Whether you’re a small business owner already in the business for years or someone who is just beginning the first chapter of their start-up journey, it is undeniable that corporate taxation is a different ballgame compared to personal income tax. Read on to learn the tax benefits that will help you out a lot as a business owner.
New Corporate Tax Scheme
In 2017, a new corporate tax scheme was introduced as part of the government’s effort to assist small and medium scale enterprises. Prior to that, for all SMEs, the tax rate on chargeable income up to the first RM500,000 is 19%. This has since been reduced to 18% effective from the year of assessment 2017. As for the rest, it is as follows:
- 1 percentage point for increase in chargeable income between 5% to below 10%;
- 2 percentage point for increase in chargeable income between 10% to below 15%
- 3 percentage point for increase in chargeable income between 15% to below 20%;
- 4 percentage point for increase in chargeable income of 20%
For example, if a company’s chargeable income for year of assessment 2016 is RM10mil and increased to RM12mil in year of assessment 2017, the income tax imposed for the first RM10mil is 24% or RM2.4mil. As such, the difference of RM2mil increased in year of assessment 2017 will be taxed at 20% equal to RM400,000. In addition, this means the effective rate is 23.3% and the total amount of tax to be paid is RM2.8mil with tax savings of RM80,000.
Multiple Tax Incentives
As a SME owner, you are entitled to a wide range of tax incentives and this includes tax exemptions, allowances and tax deductions. Here are some of the tax incentives that are worth looking into:
Capital Allowance for ICT Equipment and Software – As announced in Budget 2018, the purchase of information and communication technology (ICT) equipment and software packages is eligible for accelerated capital allowance (ACA) until YA 2016. This is to encourage companies to adopt the latest technology and stay competitive in the digital era and as such, it is proposed that expenditure incurred on the purchase of ICT equipment and computer software packages be allowed a capital allowance claim at the rate of 20% initial allowance (IA) and 20% annual allowance (AA).
Tourism Malaysia - If you are in the hospitality industry, you may want to note that the application period for tax incentives for new 4 and 5-star hotels extended to 31 December 2020. In line with that, the tax exemption on statutory income for tour operating businesses will also extend.
Industry 4.0 - Malaysian Investment Development Authority (MIDA) applicants gain an “automation equipment allowance” as part of the government’s initiative to embrace the transformation to Industry 4.0 (the 4th Industrial Revolution).
Hiring the Disabled - Employers who employ disabled persons certified by the Department of Social Welfare (JKM) are eligible to claim a further deduction on salaries paid to such persons. However, do note that this tax incentive exempts those who employ workers affected by accidents/critical illnesses and workers who are not certified by JKM. The Medical Board of the Social Security Organization (SOCSO) will be in charge of certifying the employees and ensuring that they are able to work within their capabilities.
Apart from the incentives that been stated above, there are also several expenses that qualify for double deduction. This ranges from:
- Approved training undertaken by manufacturing company which do not contribute to Human Resources Development Fund (HRDF)
- Training costs which falls under SK1M for unemployed graduations
- Provision of internship programme / structured internship programme (SIP) approved by TalentCorp
- Cost coverage for new companies producing prescribed halal products who are looking to obtain certification for international quality standards
- Expenses incurred by new companies producing prescribed halal products who are obtaining the certification issued by a certification body
- Approved in-house R&D (research and development) expenditure for R&D companies
- Cost for obtaining quality system and standards certification
- For anchor companies who fall under the Vendor Development Programme, you can apply for double deduction for operating expenses incurred from carrying out specific activities
We hope that you have found this information useful for your tax filing as a business owner. Seeking more resources to grow your SME business or other information related to small business? Check out RHB’s SME Knowledge Center to learn more about the many products and features offered by them for absolutely free. Not a business owner? That's alright, here's a tax calculator you can use to check on your deductions.
This article was brought to you in collaboration with RHB SME Banking.