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Taxes are oftentimes the term that sends chills down our financial spines… However, did you know that running a company equally has its own fair share of taxes too?!
In this post, we’ll be exploring the 4 various ways of tax planning and the means of elevating taxes for your company, especially if your company is considered a start-up.
3-Year RM60,000 Tax Rebate Scheme for New Incorporations
Since commencement of the global Covid-19 pandemic in Malaysia, many Malaysian companies, both industry veterans and start-ups alike have been facing financial difficulties. Thanks to the government however, countermeasures have since been taken by them in the form of tax exemption schemes.
Among the numerous approaches, the first we would like to introduce is the RM20,000 (per annum) tax rebate scheme which lasts for the first 3 years of company operations.
Some take-aways on this scheme is that the amount of rebate would be capped at RM20,000 and dependent on the company’s operating expenses (Op-Ex) and capital expenditure (Cap-Ex). Listed below are some examples on how the scheme is applied: –
Tax Rebate Up To: RM20,000 (Max)
Tax Rebate Up To: RM20,000
Tax Rebate Up To: RM10,000
Due to the scheme being catered specially for start-up companies, this approach wouldn’t be ideal as not only would the company have a fresh start with new equipment to work with, but also being able to save up a hefty sum of money that could be used as capital.
To be eligible for this scheme, certain conditions will need to be met. This includes: –
i. The interested Sdn. Bhd. company owner and Sdn. Bhd. (or LLP company) must both be a tax resident(s) and having been incorporated in Malaysia
ii. The Sdn. Bhd. company (or LLP) has both incorporated and commenced operations between the period of 1st June 2021 to 31st December 2022, according to Companies Act 2016
iii. The Sdn. Bhd. company possesses a working capital of either equal or less than RM2.5million and not more than the annual sales amount of RM50 million
iv. Other requirements imposed by the Minister under the statutory order that will be published in the Gazette.
It should be noted however, for companies that have successfully applied for the scheme, any remaining excess of the tax rebate at the end of the scheme’s active period shall be considered a permanent loss as it won’t be able to be refunded by the IRB nor utilized for subsequent years’ tax liability.
Special Tax Deduction for Expenses Incurred before Business Commencement Scheme
Following would be the Special Tax Deduction for Expenses Incurred before Business Commencement scheme. To assist start-up companies in recouping from of their corporate expenses, the government has since issued this plan to elevate some taxation burdens during their initial year of business, deducting their taxes upon the commencement of the said company’s business. This is on the condition that the company has already acquired its first successful transaction.
What this means is that corporate entities would be able to claim this monetary aid as soon as their business has commenced, alongside receiving their first transaction. Expenses spent on earlier business preparatory activities prior to its operations are not accounted for.
An example of how this works is that: –
Company A just incorporated its company 1st January 2021 and successfully incurs a monthly staff cost of RM10,000 for both February and March (RM20,000 (tabulated from both months) which are none tax deductible) with 1st April having issued its first invoice to its clients.
Lower Tax Rates on Sendirian Berhad (Sdn. Bhd.) Companies Scheme
Alternatively, why not opt to pay for a lower tax rate that could help in your tax planning with the formation of Sendirian Berhad (Sdn. Bhd.), as compared to Sole Proprietor based companies?
Benefits for this scheme include a preferential tax rate of 17% for the first RM600,000 worth of taxable income, with the perpetual tax payment rate of 24% following up for the subsequent years. An example of how this scheme works is that: –
Note that Company A is registered under the Sdn. Bhd. (Sendirian Berhad) category whereas Company B falls under Sole Proprietorship.
i. Profits Garnered by Company A during the First Year:
Company Earns = RM600,000
RM600,000 x 17%
(Tax Savings applied based on generated revenue)
= RM102,000 (Tax to be paid)
RM600,000 – RM102,000
ii. Profits Garnered by Company B during the First Year:
Company Earns = RM600,000
RM600,000 x 24% (Standard Tax Rate)
=RM144,000 (Tax to be paid)
RM600,000 – RM144,000
iii. Difference in Tax Savings:
RM498,000 – RM456,000
Hence, upon determining the differences based on the above, the company A would have an additional profit balance of RM42,000, a hefty sum that would be essential if the company is considered a start-up for the purpose of other upcoming corporate expenditures.
Proposal for Additional Tax Reduction for Research & Development (R&D) & Promotion Expenses Scheme
Due to heavy financial implications faced by potential company start-ups, particularly in areas such as marketing and research development of company key products, the government should consider a special tax deduction scheme as a means of reducing monetary commitments from these two particular sectors.
Through this approach, promising company start-ups that possess reasonable value proposition would be able to acquire essential funds to both elevate their financial commitments for a brief period of time, consolidating and sustaining constant recurring profits. In having done so, the eligible company would then resume paying taxes at a standard rate, similar to other existing companies.
An example on how the scheme works: –
i. Standard Scenario:
Assuming Company A possesses a taxable income of RM100,000 (RM160,000 of Revenue – RM100,000 of R&D Expenses) and the total tax payable would be *RM17,000 (17% of tax rate x RM100,000).
ii. Hypothetical Scenario:
If the Government were to consider a double tax deduction on the R&D Expenses, then the total taxable income would be reduced to RM40,000 whereby the amount is attained through the following equation: (RM160,000 of Revenue – RM60,000 of R&D Expenses – RM60,000 of R&D Expenses).
Following, the acquired total tax payable amount would be *RM6,800 (RM40,000 x 17%), which would then help us identify the tax saving amount of RM10,200 (RM17,000 – RM6,800 of Tax Payable Income) we can attain from this scheme.
That said, start-up companies oftentimes fall easy prey to the clutches of debt and other massive expenditures during the first year of operations. Which is why Incorp is there to partner with you in this time of financial struggle.
Equipped with 38 years of experience in the field of corporate secretarial matters, our team of professional advisors and veteran company secretaries are committed towards seeing your company soar successfully during its first year and so forth, with greatly reduced tax commitments that follow!
Interested? Please kindly email us your queries via our email or WhatsApp located below and we’ll revert to you as soon as possible: –
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