BG Ltd, a company resident in the United Kingdom and MCT Ltd, a company resident in Germany have been awarded contracts by RJ Sdn.Bhd, in connection with the construction of a bridge in Malaysia. RJ Sdn.Bhd carries on the business of construction in Malaysia.

BG Ltd engineers will design the bridge wholly in United Kingdom. It will not be necessary for BG Ltd to send its engineers to Malaysia, BG does not have any branch in Malaysia.

MCT would be responsible for the supply of equipment valued at RM5 million and the provision of project management and supervisory services valued at RM7 million. Employees of MCT will be seconded to Malaysia for the duration of the project, which will be completed in two years.

Required:

1. Advise BG Ltd and MCT Ltd on their liability to Malaysian income tax arising from the contract with RJ Sdn.Bhd.

(15 marks)

2. What are the requirements of the Income Tax Act 1967 on RJ Sdn Bhd in respect of the payments due to BG Ltd and MCT Ltd and the implications if the companies do not comply with the requirements?

(10 marks)

(Total: 25 marks)