Assessment of income is on a current-year basis. A company is taxed on income from all sources (whether business or non-business) arising in its financial year ending in the calendar year that coincides with that particular year of assessment. For example, a company that closes its accounts on 30 June of each year is taxed on income earned during the financial year ending on 30 June 2021 for year of assessment 2021.
Under the self-assessment system, companies are required to submit a return of income within seven months from the date of closing of accounts. Particulars required to be specified in the return include the amount of chargeable income and tax payable by the company. The tax return is deemed to be a notice of assessment and is deemed served on the company upon the date the tax return is submitted.
'E-filing’ or online filing of tax returns via the Internet is available. E-filing is encouraged by the Inland Revenue Board.
Payment of tax
Tax payable under an assessment upon submission of a tax return is due and payable by the last day of the seventh month from the date of closing of accounts.
Companies are required to furnish estimates of their tax payable for a year of assessment no later than 30 days before the beginning of the basis period (normally the financial year). However, a newly established company with paid-up capital of MYR 2.5 million or less that meets with certain specified conditions is exempted from this requirement for two years, beginning from the year of assessment in which the company commences operation. A revised estimate can be submitted in the sixth and ninth months of the basis period for a year of assessment.
Companies are required to pay tax by monthly instalments (based on the estimates submitted) commencing from the second month of the company’s basis period.
A company commencing operations in a year of assessment is not required to furnish estimates of tax payable or to make instalment payments if the basis period for the year of assessment in which the company commences operations is less than six months.
Various penalties are imposed for failure to comply with the tax obligations under the self-assessment system. These include penalties for failure to furnish tax returns, submitting an incorrect return or understating income, late payment of taxes, underestimation of tax estimates, wilfully and intentionally evading tax, or assisting any other persons to evade tax.
Tax audit process
Following the issuance of the general tax audit framework, tax audit frameworks for the financial and insurance industry and for WHTs were issued. These tax audit frameworks outline the rights and responsibilities of audit officers, taxpayers, and tax agents in respect of a tax audit. A tax audit may cover a period of one to three years of assessment determined in accordance with the audit focus. The years of assessment to be covered in a tax audit may, however, be extended depending on the issues identified during an audit.
Statute of limitations
Additional assessments can be made within five years after the expiration of the relevant year of assessment. This time limit is not applicable where fraud, wilful default, or negligence has been committed.
Topics of focus for tax authorities
Some issues that the tax authorities have focused on recently include:
- Deductibility of certain expenses (e.g. entertainment, provisions, management service fees, allocated expenses from foreign related counterparts).
- The correctness of tax incentive claims.