GOOD NEWS for SMEs ! RM 60k tax rebate

Published: Fri, 05/20/22

GOOD NEWS for SMEs !

Have you ever thought of starting a business this year? Well, this is your sign to make the move.

Under 2020 PENJANA stimulus package, newly established businesses under the small and medium enterprises (SME) category are entitled to a tax rebate of RM20,000 per year for 3 years. In other words, these SMEs are eligible for a total tax rebate of up to RM60,000.

Read on to find out whether you can enjoy this tax savings of RM60,000!

But first, a couple of key concepts,

Do LLPs fall under the SME category for this rebate?

In short, yes! Owners of Limited Liability Partnerships or more locally known as LLPs, are eligible for the RM20,000 tax rebate. LLPs, can enjoy this rebate similar to any SME-type company as Government efforts look to encourage the growth rates of new businesses in Malaysia to stay resilient in the ongoing pandemic. For simplicity purposes, we’ll be using the term “new entity” in this article to cover both company and LLP that are eligible for this rebate.

Eligible period

A new entity that has commenced its operations on or after 1 July 2020 but not later than 31 December 2022 is entitled for this tax rebate for three consecutive years (E.g., YA 2021, YA 2022 & YA 2023).

If you have a business that has commenced operations on or after 1 July 2020 and its first basis period ended on or before 31 December 2020, your business is only entitled to claim tax rebates for a span of two years for YA 2021 and YA 2022 only.

What's considered a qualifying new entity?

This article explains the 8 conditions for the rebate to be granted:

1. The new entity must be a resident in Malaysia.

To be eligible for the rebate, the new entity must be a resident and incorporated in Malaysia. A company will be deemed a resident in Malaysia if at least one meeting of the board of directors relating to the management and control of the company is held in Malaysia at any time during the basis period for an assessment year.

2. Must be an SME.

To be classified as an SME, the maximum paid-up capital or contribution of capital the new entity can have is RM 2.5 million. Additionally, its annual turnover must not exceed RM 50 million. Exceeding these amounts will mean that the new entity can no longer be treated as an SME for tax purposes, thus making it ineligible for the rebate.

The “related company” concept

The eligibility criteria for this rebate have to do with related companies or related LLPs of the qualifying new entity. The IRB also looks at related company or related LLP to determine whether the new entity is “truly” a SME. If the qualifying new entity owns or being owned directly or indirectly by a related company or related LLP that has a paid –up capital or contribution of capital of more than RM2.5 million, it will also not be eligible for the rebate.

A company or LLP is regarded as “related” if:

it owns the qualifying new entity through a shareholding relationship of at least 50%;

it is owned by the qualifying new entity through a shareholding relationship of at least 50%; or

the company or LLP and the qualifying new entity is owned by another company or LLP through a shareholding relationship of at least 50%.

3. The qualifying new Entity shall not use a related company’s plant, equipment, and facilities.

When claiming the rebate, new entity can only purchase brand new amenities and equipment that cannot be transferred from any pre-existing related company.

4. Apart from the CEO and managing directors, the employees of the qualifying new entity must be different from the employees of its related company.

The employees of the qualifying new entity must be lawfully distinct from its related company. Sharing employees between the two entities will cause the new entity to be deemed as ineligible for the tax rebate.

5. The business activity of the qualifying new entity must be different from its related company.

The business activity of the qualifying new entity must be different from its related company or its related LLP.

6. The new entity must carry out different business activity if it is converted from a sole proprietorship.

In the case where a sole proprietorship is converted to a company or LLP, the business activity has to be different.

7. The new entity shouldn't arise from a merger or acquisition of two or more SME companies or LLPs and it must not be a partnership or company converted into an LLP.

The new entity shouldn’t arise from a merger or acquisition of 2 or more companies or LLPs that are SMEs.

Also, the new entity cannot be a LLP converted from an existing partnership or company.

8. The new entity must operate in a different location than its related company.

As mentioned in the conditions for the rebate, the qualifying new entity in question must be independent and operate from a different location than its related company.

Need more tax planning solutions?

TaxPOD, or Tax Professionals on Demand, is Malaysia’s first online tax learning platform. Its curated tax content is created by an experienced team of accredited accountants and tax professionals at YYC Group with over 75 years of collective experience in tax compliance and tax advisory work across several industries.

With YYC Group’s large SME client base, the TaxPOD team understands the growing pains, challenges and the various scenarios faced by different SMEs. The videos, case studies and webinars delivered by the team are mainly business-focused for business owners looking for vital tax planning solutions.

For more details, check out our website at https://taxpod.my/taxknowledge/ or drop us an email at taxguru.zenchow@yyc.my.

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