APAC Tax Matters: 13th edition

Malaysia

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At a glance

  • Revised guidelines issued on establishing a Labuan International Commodity Trading Company under the  Global Incentives for Trading programme
  • IRB issues guidelines on taxation of e-commerce
  • Update on Malaysia’s Double Tax Agreement with India
  • Exemption order issued for a Labuan International Commodity Trading Company on income derived from the trading of physical and related derivative instruments of liquefied natural gas
  • Update on Malaysia’s DTA with Hong Kong

Revised guidelines issued on establishing a Labuan International Commodity Trading Company (LICTC) under the Global Incentives for Trading (GIFT) programme

Guidelines on the establishment of a Labuan International Commodity Trading Company (LICTC) under the Global Incentives for Trading (GIFT) programme dated 31 October 2011 were revised on 15 January 2013 and took effect from 1 January 2013.

The revised guidelines incorporated the Budget 2013’s proposal to extend the GIFT programme to other commodities such as agricultural products and refined new materials and chemicals, and that a LICTC set up purely as a liquefied natural gas trading company be granted a 100% income tax exemption on chargeable profits for the first 3 years of operation (provided the LICTC is licensed before 31 December 2014). The guidelines and applications forms are available on the Labuan Financial Services Authority’s (LFSA) website and any queries may also be directed to the LFSA.

IRB issues guidelines on taxation of e-commerce

On 11 March 2013, the IRB made available on its website “Guidelines on Taxation of Electronic Commerce” dated 1 January 2013. The guidelines provide guidance on the circumstances under which income from electronic commerce (e-commerce) transactions would be deemed derived from Malaysia. In the guidelines, e-commerce is defined to mean any commercial transaction conducted through electronic networks including the provision of information, promotion, marketing, supply order or delivery of goods or services although payment and delivery of such goods and services may be conducted off-line.

The IRB highlighted the fact that there are no specific provisions under the ITA to address e-commerce transactions and so the general provisions of the ITA apply. The guidelines considered several basic models and provided guidance on whether or not the income from e-commerce would be subject to Malaysian tax in those situations. The IRB also provided an attachment that summarizes the positions taken by the IRB under those various scenarios.

Update on Malaysia’s Double Tax Agreement (DTA) with India

On 26 December 2012, the Malaysia-India DTA that was signed on 9 May 2012 entered into force. The DTA takes effect in Malaysia from 1 January 2013 and for India from 1 April 2013. The new DTA, that replaces the older one, inter alia introduces the concept of a service permanent establishment with a threshold of 90 days within any 12-month period, contains a limitation of benefit clause, and also includes a corresponding transfer pricing adjustment clause.

Labuan Business Activity Tax (Exemption) Order 2013 [P.U. (A) 99]

Labuan Business Activity Tax (Exemption) Order 2013 [P.U. (A) 99] provides a 100% income tax exemption to a LICTC on income derived from the trading of physical and related derivative instruments of liquefied natural gas in any currency other than Ringgit for the first 3 years of operation.

A LICTC is defined to mean a Labuan company that is incorporated or registered under the Labuan Companies Act 1990, licensed under Section 92 of the Labuan Financial Services and Securities Act 2012 and maintains a registered office in Labuan but is allowed to establish its operational office anywhere in Malaysia. The Order shall have effect from YA 2013 onwards.

Update on Malaysia’s DTA with Hong Kong

On 29 December 2012, the Malaysia-Hong Kong double tax agreement (DTA) that was signed on 25 April 2012 entered into force. The DTA took effect in Malaysia on 1 January 2013 and for Hong Kong on 1 April 2013. The comprehensive DTA allocates taxing rights between Hong Kong and Malaysia, and will provide investors with greater certainty on their tax liabilities from cross-border economic activities and boost closer economic and trade ties between Hong Kong and Malaysia.