TAXATION
NOTES:
My Universe Sdn Bhd (MUSB), a tax resident company in Malaysia, engaged Rich Land Ltd (RLT), an IT solution company incorporated in the Korea, not tax resident company in Malaysia, to develop a comprehensive IT system for MUSB's head office in Kuala Lumpur. The total value of the IT system is RM1.2 million and the details of the cost breakdown are as follows: Fees Computer hardware and peripheral devices Professional services for software design and development On-site installation fee One-time software license fee Total RM 500,000 450,000 100,000 150,000 1,200,000 Based on the agreed scope of work and project milestones, 80% of the software design and development work were performed in RLT's office in the Korea and the balance in MUSB's head office. The entire project duration is 3 months and the project was completed on 30 June 2021. In addition to the above fees, RLT also billed MUSB for reimbursement of RM30,000 for cost of air fare and RM20,000 for hotel accommodation in Kuala Lumpur. MUSB made the full payment to RLT (net of withholding taxes) on 3 August 2021. Assume that RLT does not have a permanent establishment in Malaysia. Required: the a) Discuss the withholding tax implications for all above fees and disbursements/reimbursements paid to Rich Land Ltd, citing the relevant provisions of the tax legislation. (9 marks) b) Compute the withholding tax payable (if any) on each of the above payment made to Rich Land Ltd. (4 marks) c) Assuming that withholding tax is applicable, state the timeline to remit the withholding tax to the Inland Revenue Board and explain whether there will be any late payment penalty if MUSB had remitted the withholding tax on 5 September 2021. Compute the late payment penalty if applicable. (3 marks) d) Jung Kook is not a tax resident in Malaysia. He lives and works as a teacher in Korea. He was a university classmate of one of the directors of MUSB. Jung Kook introduced a potential client to MUSB, resulting in the Company securing a sales contract with the client. As a token of appreciation, MUSB agreed to pay Jung Kook an introducer fee of RM10,000. Jung Kook "performed the introducer services in Korea. Required: State and explain whether the above payment to Jung Kook is subject to withholding tax. (6 marks) [22 marks] TAX RATES AND ALLOWANCES The following tax rates, allowances and values are to be used in answering the questions. Income tax rates Chargeable income Resident company Paid up ordinary share capital First Excess over RM600,000 RM600,000 RM2,500,000 or less 17% 24% More than RM2,500,000 24% 24% Capital allowances Initial Annual allowance allowance (IA) (AA) Rate % Rate % Industrial buildings 10 3 Plant and machinery - general 20 14 Motor vehicles and heavy machinery 20 20 Office equipment, furniture and fittings 20 10 REAL PROPERTY GAINS TAX RATE - INDIVIDUAL OF MALAYSIAN CITIZEN YA 2018 - YA 2021 Disposal within 3 years after acquisition 30% In the 4 year after acquisition 20% In the 5th year after acquisition 15% After the year 5% WITHOLDING TAX RATES: Contract Interest Royalty Special classes of income Public entertainers Commission / Introduction fee 10% + 3% 15% 10% 10% 15% 10% 50% AGRICULTURE ALLOWANCE RATES Clearing and preparation of land New planting Construction on a farm of a road or bridge 50% 50% Construction on a farm of a building: Used for business - Used for welfare of the employees 10% 20% FOREST ALLOWANCE RATES Road or building used for timber extraction Building provided for employees' 10% 20% My Universe Sdn Bhd (MUSB), a tax resident company in Malaysia, engaged Rich Land Ltd (RLT), an IT solution company incorporated in the Korea, not tax resident company in Malaysia, to develop a comprehensive IT system for MUSB's head office in Kuala Lumpur. The total value of the IT system is RM1.2 million and the details of the cost breakdown are as follows: Fees Computer hardware and peripheral devices Professional services for software design and development On-site installation fee One-time software license fee Total RM 500,000 450,000 100,000 150,000 1,200,000 Based on the agreed scope of work and project milestones, 80% of the software design and development work were performed in RLT's office in the Korea and the balance in MUSB's head office. The entire project duration is 3 months and the project was completed on 30 June 2021. In addition to the above fees, RLT also billed MUSB for reimbursement of RM30,000 for cost of air fare and RM20,000 for hotel accommodation in Kuala Lumpur. MUSB made the full payment to RLT (net of withholding taxes) on 3 August 2021. Assume that RLT does not have a permanent establishment in Malaysia. Required: the a) Discuss the withholding tax implications for all above fees and disbursements/reimbursements paid to Rich Land Ltd, citing the relevant provisions of the tax legislation. (9 marks) b) Compute the withholding tax payable (if any) on each of the above payment made to Rich Land Ltd. (4 marks) c) Assuming that withholding tax is applicable, state the timeline to remit the withholding tax to the Inland Revenue Board and explain whether there will be any late payment penalty if MUSB had remitted the withholding tax on 5 September 2021. Compute the late payment penalty if applicable. (3 marks) d) Jung Kook is not a tax resident in Malaysia. He lives and works as a teacher in Korea. He was a university classmate of one of the directors of MUSB. Jung Kook introduced a potential client to MUSB, resulting in the Company securing a sales contract with the client. As a token of appreciation, MUSB agreed to pay Jung Kook an introducer fee of RM10,000. Jung Kook "performed the introducer services in Korea. Required: State and explain whether the above payment to Jung Kook is subject to withholding tax. (6 marks) [22 marks] TAX RATES AND ALLOWANCES The following tax rates, allowances and values are to be used in answering the questions. Income tax rates Chargeable income Resident company Paid up ordinary share capital First Excess over RM600,000 RM600,000 RM2,500,000 or less 17% 24% More than RM2,500,000 24% 24% Capital allowances Initial Annual allowance allowance (IA) (AA) Rate % Rate % Industrial buildings 10 3 Plant and machinery - general 20 14 Motor vehicles and heavy machinery 20 20 Office equipment, furniture and fittings 20 10 REAL PROPERTY GAINS TAX RATE - INDIVIDUAL OF MALAYSIAN CITIZEN YA 2018 - YA 2021 Disposal within 3 years after acquisition 30% In the 4 year after acquisition 20% In the 5th year after acquisition 15% After the year 5% WITHOLDING TAX RATES: Contract Interest Royalty Special classes of income Public entertainers Commission / Introduction fee 10% + 3% 15% 10% 10% 15% 10% 50% AGRICULTURE ALLOWANCE RATES Clearing and preparation of land New planting Construction on a farm of a road or bridge 50% 50% Construction on a farm of a building: Used for business - Used for welfare of the employees 10% 20% FOREST ALLOWANCE RATES Road or building used for timber extraction Building provided for employees' 10% 20%
