Updates on PENJANA and Special Deduction for Reduction of Rental

To Our Valued Clients

Subsequent to the Pelan Jana Semula Ekonomi Negara or Short-Term Economic Recovery Plan ["PENJANA"] announced by our Prime Minister, YAB Tan Sri Dato' Haji Muhyiddin Bin Haji Mohd Yassin on 5th June 2020, the Ministry of Finance ["MOF"] has published the updated Appendix dated 5th June 2020 (available in Bahasa Malaysia) with additional details of the tax measures proposed under PENJANA.

Notable changes made are as follows:-

1. Tax Reliefs for COVID-19 Related Expenses
 
● Currently, tax reliefs are given in the form of tax deduction or capital allowance on expenses incurred by businesses for COVID-19 testing and purchase of personal protective equipment for the period from 1st March 2020 to 31st December 2020
● It is proposed that the deduction / capital allowance be extended to the period beyond 1st January 2021
2. Tax Exemption for Employees on ICT Equipment Received from Employers
 
● It is proposed that tax exemption of up to RM5,000 be given to employees who receive information and communication technology ["ICT"] equipment, such as handphone, notebook or tablet, from their employers
● Effective year of assessment ["YA"] 2020
3. Special Personal Tax Relief for Purchase of Handphone, Notebook or Tablet
 
● It is proposed that on top of the lifestyle relief, a special personal tax relief of up to RM2,500 be given for purchase of handphone, computer and tablet
● The purchase of handphone, computer and tablet must be made during the period from 1st June 2020 to 31st December 2020
● Applicable to YA 2020 only
4. Deduction for Expenses Incurred for FWA
 
● It is proposed that further deduction be given to employers on expenses incurred for implementing Flexible Work Arrangements ["FWA"] or undertaking enhancement of their existing FWA for 3 consecutive years of assessment
● The following expenses incurred by the employers are eligible for further deduction:-
 
○ Consultation fees;
○ Costs incurred for increasing the employees' capabilities for adaptation to FWA, including training costs; and
○ Costs of acquiring virtual working environment software
● The expenses incurred are subject to verification by Talent Corporation Malaysia Berhad ["TalentCorp"] and the deductible amount is limited to RM500,000 per year of assessment
● Effective for applications received by TalentCorp from 1st July 2020 to 31st December 2022
5. Tax Rebate for Establishing New Businesses
 
● It is proposed that tax rebate of up to RM20,000 per year for the first 3 years of assessment be given to new Small and Medium Enterprises ["SME"]
● To be eligible for the above tax rebate, the following conditions must be fulfilled by the SME:-
 
○ registered under the Companies Act 2016;
○ having paid-up share capital of RM2.5 million and below with total gross income of not more than RM50 million per year;
○ the amount of rebate is equivalent to the amount of capital or operating expenditure incurred in each year, restricted to RM20,000 per year of assessment;
○ any unutilised rebate is not allowed to be carried forward to the following year of assessment;
○ the newly established SME is required to use separate plant, equipment and facilities which are not transferred from existing or related companies; and
○ any other conditions to be determined
● Pending issuance of the rules, it is not clear on the mechanism of the rebate to be given to the above new SME
● Applicable to new SME that are established and commenced operations between 1st July 2020 to 31st December 2021
6. Incentives for Relocation of Manufacturing Activities to Malaysia
 
● To attract foreign companies to relocate their business to Malaysia by addressing the risk of re-shoring, the following incentives are proposed for the new companies to be set up in Malaysia:-
 
○ Tax rate at 0% for 10 years be applied to new investment by foreign companies in manufacturing sector with capital investment between RM300 million to RM500 million;
○ Tax rate at 0% for 15 years be applied to new investment by foreign companies in manufacturing sector with capital investment above RM500 million;
● For existing companies in Malaysia relocating their overseas facilities to Malaysia with capital investment above RM300 million, a 100% investment tax allowance for 5 years shall be given
● To be eligible for the above incentives, companies must relocate and commence operations within a period of one year from the date of approval and the amount of investment involved must be made within a 3-year period
● Applications for the above incentives must be made to the Malaysian Investment Development Authority ["MIDA"] from 1st July 2020 to 31st December 2021
7. Additional RA Incentive
 
● Reinvestment allowance ["RA"] is currently given to a company that has incurred capital expenditure on a factory, plant or machinery for the purposes of a qualifying project in respect of a manufacturing activity or agriculture activity (excluding rearing chickens and ducks)
● A company is entitled to RA for 15 consecutive years of assessment commencing from the year of assessment in which the first RA claim is made
● For companies that have exhausted their eligibility to RA claim upon expiry of the RA incentive period, they are entitled to make a claim for Special RA for another 3 years of assessment (i.e. from YA 2016 to YA 2018) as announced in Budget 2016
● It is now proposed that a claim for Additional RA for another 3 years of assessment be given to companies that have exhausted both their eligibilities to claim for RA and/or Special RA
● Effective YA 2020 to YA 2022
8. RPGT Exemption for Disposal of Residential Home
 
● Currently, real property gains tax ["RPGT"] exemption is given to citizens of Malaysia for disposal of real properties of RM200,000 and below in the 6th year or thereafter
● It is proposed that the RPGT exemption be given to citizens of Malaysia for disposal of residential homes, limited to the disposal of 3 units of residential homes per individual
● However, the above RPGT exemption is not applicable to the disposal of residential homes previously acquired under Paragraphs 3(1)(b) and 12, Schedule 2 of the RPGT 1976 treated to have suffered no gain or no loss
● Effective for disposal of properties from 1st June 2020 to 31st December 2021
9. Stamp Duty Exemption for Mergers and Acquisitions
 
● Stamp duty exemption be granted to SME on the instruments executed for the purpose of mergers and acquisitions
● The instruments executed for mergers and acquisitions eligible for the above stamp duty exemption are as follows:-
 
○ Contract or agreement for sales or rental of properties (land, building, plant and machineries, and equipment);
○ Agreement for transfer and memorandum of understanding;
○ Loan or financing agreement; and
○ First rental agreement
● Subject to approval of the mergers and acquisitions by the Ministry of Entrepreneur Development and Corporations from 1st July 2020 to 30th June 2021
● Applicable to instruments of transfer executed not later than 31st December 2021

In addition, the MOF has also issued a revised Frequently Asked Questions ["FAQ"] on Special Deductions for Corporate Taxpayers and Other Taxpayers on Rental Reduction Offered to SME Tenants (amended 15th June 2020).

Significant changes made in the revised FAQ are as follows:-

1. The definition of SME endorsed by the National Entrepreneur and SME Development Council is used, where a business will be classified as an SME if it fulfils all the 3 conditions in regards to be qualifying criteria, type of establishment and shareholding structure as below:-
 
a. Qualifying Criteria
 
● Meet either one of the two specified qualifying criteria, namely sales turnover or full-time employees, whichever is lower. A summary of the qualifying criteria is provided below:-
   
 
Category of SME Sector Sales Turnover Number of Full-Time Employees
Micro All sectors < RM300,000 < 5
Small Manufacturing RM300,000 up to less than RM15 million 5 to 74
Services and other sectors RM300,000 up to less than RM3 million 5 to 29
Medium Manufacturing RM15 million to RM50 million 75 to 200
Services and other sectors RM3 million to RM20 million 30 to 75
   
b. Type of Establishment
 
● SME refers to pure business entity that is:-
 
○ incorporated under the Companies Act 2016;
○ registered under the Registration of Business Act 1956 or Limited Liability Partnerships Act 2012;
○ registered under respective authorities or district offices in Sabah and Sarawak; or
○ registered under respective statutory bodies for professional service providers.
c. Shareholding Structure
 
● For this purposes, the following entities shall be deemed not to be a SME:-
 
○ public-listed companies in the main board such as Bursa Malaysia or main bourses in other countries and their subsidiaries; and
○ subsidiaries of large firms, multinational corporations, Government-linked companies, Syarikat Menteri Kewangan Diperbadankan and State-owned enterprises.
● Companies that are public-listed in the secondary bourses such as the ACE market, Malaysia Online Trading Platform for Unlisted Market (MyULM) or in secondary markets / SME exchanges / unlisted markets in other countries and their subsidiaries will be considered as SMEs.
  Further details on the above conditions for SME are provided in the updated Guideline for SME Definition issued by SME Corporation Malaysia Secretariat to the National SME Development Council.
2. To be eligible for the special deduction, the reduction of rental given to the qualifying SME tenants must be at least 30% of the original monthly rental. The special deduction granted to the landlord is equivalent to the amount of rental reduction given for 6 months, i.e. April 2020 to September 2020.

In addition, for the purpose of the special deduction, the tenants must be registered SME and have obtained SME Status Certificate from SME Corporation Malaysia Secretariat.
3. Based on the example in the FAQ, in the case where a landlord who owns a business premises and rents it to a SME tenant at monthly rental rate of RM5,000 and offers reduction of rental of 50% i.e. RM2,500 per month for April 2020 to September 2020, the landlord will be eligible for a special deduction of RM15,000 (i.e. RM2,500 x 6 months) against the rental income for the year.
4. Taxpayers claiming the special deduction for reduction of rental are required to maintain the following supporting documents:-
 
a. Stamped tenancy agreement;
b. Rental income statement;
c. SME Status Certificate issued by SME Corporation Malaysia Secretariat; and
d. Tenant's information, rental information and rental reduction methods.

For further information, kindly refer to the following:-

i. Appendix dated 5th June 2020 with details of the tax measures proposed under PENJANA;
ii. Our email of 8th June 2020 on PENJANA;
iii. FAQ on Special Deductions for Corporate Taxpayers and Other Taxpayers on Rental Reduction Offered to SMEs Tenants - Updated on 15th June 2020;
iv. Updated Guideline for SME Definition issued by SME Corporation Malaysia Secretariat to the National SME Development Council; and
v. Our email of 23rd April 2020 on Updates on Special Deduction for Reduction of Rental.

Please do not hesitate to contact us if you need any clarification on the foregoing.

 

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