Guidelines on tax exemption for religious institutions / organizations

Guidelines on income tax exemption for religious institutions or organizations pursuant to Income Tax (Exemption) Order 2020 [P.U.(A) 139/2020]

The Income Tax (Exemption) Order 2020 [P.U.(A) 139] was gazetted on 4 May 2020 to provide 100% income tax exemption on all sources of income of a religious institution or organization registered as a company limited by guarantee and incorporated under the Companies Act 2016 (see Tax Alert No. 7/2020). The Order took effect from the year of assessment (YA) 2020.

Following the above, the Inland Revenue Board (IRB) has published on its website technical guidelines dated 25 March 2021, in Bahasa Malaysia, titled “Garis Panduan Berhubung Permohonan Pengecualian Cukai Pendapatan Kepada Institusi Atau Organisasi Keagamaan Yang Layak Di Bawah Perintah Cukai Pendapatan (Pengecualian) 2020 [P.U.(A) 139/2020]”.

The guidelines were released to explain the meaning of a religious institution or organization within the context of the Exemption Order, as well as the application procedure for the above-mentioned income tax exemption. The guidelines contain the following paragraphs:

1. Introduction
2. Objective
3. Eligible religious institutions or organizations
4. The criteria and conditions to be eligible
5. The application procedure
6. Consequences of a breach of conditions
7. The approval period and application for extension
8. Conditions to be adhered to during the approval period
9. Non-application

Some details are outlined below.

The guidelines reiterate that the “religious institution or organization” must be a company limited by guarantee and incorporated under the Companies Act 2016, established exclusively for the purpose of religious worship or the advancement of religion. The institution or organization operating the place of worship must also be verified by the relevant associations or authorities (e.g. Majlis Agama Islam Negeri, Malaysian Buddhist Association, Christian Federation of Malaysia etc.).

The guidelines stipulate that all income and property obtained must be used for the purpose of religious worship or advancement of religion as outlined in the constitution or under any written law. In addition, notification to and approval from the IRB must be obtained prior to the acquisition or disposal of assets and/or properties.

The guidelines also reiterate that the exemption does not absolve the religious institution or organization from any requirement to submit any return, statement of accounts or any information required under the Income Tax Act 1967. As such, the annual income tax return forms, audited financial statements and Form E etc. must be submitted by the stipulated deadlines, where applicable.

The guidelines stipulate that the application for approval is to be submitted by the board of directors or committee members to the IRB. The documentation required for the application is outlined in the guidelines.

The guidelines stipulate that in the event any of the approval conditions stated in the guidelines or the Exemption Order are breached, the IRB has the discretion to revoke the approval for the tax exemption.

The guidelines provide that the approval period is five years. Any application for an extension of the approval period must be submitted within six months before the end of the approval period. The application for an extension of the approval period will only be reviewed if the relevant approval conditions have been met.