globaltaxnews.ey.comSign up for tax alert emailsForwardPrintDownload |
11 January 2018 Malaysia announces partial enactment of 2018 budget proposals At the end of December 2017, Malaysia enacted the goods and services tax (GST)-exempt and zero-rated supplies included in the 2018 Malaysian Budget (the Budget 2018) announcement on 27 October 2017.1 While the thin capitalization rules were ultimately repealed with effect from 1 January 2018, the earning stripping rules proposed in the Budget 2018 to replace the thin capitalization rules, have yet to be drafted. This Alert summarizes the enacted proposal as well as those that are still pending. All services provided by local government authorities will no longer be subject to GST (outside the scope of GST), effective as of 1 October 2018. The zero-rating on newspapers and all types of books will be expanded to include magazines, journals, periodicals and comics, and will be effective as of 1 January 2018. Further, the GST exemptions have been expanded to include management and maintenance services provided by housing developers, effective as of 1 January 2018. The adoption of the Base Erosion and Profit Shifting-inspired earnings stripping rules to replace thin capitalization rules was proposed in the Budget 2018. The proposed earnings stripping rules are expected to focus on related company loans, with interest deductions on such loans limited to a specified ratio that is expected to range from 10% to 30% of earnings before interest and tax or earnings before interest, tax, depreciation and amortization. When implemented, the rules will be effective as of 1 January 2019. Additional changes to the income tax legislation, new guidelines and/or public rulings are expected in order to implement the rules. Amounts incurred on the purchase of IT equipment and software packages were eligible for accelerated tax depreciation until the year of assessment (YA)2 2016. With the expiration of the accelerated tax depreciation, the annual depreciation on such assets would be 10% (20% in the initial year). In order to encourage companies to continue adopting the latest technology and remain competitive in the digital era, the 2018 Budget proposed a 20% tax depreciation per year (20% in the initial year)3 for amounts incurred for the purchase of IT equipment and computer software packages. The proposal will be effective from YA 2017. In addition, the Budget proposed that expenses incurred on consultation, licensing and incidental fees for the development of customized software also qualify for the 20% tax depreciation claims (20% in the initial year). This proposal would be effective from YA 2018. The 2018 Budget proposed that the Principal Hub incentive be extended to applications received by the Malaysian Investment Development Authority (MIDA) through 31 December 2020.4 A Principal Hub is a locally incorporated company that uses Malaysia as a base for conducting its regional and global businesses and operations to manage, control and support its key functions. 1 See EY Global Tax Alert, Malaysia announces 2018 budget and WHT exemption order for service fees paid to nonresidents, dated 10 November 2017. 3 This is less attractive than the current accelerated tax depreciation on IT equipment and software which effectively allows a full write off the acquisition cost in the year of acquisition. 4 Currently, the incentive is available for applications received by MIDA from 1 May 2015 to 30 April 2018. Document ID: 2018-5119 |
