Income tax rebate for new SMEs or Limited Liability Partnerships

Income tax rebate for new SMEs or Limited Liability Partnerships (LLPs)

Pursuant to the Finance Act 2020, a new Section 6D was introduced into the ITA to provide an income tax rebate of up to RM20,000 per YA, for a period of three consecutive YAs, for a new SME or LLP which fulfils the requirements specified in Section 6D and/or any other conditions which may be imposed by the Minister via a statutory order.

Following the above, the Income Tax (Conditions for the Grant of Rebate under Subsection 6D(4)) Order 2021 [P.U.(A) 504] was gazetted on 31 December 2021. To qualify for the rebate, the Order provides that the company or LLP must comply with the following conditions:

(a) The company or LLP shall not own or be owned (directly or indirectly) by a related company or related LLP (as defined), which has paid-up ordinary share capital or contribution of capital (whether in cash or in-kind) of more than RM2.5 million at the beginning of the basis period for a YA

(b) The operations of the company or LLP shall be carried out in a different premise from its related company or related LLP

(c) The company or LLP shall not use any plant, equipment or facility owned by its related company or related LLP, or which has been disposed of by its related company or related LLP to the company or LLP

(d) The employees of the company or LLP, except for the Chief Executive Officer and Director, shall be different from its related company or related LLP

(e) The business activity carried out by the company or LLP shall be:

(i) Different from its related company or related LLP, or

(ii) Different from a sole proprietorship where the sole proprietorship is converted to a company or LLP

(f) The company or LLP shall not be the result of a merger or acquisition of two or more companies or LLPs which have paid-up ordinary share capital or contribution of capital (whether cash or in-kind) of RM2.5 million or less at the beginning of the basis period for a YA, and gross income from business sources of not more than RM50 million for the relevant YA

(g) The company or LLP is not a partnership or company that has been converted into an LLP in accordance with Section 29 or 30 of the LLP Act 2012

The Order stipulates that where the company or LLP first commences its operations on or after 1 July 2020, and its basis period ends on or before 31 December 2020, the rebate may be granted in accordance with the Order for YA 2021 and YA 2022 only.

The Order is effective from YA 2021.