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Special deduction on rental discount given to tenants which are SMEs

By April 17, 2020 July 7th, 2020 No Comments

Following the announcement in the “PRIHATIN Tambahan” on 6 April 2020 in relation to the special  deduction to owners of buildings or business premises equivalent to the amount of reduction in rental that is given to tenants which are Small and Medium Enterprises (SMEs) for the months of April 2020 to June 2020, we wish to inform that the Ministry of Finance has published Frequently Asked Questions (FAQ) on this tax measure. The FAQ are subject to tax rules to be gazette.

Append below some salient points for your reference:

Qualifying person

√ Any taxpayers (companies and non-companies):

  • Companies
  • Individuals
  • Co-operatives
  • Other business and non-business entities

who rent the business premises to any SMEs

 Definition of SME

√ Please refer to Note 1

Cut off date to determine the criteria of SME

Annual sales:

Based on total sales of the basis period of the prior year of assessment (YA).

Number of full-time employees:

Based on the number at the end of basis period of the prior YA or at 1 April 2020.

Special deduction

√ Amount of special deduction is equivalent to the amount of reduction in rental to be determined on a month-by-month basis

√ Please refer to the illustration of tax benefit for a company in Note 2

√ Subject to rules to be gazette

Conditions on deduction claims

√ Qualifying months: Rental for the month of April 2020 to June 2020

√ Minimum rental reduction of 30% of original monthly rental charged to the SME tenant

Supporting documents to be kept

 

√ Official tenancy agreement

√ Statement of rental income

√ Confirmation of SME status of tenant

√ Confirmation of reduced rental (to be prescribed under rules to be gazette)

Note 1:

Definition of SME

For the purpose of this measure, the definition of SME by SME Corporation Malaysia (SMECorp) is adopted. It is stated in the FAQ that a business is defined to be an SME if it meets the specified conditions of one of either two criteria comprising:

  • Annual sales value, OR
  • Number of full-time employees

Business category Sector Annual sales amount

(Refer Note 1)

Number of full-time employees

(Refer to Note 2)

Micro All sectors Less than RM300,000  

Less than 5

 

Small Manufacturing RM300,000 to less than RM15 million

 

5 to less than 75
Services and other sectors RM300,000 to less than RM3 million

 

5 to less than 30
Medium Manufacturing RM15 million to not exceeding RM50 million

 

75 to not exceeding 200
Services and other sectors RM3 million to not exceeding RM20 million

 

30 to not exceeding 75

Note 1 : Annual sales based on total sales of the basis period of the prior year of assessment (YA).

Note 2: Number of full-time employees at the end of basis period of the prior YA or at 1 April 2020.

 

Exclusions in the definition of SMEs

The followings are the exclusions under the SMECorp’s definition (even though they fulfill the definition of SME).

  • Public-listed companies in the main board.
  • Subsidiaries of the following entities are also excluded:
    • Public-listed companies in the main board.
    • Large firms, multinational corporations (MNCs), Government-linked companies (GLCs), Syarikat Menteri Kewangan Diperbadankan (MKDs) and State-owned enterprises

 

Note 2:

Tax benefit of the special deduction

The amount of tax benefit received from the special deduction will depend on the taxpayer’s respective tax rate.

The following example illustrates the tax benefit for a company.

Monthly rental: RM5,000

Reduction in rent for each month of April to June 2020:  RM2,500

Description No special deduction

(RM)

With special deduction

(RM)

A Annual rent 60,000 60,000
B Reduced rental (RM2,500 x 3 months) (7,500) (7,500)
C Gross annual rental income [A – B] 52,500 52,500
D Special deduction [B] (*) (7,500)
E Chargeable income [C – D] 52,500 45,000
Tax payable @ 24% [E @ 24%] # 12,600 10,800

(*) Note: On assumption that there are no other allowable deductions.

(#) Note: Based on current corporate income tax rate