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):
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
