Following the announcement in the “PRIHATIN Tambahan” on 6 April 2020 and the Ministry of Finance’s (MOF) Frequently Asked Questions in relation to the special deduction on rental discount given to tenants which are Small and Medium Enterprises (SMEs) for the months of April 2020 to June 2020, the IRB has issued an updated FAQs on 25 April 2020 on this special deduction.
The additional key points added by the IRB to the FAQ are highlighted as follows :
|Qualifying person||√ Any taxpayers (companies and non-companies):
who rent the business premises to any SMEs
√ The landlord must be a taxpayer who is receiving rental income under Section 4(a) and Section 4(d) of the Income Tax Act 1967
√ The tenant can be a related company to the qualifying person provided the related company qualifies as an SME
|Definition of SME||
√ Please refer to Note 1
|Cut off date to determine the criteria of SME|| √ Annual sales:
Based on the annual sales turnover at the end of the basis period of preceding year of assessment (YA).
√ Number of full-time employees:
Based on the number of full-time employees at the end of basis period of a Y/A, before or on 1 April 2020.
|Definition of business premises|| √ Business premises for this purpose means all premises used for carrying out a business.
√ Example: Office, workshop, warehouse/store, childcare center and rented lot/bazaar/booth/stall
√ Exclude rental of a residential house used for both residential and business purposes.
√ The special deduction is NOT applicable to rental of other than business premises, i.e. machines, parking space, telecommunications tower etc.
|√ Amount of special deduction is equivalent to the amount of reduction in rental to be determined on a month-by-month basis
√ The rental reduction can be given at different rate for each eligible month. If in any of these eligible months, the rental reduction is less than 30%, then the landlord is not eligible to claim the special deduction for that particular month /months.
√ For landlord that have received the rental payment for April, May and June 2020 in advance, the landlord can still offer rental reduction subject to the fulfilment of the conditions.
√ 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
√ The premises must be used by the tenant for their business purposes
|Supporting documents to be kept||√ Valid tenancy agreement
√ Statement of rental income
√ Details of the tenant as SME such as business registration number, tax file number and etc. (*)
√ Details of the rental reduction (*)
(*) The information will have to be provided in the working sheet (HK) of the company’s income tax return form.
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 (as confirmed in the IRB’s updated FAQ)
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;
- 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
|With special deduction
|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