserting after the words “such research” wherever appearing the words “and development”; and
(iv) by inserting after the words “in the case of research” the words “and development”; and
(b) in paragraph 37d, by inserting after the word “research” the words “and development”.
(c) (Deleted)
(d) (Deleted)
Amendment of Schedule 6
Paragraph 35a of Schedule 6 to the principal Act is amended by substituting for the proviso the following proviso:
“Provided that the exemption shall not apply to the interest paid or credited to a unit trust that is a wholesale fund which is a money market fund.”.
Amendment of Schedule 7a
Schedule 7a to the principal Act is amended—
(a) in paragraph 4, by deleting the words “until the person has received the whole of the allowance or allowances to which it is so entitled”; and
(b) by inserting after paragraph 4a the following paragraph:
“4b. Notwithstanding paragraph 4, so much of the allowance or allowances as cannot be given as ascertained under that paragraph at the end of the fifteen consecutive years of assessment referred to in paragraph 2 (in this paragraph referred to as “the first mentioned year of assessment”), shall only be given to that person in accordance with paragraph 4 for a period of seven
consecutive years of assessment (in this paragraph referred to as “that period”) and that period commences immediately after the end of the first mentioned year of assessment, and any amount of that allowance or that allowances at the end of that period which cannot be given to that person, by reason of insufficiency or absence of statutory income from a business of his for that period, shall be disregarded for the purpose of this Schedule.”.
Special provision relating to paragraph 4b of Schedule 7a
Notwithstanding paragraph 4 of Schedule 7a to the principal Act and paragraph 4b of that Schedule as introduced by section 27 of this Act, so much of that allowance as cannot be given under paragraph 4 of that Schedule before the coming into operation of section 27 of this Act for the year of assessment 2018 and that amount relates to allowance ascertained at the end of the fifteen consecutive years of assessment referred to in paragraph 2 of that Schedule or allowance ascertained for the year of assessment 2018 as provided for under paragraph 2b—
(a) shall only be given to that person in accordance with paragraph 4 of Schedule 7a to the principal Act, as if the principal Act has not been amended, for a period of seven consecutive years of assessment and that period commences immediately following the year of assessment 2018; and
(b) any amount of that allowance or that aggregate amount at the end of that period which has not been given to that person, by reason of insufficiency or absence of statutory income from a business of his for that period, shall be disregarded for the purpose of Schedule 7a of the principal Act.
Amendment of Schedule 7b
Schedule 7b to the principal Act is amended—
(a) in paragraph 5, by deleting the words “until the company has received the whole of the allowance or allowances to which it is so entitled”; and
(b) by inserting after paragraph 5 the following paragraph:
“5 a . Notwithstanding paragraph 5, so much of the allowance or allowances as cannot be given as ascertained under that paragraph for the year of assessment that relates to the basis period where the five-year period specified in paragraph 3 ends (in this paragraph referred to as “the first mentioned year of assessment”), shall only be given to that person in accordance with paragraph 5 for a period of seven consecutive years of assessment (in this paragraph referred to as “that period”) and that period commences immediately after the end of the first mentioned year of assessment, and any amount of that allowance or those allowances at the end of that period which cannot be given to that person, by reason of insufficiency or absence of statutory income from a business of his for that period, shall be disregarded for the purpose of this Schedule.”.
Special provision relating to paragraph 5a of Schedule 7b
Notwithstanding paragraph 5 of Schedule 7b to the principal Act and paragraph 5a of that Schedule as introduced by section 29 of this Act, any allowance or allowances which cannot be given under paragraph 5 of Schedule 7b to the principal Act before the coming into operation of section 29 of this Act for the year of assessment 2018 and that amount relates to the allowance or allowances ascertained under paragraph 5 of Schedule 7b to the principal Act before the coming into operation of section 29 of this Act for the year of assessment that relates to the basis period where the five-year period specified in paragraph 3 ends—
(a) shall only be given to that person in accordance with paragraph 5 of Schedule 7b to the principal Act, as if the principal Act has not been amended, for a period of seven consecutive years of assessment and that period commences immediately following the year of assessment 2018; and
(b) any amount of that allowance or that aggregate amount at the end of that period which has not been given to that person, by reason of insufficiency or absence of statutory income from a business of his for those period, shall be disregarded for the purpose of Schedule 7b of the principal Act.
Source: Laws of Malaysia, Attorney General's Chambers of Malaysia (lom.agc.gov.my). Not a copy of the Gazette printed by the Government Printer (Interpretation Acts 1948 and 1967, s 61).
