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Dividend, Interest,
Discount

DIVIDEND
Distribution of profit made by a company to its shareholders either in

cash or non-cash.
But not including declaration made by a company on bonus shares,
bonus debentures, right issues and reduction of capital.
Derivation of income (S14) the income is derived from Malaysia if the
company paying the dividend is a Malaysian resident company for the
YA.
Basis of taxation (S26) : basis year = calendar year (1.1 31.12)
It is accrued to the shareholder on the date of payment of cash or
equivalent is posted / delivered / credited (the day where the entry is
made).

The date paid / declared / approved / received is not relevant.

cont
Imputation system

Deduction of tax (S108) the payer company is required to deduct tax at

corporate tax rate before paying, crediting or distributing dividend to its
shareholders.
Thus, the shareholder received net dividend.
However, the tax deducted by the payer company is not final tax.
Therefore, upon completing the return forms, the shareholder must
declare gross dividend based on the existing corporate tax rate.
The tax deducted by the payer company is allowed as a tax credit against
the tax payable (S110 set off)
If the deduction was not made, the dividend received by the shareholder
is deemed as net dividend and must be gross up in the return form
[S108(2)].

cont
SINGLE TIER TAX SYSTEM [refer Berita Hasil 2/08 (Apr 08)]

W.e.f YA 2008
Transitional period 6 years i.e. 1.1.2008 31.12.2013
Dividends are exempt in the hands of shareholders
Why change to single tier tax system?

Allowable expenses

S33
e.g. commission / brokerage fee, stamp duty on transfer of shares and
interest on the amount borrowed to purchase the share

cont
Exempt dividend:
Co-operative society
Approved unit trust or property trust e.g. ASB, ASN etc.
Dividend paid out of tax exempt accounts venture capital
companies.
Dividend paid out of tax exempt accounts arising from special
incentive given under the Promotion of Investments Act 1986
e.g. pioneer status, investment tax allowance.
Dividend paid out of tax exempt accounts arising from incentive
under ITA 1967 e.g. reinvestment allowance, shipping
incentives, incentive for offshore insurance etc.
Dividend paid out of tax exempt accounts arising from foreign
income received in Malaysia by resident company or unit trust.
Dividend paid out of tax exempt accounts arising from YA 2000
(preceding year assessment) tax waive chargeable income.
Labuan Offshore Company.

INTEREST
Consideration paid for the use of money or property to the

lender or from the settlement of debt.

Compensation for delayed payment; payment by reference to
time for the use of money.
Derivation of income (S15) paid by Federal Government or
State Government, resident person, charged as expenses
against income derived in Malaysia or the payment of interest
on the debts is secured by property/asset situated in Malaysia.
Basis of taxation (S21) : basis year = calendar year (1.1 31.12)

cont
S27(1) taxable in the received period.
S29(1) - received means entitled to the interest income and is
able to obtain the receipt upon demand.
If receivable for overlapping period (2 or more period), the interest
income should be apportioned to the relevant period and it is
deemed accrued evenly through out the period.
S27(2) interest income for the past period should be spread

back to the past years on a time basis.

S27(3) interest received in advance for more than one basis
period should not be apportioned but treat as gross income in
the received period.

cont
Allowable expenses S33: e.g. interest expense on loan
S109 - Withholding tax on interest income
The amount of withholding tax deduction depends on the resident
status of the individual:
Resident : 5%
Non-resident : 15%

Withholding tax is considered as final tax. It must be remitted to

the IRB within 1 month from the date of payment or the date of
crediting the interest to the recipient.
Therefore, the net interest income received by an individual need
not be included in the return form.
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cont
Exempt interest income
Schedule 6, ITA 1967

Securities or bonds issued by the Government

Bonds, other than convertible loan stock, approved by the Securities
Commision (i.e. issued by public listed companies on KLSE, a company
rated by the Rating Agency Malaysia Bhd or the Malaysian Rating
Corporation Bhd)
Bon Simpanan Malaysia issued by the Central Bank of Malaysia

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cont
Exemption Orders 7/2008
Interest income from money deposited with the following institution

A bank or a finance company licensed under the Banking and Financial

Institution Act 1989
A bank licensed under Islamic bank
A development financial institution prescribed under the Development
Financial Institutions Act
Lembaga Tabung Haji
Malaysian Building Society Berhad
Co-operative society registered under Co-operative Societies Act
Borneo Housing Finance Berhad
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Discount
Discounts received from discounting transaction.
It arises when a Bill of Exchange or promissory notes

are purchased below the face value.

Thus, any profit accrued on holding it until it is
disposed off or matured is termed as discount.
NOT including cash discount received from creditors
for early settlement or bulk discount allowed by
traders on the purchase of goods.
Derivation of income deemed derived from Malaysia
if the bill of exchange is transacted in Malaysia and
gives rise to profit.
Taxable when it is realised either on the maturity date
or the date of sale, whichever is the earlier.
Basis of taxation : calendar year
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Rental, Royalty, Premium

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RENTAL (PR 1/04)

S2 sum received for the use or occupation of premises or the

hiring of assets.
Arises from investment activity S4(d); if arises from business
activity S4(a); (para 3, PR 1/04).
Derivation of rental income derived from Malaysia if the
property (movable or immovable) is situated in Malaysia.
Basis of taxation: calendar year.
S27(1) assess in the period when receivable
S27(3) advance rental: assess in the year of receipt regardless

of whether subjected to refund.

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cont
Treatment of rental income (para 7.2, PR 1/04)
Properties can be grouped into 3 categories:

Residential properties
Shop-house/commercial properties
Vacant land

If the property is furnished, cost of replacing items can be

allowed as deduction (para 9, PR 1/04).

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cont
Allowable expenses (S33) such as:
Quit rent and assessment
Insurance premium on the rented property
Replacement cost on assets used in the rented property (para 9, PR 1/04)
Interest on the amount borrowed to purchase the rented property
Administrative and management cost i.e. renewal of rental agreement etc.

but NOT for obtaining the first tenant.

Commission and agency fee related to the collection of rental income
Repairs and maintenance but NOT renovation, alteration and modification
costs.
Advertisement cost but NOT for the first tenant.
* If allowable expenses > rental income, it is a permanent loss.

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ROYALTY
S2 any sum paid as consideration for

publications or for the use of or the right to

use the following:
Copyright, artistic or scientific works, patents,

designs or models, plans, secret processes or

formula, trademarks or tapes for radio or
television broadcasting or other like property or
rights;
Know-how or information concerning technical,
industrial, commercial or scientific knowledge,
experience or skill.
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cont
Derivation of royalty income (S15)
Paid by Federal Government or State Government, resident
person, charged as expenses in the accounts of a business carried
on in Malaysia.
Basis of taxation : calendar year
If paid to a non-resident person, withholding

tax of 10% must be deducted (S109).

A resident individual receiving royalty income
is entitled to exemptions.
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cont
Exempt royalty (Schedule 6)
RM10,000 on royalty from:

Publication or use or right to use artistic work (other than original work)
Recording disc or tapes

RM12,000 on royalty from translation of books/literary work requested by the Ministry

of Education / Higher Education or Attorney Generals Chambers

RM20,000 on royalty from publication or use or right to use any original literary work
or original painting or musical composition
Royalty received by a resident individual in respect of performance in cultural
performances approved by the Minister
Fee or honorarium payment in respect of services provided for Malaysian
Qualification Agency (MQA)
50% of the statutory income in relation to a scientific research carried out by an
individual which has been commercialised and verified by the Minister of Science,
Technology and Environment for a period of 5 years.

* The exemption shall not apply if the payment received as part of the emolument in the
exercise of official duties
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PREMIUM
A one off payment in connection with the granting of a lease on

immovable properties. It is paid to acquire rights under a

tenancy.
The landlord will be assessed under S4(d) for the payment
received in addition to rental payment.
Derivation of premium deemed to be derived from Malaysia if
the immovable property is in Malaysia.
Basis of taxation calendar year.
Assessed on receipt basis (S28).
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Pension, Annuity,
Periodical Payments

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PENSION
A voluntary or contractual payment paid

periodically to an individual who has

permanently ceased employment.
It is paid by the employer to the employee or
spouse or children.
Derivation of pension income [S17(1)]
deemed derived from Malaysia if received
from federal or state government or the
fund/scheme is situated in Malaysia.
Basis of taxation : calendar year
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Cont
Exempt pension
Wound or disability pension paid to a person in respect of services in the

arm forces of Malaysia (before or after Merdeka) or a Commonwealth

country and pensions granted to wives or dependent relatives of
members of any of the forces (Para 7, Sch 6);
Disability pensions granted in respect of war injuries to members of civil
defence organisations in any territory comprised in Malaysia on 1.1.1968
(Para 8, Sch 6);
Pension received by widows or orphans under specific written law (Para
16, Sch 6);
Pension received in relation to retirement (reaching the age of retirement)
or due to ill health and must be in respect of exercising a former
employment in Malaysia and satisfied by the DG (Para 30, Sch 6);
Pension received by a member of Parliament or State Legislative
Assembly upon the retirement age or due to ill health (Para 30A, Sch 6).
This exemption applies to the higher or highest pension only where the
person is eligible for exemption under Para 30 and Para 30A, Sch 6.
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Annuity & Periodical

Payments
Annuity
An amount received on a regular basis
(annually or installment) either in perpetuity or
for some lesser period.
Basis period : calendar year
Exempt annuity: sum received from Malaysian
life insurer i.e. life insurers and takaful
operators whose ownership or membership are
held in majority by Malaysian citizens.
Periodical payments
Such as alimony payment from ex-husband.
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-catch all section

- include ad-hoc or casual/part time income

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