Category: Tax

Understanding ESOS and tax implications in Malaysia

Understanding ESOS and tax implications in Malaysia

Understanding ESOS and tax implications in Malaysia

boardroomsuperadmin

Employee share option schemes (ESOS) have become increasingly popular among companies in Malaysia as a way to retain top talent and boost productivity. They offer employees the option to purchase company shares at a discounted price, which can result in a significant financial gain if the company performs well.

In this article, we will discuss the fundamentals of ESOS and why they are a valuable tool for employers. We will also examine the tax implications of ESOS in Malaysia; the regulatory bodies and laws governing ESOS taxation; and best practices for companies and C-suite leaders to achieve compliance and minimise tax liabilities.

What are ESOS?

ESOS are a form of employee compensation that allows employees to purchase company shares at a discounted price. These schemes are designed to incentivise employees to work productively and contribute meaningfully to the company’s success, as their financial gain is tied to the company share price movement. The higher the increase in share price, the larger the financial gain to the employees.

ESOS typically have a vesting period, meaning that employees must wait a certain amount of time before they can purchase shares. This period is intended to encourage employees to remain with the company longer and to align their interests with those of the company.

ESOS versus Employee Stock Ownership Plan (ESOP)

An ESOS (Employee Stock Option Scheme) and an ESOP (Employee Stock Ownership Plan) are both employee benefit programs that involve providing employees with a stake or ownership in the company.

However, there are some differences between the two:

  • Nature of ownership
  • Purpose
  • Structure and funding
  • Control and governance

Plan types such as restricted share plans and performance share plans all have different objectives but can all be categorised under long-term incentive plans.

Employee Benefits

Tax implications of ESOS in Malaysia

One of the most critical factors companies must consider when implementing ESOS is the tax implications for the business and their employees.

Failure to comply with tax regulations can result in significant financial penalties and reputational damage. Therefore, it is crucial that companies fully understand the tax requirements of ESOS in Malaysia and take steps to ensure compliance.

ESOS tax implications for employers and employees

ESOS can have different tax implications for both employers and employees.

For Malaysian employers, ESOS are usually considered a non-deductible expense for a company. Employers are required to report the value of the options granted to employees as an expense on their financial statements under Malaysian Financial Reporting Standard (MFRS) 2. The employer would also be required to deduct income tax from the amount of gain realised by the employee on the exercise of the option.

Employees who exercise their options to purchase shares are subject to income tax on the difference between the market value of the shares at the time of exercise and the option exercise price paid. The individual income tax rate in Malaysia varies depending on the chargeable income of the individual, with rates ranging from 0–30%.

Calculating ESOS tax liabilities

Companies must accurately calculate the tax liability associated with share options for both the employer and employee to ensure compliance.

Under MFRS 102, companies are required to recognise the fair value of the share-based payment as an expense in their financial statements. The fair value of the share-based payment is determined at the grant date, taking into account the exercise price, the term of the option, the current price of the underlying share and the expected volatility of the share price.

Once the fair value of the share-based payment has been calculated, it is recognised as an expense over the vesting period.

Tax Liabilities

How to ensure ESOS compliance

In Malaysia, the regulation of ESOS is overseen by several government bodies, including the Securities Commission Malaysia and the Inland Revenue Board of Malaysia (IRBM).

Under Malaysian law, ESOS tax treatment varies depending on whether the option is granted to a local or foreign employee. Local employees are subject to Malaysian tax on the gain from exercising the option. In contrast, foreign employees are taxed only on the portion of the gain attributable to work done in Malaysia.

Penalties for non-compliance with ESOS taxation regulations can be severe. Companies that fail to comply with ESOS regulations may face fines, penalties and legal action from the authorities.

Best practices for C-suite leaders

C-suite executives can support ESOS compliance while minimising tax liabilities by implementing the following best practices in their organisation:

  • Engage with tax experts who can provide guidance on the tax implications of ESOS and assist in accurately calculating tax liabilities for your business and your employees.
  • Ensure compliance with all regulations and laws governing ESOS taxation in Malaysia.
  • Develop a comprehensive understanding of the accounting for share options under MFRS 102. This accounting involves measuring the fair value of the options, recognising an expense in the income statement and recognising a liability in the balance sheet.
  • Keep accurate records of all ESOS transactions and ensure that all employees are adequately informed and educated about the tax implications of their share options.
Best Practices

Common pitfalls to avoid

Despite the importance of compliance and accurate tax calculation, there are some common pitfalls that companies and C-suite leaders can encounter when it comes to ESOS taxation, including:

  • failure to accurately calculate the tax liability associated with share options, which can result in underpayment or overpayment of taxes;
  • incorrectly accounting for share options under FRS 102, which can lead to misstated financial statements and regulatory compliance issues; and
  • failure to meet ESOS reporting obligations.

Woon Chee says it is not enough to ensure your company pays its ESOS taxes on time; it is also important to be aware of and fulfil the reporting requirements that follow. For example, she notes that “upon launching the ESOS, the employer has to notify the IRBM within 30 days after the expiry date of the period of acceptance of the offer.”

How to avoid pitfalls

To avoid these mistakes, it is crucial for companies to engage with an expert ESOS provider who:

Offers a comprehensive platform for ESOS management that gives your employees and HR professionals full visibility of the details and status of each scheme
Possesses a deep knowledge of local tax laws within the jurisdictions your organisation operates, a wealth of ESOS management and relevant professional qualifications
Specialises in an integrated suite of corporate services alongside ESOS management, including taxation, accounting and payroll (so that all the expertise you need is easily, quickly accessible via one point of contact)

Woon Chee urges businesses not to underestimate the power of an innovative ESOS management platform.

“A good ESOS platform shows you all the details of every ESOS, so it’s easy for you to keep track of them and will largely reduce your tax liability,” she says.

It also takes the guesswork out of tax calculations so you can have confidence in your regulatory compliance.

Unlock the power of ESOS

ESOS is a powerful tool for retaining talent and boosting productivity, but C-suite leaders need to have a comprehensive understanding of the tax implications and regulatory requirements for ESOS in Malaysia.

By engaging with tax experts, staying up to date with regulatory requirements and following best practices for compliance and accurate tax calculation, companies can minimise tax liabilities and ensure that their ESOS programs successfully achieve their intended goals.

At BoardRoom, we offer expert accounting and tax advisory services across the Asia-Pacific region. By engaging our tax professionals, you receive access to specialist guidance and support to ensure compliance with all regulatory requirements and minimise tax liabilities related to ESOS.

Additionally, we can connect you with trusted consultants to support you with plan design, prior to implementing, so that your schemes are tailored to your needs.

Please contact us to find out how our world-class ESOS services can benefit your business.

Related Business Insights

Malaysia Budget 2023

Malaysia 2023 Budget Key Tax Highlights Membangun Malaysia MADANI (Re-tabled on 24 February 2023)

Malaysia Budget 2023

boardroomsuperadmin

Malaysia’s 2023 Budget, which was re-tabled on 24 February under the new Unity Government, totaled RM388 billion. Almost 75% of its budget has been allocated to Operating Expenditure, signaling the Government’s commitment to drive its reform agenda and revitalise Malaysia’s economy.

Several tax incentives were announced as part of the Government’s strategy to drive an inclusive and sustainable economy. To find out how the tax measures announced will implicate your tax planning, download our Malaysia 2023 Budget Report today.

If you have any questions relating to the information contained in this report or require tax advisory services, please email our tax advisors at [email protected].

DOWNLOAD THE FULL MALAYSIA BUDGET 2023 REPORT
Malaysia Budget 2023 Main Highlights Preview Updated

Should you have any questions regarding the information provided in the report, please do not hesitate to reach out to your respective BoardRoom client managers or email us at [email protected].

Best regards,

BoardRoom Team

DOWNLOAD THE FULL MALAYSIA BUDGET 2023 REPORT

Related Business Insights

What is SST? Your guide to sales and service tax in Malaysia

SST Banner

What is SST? Your guide to sales and service tax in Malaysia

boardroomsuperadmin

If you are planning to expand your business into Malaysia, you are likely asking the question, What is SST?

SST refers to the Malaysian sales and service tax, where a sales tax is imposed at the manufacturer level, and a service tax is paid by consumers who are using taxable services.

Tax regulations are relatively fluid in Malaysia compared to neighbouring regions, which can make compliance challenging to maintain. This is why many growing businesses partner with a corporate services team who can help them navigate multi-country taxes as they evolve.

Read on as BoardRoom’s Tax Director for Malaysia, Cheong Woon Chee, provides an overview of how SST works, and what you can do as a taxable person to ensure compliance.

Did SST replace GST?

In 2018, the Malaysian Government reintroduced sales and service tax to replace the goods and services tax (GST), which reformed the local tax system.

“Many people actually believed that GST had increased the living cost since it was implemented,” Woon Chee says. “Therefore, the main objective of this abolishment was to put more purchasing power in the hands of the Malaysian people – especially the lower- to middle-income earners – which would result in a much higher disposable income.”

How SST works in Malaysia: definition and rates

SST is an indirect tax made up of the following components.

Sales tax

The sales tax component of SST is imposed on products manufactured and produced locally and on taxable goods imported into Malaysia. It is charged to consumers based on the purchase price of certain goods and services.

The sales tax is only imposed at one stage of the supply chain (at the time of the goods’ sale or disposal).

The sales tax rate in Malaysia ranges from 5%, 10% or another specified rate, depending on the type of goods.

Your business is required to pay SST if your total sales value of taxable goods has exceeded RM 500,000 in the past 12 months.

Service tax

The service tax is a consumption tax imposed on taxable services provided in Malaysia by a registered business.

The rate for service tax is 6% in Malaysia.

Your business is required to pay SST if your total value of taxable services within 12 months exceeds the prescribed threshold, which is usually RM 500,000. Some services have a different threshold (for example, the threshold for operators of restaurants and cafes is RM 1.5 million).

TaxServices

How to register for SST

If your business’s annual income has exceeded the respective thresholds for sales or service tax, you need to register for SST on the MySST website. A tax professional can assist you with this process.

Is there anything or anyone exempt from SST in Malaysia?

In Malaysia, services that are imported or exported are exempt from service tax, as are goods manufactured for export.

Other exempted goods include:

Bicycles, including certain parts, and accessories
Books, newspapers, magazines, and journals
Live animals, meat, seafood, and eggs
Insecticides and disinfectant
Cereals
Coffee and tea
Fertilisers
Pharmaceutical products
Spices
Wood pulp

Manufacturers of non-taxable goods are exempt from SST, as are certain government bodies and educational institutions.

You can view complete lists of exempted goods, services and persons on the MySST website.

Exemption rules can be complicated, and the ramifications for tax evasion are severe. This is why it is a good idea to consult a tax professional who can help determine whether SST applies to your business.

Is SST different from company tax?

Another common question among businesses branching into Malaysia is, What is the company tax rate?

When it comes to understanding how to pay tax in Malaysia, business leaders should first learn the difference between SST and company tax.

While SST is imposed by the Royal Malaysian Customs Department, corporate tax is imposed by the Inland Revenue Board.

“Corporate tax is governed under the Income Tax Act 1967, which applies to all companies registered in Malaysia for chargeable income derived from Malaysia, including profits, dividends, interest, rentals, royalties, premiums, and other income,” Woon Chee explains.

Currently, the general rate for corporate income tax in Malaysia is 24%.

SST different

What is required of businesses to comply with SST?

All companies doing business in Malaysia – no matter their size – should do the following to ensure compliance with SST:

Find out if you are liable for SST by checking the prescribed thresholds for goods and/or services
Determine if your business is eligible for exemption from SST (and apply for an exemption if eligible)

If your business is liable for SST, ensure that you:

Register for SST on the MySST website (check first whether you are already registered)
Charge service tax on your taxable service (if applicable)
Issue invoices in the national language or in English
File returns every two months
Make payments on time
Keep accurate records

Ensuring SST compliance can be an arduous process, which is why many businesses in Malaysia choose to engage a skilled corporate services provider for ongoing support.

What you may not know about Malaysian taxation

As a business leader, it is important that you stay aware of local taxation developments and discourse. With this knowledge, you will be able to make smarter decisions when it comes to company strategy and forward planning.

Some of the latest tax facts you should know include:

  • In its first year of implementation, Malaysia’s digital services tax brought in more than RM 400 million for the government. With the uptake of digital tools and streaming services on the rise, this indirect tax is likely to provide a significant revenue stream for the government in the years to come.
  • A tax exemption for SST on cars ended on 30 June 2022 after an extension was provided as part of the Malaysia Budget 2022. The exemption was introduced in 2020 to help automotive companies survive the impacts of the COVID-19 pandemic and also stimulate local economic growth.
  • Malaysia’s tax regulations are in a near-constant state of flux. Malaysia’s 2023 budget is set to be retabled, meaning businesses must be ready to adapt to potential new tax requirements in the near future.
  • Many companies find outsourced accounting and tax services benefit their business by ensuring they meet regulatory requirements, particularly as they grow and evolve.

Maintain SST compliance in Malaysia with the help of a tax professional

Navigating Malaysia’s tax landscape can be a complex and time-consuming exercise, especially for new businesses. In contrast to neighbouring countries, tax regulations and rates in Malaysia change so often that the tax research you performed at the start of your expansion journey may no longer be relevant just six months later, such as with the reintroduction of SST.

To ensure smooth and successful business growth, and to answer any of your questions about sales and service tax or otherwise, contact a local tax professional who can help ensure your Malaysian venture is fully compliant from the start.

Contact us to find out more.

Related Business Insights

Never underestimate the importance of employee engagement in a hybrid world

Stock photo of laptop on a wooden table. The screen is split into four with employees engaging in work discussions remotely

Never underestimate the importance of employee engagement in a hybrid world

boardroomsuperadmin

Microsoft’s 2022 Work Trend Index shows 41% of the global workforce is likely to consider leaving their current employer within the next year. Dubbed globally as “The Great Resignation”, workers are looking for better conditions, more engaged teams and a greater sense of purpose.

At the same time, the cost of hiring is rising. The latest research has found the average cost of recruiting has doubled in some parts of the world. And it takes at least a week longer to recruit someone than it did 12 months ago.

In many cases, it has become harder – and more expensive – to find and hire new people than it is to retain your current employees.

With these figures in mind, the importance of employee engagement simply can’t be underestimated.

The hybrid engagement juggle

Remote and hybrid work has become the preferred way of working in Malaysia, with 77% of workers indicating they want flexible remote work options to stay. In response, 62% of business leaders are considering restructuring their office to suit a hybrid team.

Employers are under pressure to provide an exceptional experience for their people, wherever they may be: in the office, at home or working from the local cafe. Achieving this is becoming increasingly hard when people are not physically together or even working the same 9 to 5 schedule.

Photo taken from above a sitting woman who has a laptop in her lap. She is talking to a split screen of four other employees about encouraging employee participation.

3 ways to encourage employee participation in the hybrid world of work

When we’re not physically together, many leaders are left wondering how to encourage employee participation.

Here are three key ways to keep employees connected and engaged, wherever they may be.

1. Bridge the physical and digital worlds with technology

Having reliable technology in place to enable collaboration and efficient work processes is fundamental to creating an efficient and frictionless employee experience. The last thing you want is for your people to be dealing with frustrating technology issues when they could be making progress on real work.

Automating repetitive tasks and introducing self-service portals empower people to take control of simple tasks, like booking their own leave, accessing payslips and updating contact details. By optimising the user experience with easy-to-use applications, simplified central logins and cloud-based systems, your employees will be able to immediately access and update their data from anywhere, at any time.

Consider streamlining your core functions like payroll, finance and HR to free up your people to focus on collaboration and engagement-boosting activities.

And, of course, having platforms in place to enable collaboration is crucial. Make sure you are set up for what Google refers to as “collaboration equity“. That is, ensuring everyone can contribute and communicate equally, regardless of location, role, experience level, language or device preference.

2. Prioritise wellness

Photo taken from behind a man sitting at table with his laptop. The screen is black with white bold writing that states perks and bonuses

While hybrid working undoubtedly has its benefits, it also comes with some downsides.

We’re seeing a blurring of boundaries between work and life, a weakening of social bonds with colleagues and a greater push for productivity from employers. And this is causing high levels of burnout, which has an impact on not only employees but businesses as well.

Analyst firm Gallup estimates employee burnout costs USD $322 billion in turnover and lost productivity globally.

The good news is that companies that prioritise employee wellbeing are being rewarded with more productive and engaged employees.

Companies that adopted key wellness initiatives such as stress management initiatives, adapted workplace design and financial education saw employee loyalty improve by 79%.

3. Reward your team

Being paid on time is vital. And people’s experience with pay directly impacts how they feel about working with an organisation.

If people have continual issues with your current systems — for example, difficulty accessing payslips or being unable to update important details — you might want to look into how to fix this problem. Having a system in place to make sure your people get paid accurately and on time will ensure they are motivated and engaged. And that’s whether you choose to implement a payroll solution or outsource your payroll to professionals.

Optimising your software applications to benefit your employees and simplify their day-to-day operations, will ultimately give them more control and empowerment in their role.

Mechanics aside, how much you pay people also matters.

The cost of living is rising steadily, and employers need to keep pace with rising costs of food, petrol and living expenses to make sure their people are taken care of.

If you have limited funds to pay bonuses or increase salaries, an alternative is offering employees a stake in the company in the form of shares or stock options.

Offering equity in the company means employees start seeing the business in a different light. Rather than simply clocking in and out and completing tasks, they begin to think of how to move the business forward in a meaningful way and increase revenue.

Equity can come in many forms, but leading companies in Malaysia are adopting employee stock option plans (ESOP).

What is an employee stock option plan?

An employee stock option plan (ESOP) gives employees the opportunity to purchase company shares at a future date for an agreed price. An ESOP differs from an employee share award plan in that it gives employees the option to buy shares instead of simply enabling them to purchase those shares outright.

Because ESOPs give employees financial benefits when the company performs well, they are more likely to be invested in the long-term success of the company.

There are many benefits of offering an ESOP for both employees and business leaders.

ESOPs help employees:

  • feel valued and rewarded because they are being compensated for their efforts
  • improve their financial position through dividend payments and profit from selling shares
  • gain a sense of part ownership in the company they work for, which means they are more likely to be satisfied and less likely to join their peers in “The Great Resignation”.

And for companies, ESOPs enable them to:

  • reward high-performing employees without impacting cash flow
  • attract higher-quality talent
  • enhance retention and loyalty
  • enjoy sustained growth and increased company performance.
Illustrated image of small blue figurines positioned in a circle on a white background. In the middle of the circle in the word share. A digital finger is also pointing to the word.

How ESOPs work

Setting up an ESOP can be a complex procedure. In Malaysia, there are specific rules and regulations as well as tax implications, so it’s important to get help from experienced professionals who understand the local landscape.

There are several administrative processes required to effectively implement and maintain an ESOP, including:

  • offer management
  • vesting management
  • participant information record-keeping
  • participant liaison regarding plan mechanisms
  • leave management
  • regulatory reporting.

Other important considerations to think about are:

  • How long it takes for an individual’s share to be supplied to them over the course of their employment.
  • How long an employee needs to stay before the ESOP ‘kicks in’. Also known as the “cliff” or “lock-in” time, it’s important to consider how much equity to give early employees in case they leave with your shares in hand without adding significant value to your organisation.

Of course, an ESOP is not the only option for offering employees equity in your company.

Other options include:

  • performance share plan (PSP)
  • restricted share plan (RSP)
  • share appreciation rights plan (SARP)
  • phantom share plan.

To figure out which is right for your company, you’ll need the help of trusted professionals to examine different setups and scenarios before going ahead.

Cut the complexity with a global strategy

Incentivising your employees with ESOPs is an effective way to boost engagement and productivity. But it is not without its complexities, especially if your presence stretches across the Asia-Pacific or globally.

And with the trend of remote and hybrid working looking set to continue, who knows how far and wide your people could reach?

Each country will have different regulations and options for offering ESOPs, so it’s important to partner with someone who understands the intricacies of local regulations to ensure you are compliant.

Just as there are many benefits of consolidating multinational taxes with one agency, there are benefits to consolidating your employee stock options across multiple jurisdictions.

These include:

  • Mitigating risk: having a team of professionals that understands not only Malaysia’s laws but those across the entire Asia-Pacific region can help your business mitigate risk when it comes to offering equity.
  • Improving employee experience: streamline your correspondence with a share management platform that provides timely and clear communication, in multiple currencies and languages, across the region. This ensures everyone on the team, globally, has the same level of access, understanding and experience of the information at hand.
  • Reducing administrative burden: implement efficient, automated processes and a single point of contact to ensure you receive clear and consistent communication across your locations.

At BoardRoom, we use leading technologies and a panel of experts to guide you through implementing and administering your ESOP. Our team of experienced professionals have in-depth knowledge of the local Malaysia regulations, as well as regional and international experience.

Wherever your employees work, we’ll be able to support in the implementation and on-going administration of your employee stock option plan to ensure they remain engaged and loyal for the long term.

Speak to our team of experts today to get started on implementing an ESOP in your company.

Related Business Insights

The advantages of consolidating multi-country taxes with one provider

The advantages of consolidating multi-country taxes with one provider

The advantages of consolidating multi-country taxes with one provider

boardroomsuperadmin

Handling tax and accounting in-house is not easy for any business. Errors in these processes can have severe consequences, so they need to be executed with exceptional accuracy and skill. Multinational companies in the Asia-Pacific region face the additional challenge of navigating the complex rules and regulations of each jurisdiction they operate in.

Deloitte’s 2021 Asia Pacific Tax Complexity Survey revealed 80% of respondents felt the region’s tax regimes have become more complicated since 2018.

If given the choice, many tax and accounting executives would engage an international company taxation and tax planning advisor in Malaysia, Singapore, Hong Kong or China to handle all their accounts locally. But this gold standard isn’t the reality for most businesses, especially when they are new to expansion.

Often, businesses will engage an additional tax firm to handle local regulatory requirements each time they expand to a new region. It is an understandable approach – specialist firms are able to offer in-depth knowledge of local tax laws. The issue is that collaborating with multiple firms can present its own challenges.

Many tax executives in multi-country companies end up struggling with:

  • Tax treaties and implications: difficulty understanding statutory and regulatory compliance resulting in penalty and delay.
  • Communication issues: language and cultural variations can make fostering collaboration between separate tax service providers challenging.
  • Staff retention: the great resignation is happening, so there are more new hires to onboard and train.
  • Technology issues: technological systems and communication modes vary from country to country, which can cause issues during cross-border dealings.

Do these challenges sound familiar? If so, the solution may lie in consolidating your taxes with an international business tax advisory service in Malaysia, Singapore, Hong Kong or China. Wherever your business is centralised, a third-party advisor will be able to help administer your tax functions across the Asia-Pacific region via a single point of contact.

This article explores the advantages of consolidating your taxes with one firm and provides tips on selecting a suitable provider for your company.

The value of local knowledge

Governments across the Asia-Pacific region frequently set new laws and regulations, which means businesses must keep up with local tax environments as they evolve. This is particularly important when it comes to cross-border tax implications and treaties.

Outsourcing your taxes to a highly trained team will make it easier to navigate local requirements and manage your cross-border dealings successfully.

Malaysia’s tax system is particularly complex. Consider the Sales and Service Tax (SST), for example, which has replaced Malaysia’s GST. The SST has a fixed rate of 6% for service tax, and a variable rate between 5-10% for sales tax. Understanding your company’s requirements and having an expert advisor at hand can make all the difference when maintaining tax compliance.

When reporting season arrives, you can expect to leverage any and all tax benefits and incentives available to you when you have outsourced your accounting and compliance services to the same team that is handling your taxes. It can be easy to overlook tax breaks and exemptions if you do not have local expertise.

If your organisation operates in Malaysia only, you may be able to manage your taxes internally. But, for peace of mind that your multi-country business is operating with efficiency and integrity, you need to select a knowledgeable tax partner in Malaysia that has strong relationships in neighbouring countries.

Simplify communication

Before engaging a tax advisor, ask them whether you will be assigned a dedicated contact person or need to interact with people in different countries. The second scenario should be avoided, as you would face all the same challenges that in-house tax management brings and gain little benefit.

An ideal arrangement would have you communicating with a connected network of tax professionals via one point of contact. In this situation, you benefit from a wealth of tax experience without the difficulties of coordinating internal personnel.

The benefits of partnering and consolidating with a premium service provider can also offer great financial rewards.

Communication

Tax incentives and benefits will be optimised across your company while mistakes, miscommunication and delays are reduced. Implementing a single point of contact also makes it easier to keep consistency across your business and align your company goals.

When managing tax in multiple jurisdictions, it is also important to be aware of subtle differences in culture. A wide variety of cultures, customs, religions and languages exists throughout the Asia-Pacific region. To do business successfully and ensure productivity, it is crucial to work with a local contact who is part of a global team rather than spending time and effort on competing international opinions.

For help with tailoring your business approach for individual countries, seek a specialist international tax advisor in Malaysia, Singapore, Hong Kong or China.

Tax compliance is crucial

Tax operations are drawing increased scrutiny from authorities as regulations become more stringent. No business wants to be targeted for a tax compliance audit. And as budgets and staff numbers reduce, finance and accounting personnel are forced to accomplish more with less.

A global workforce transition poses another challenge for companies. Employees are increasingly looking for new positions that offer better pay or work-life balance – meaning teams and resources are often overstretched.

That said, legal requirements cannot go unmet. Your business must make every effort to comply with Malaysia’s stringent tax laws by making accurate and timely tax payments. Businesses that fail to do so may face serious legal repercussions.

Non-compliance can be due to something minor, such as missing a detail in legislation or incorrectly calculating money owed.

If you are a multi-country firm with international business partners, ensuring compliance with evolving legislation can be particularly tricky.

Compliance

By engaging a specialist firm that understands the tax laws in Malaysia, Singapore, Hong Kong, China and across the Asia-Pacific region, your teams will have more time to concentrate on business growth and profitability. You will have the support you need to comply with tax legislation as it evolves and ensure accurate tax reporting.

And should compliance problems occur, your advisor will be able to attend to them promptly.

The most reliable business tax advisory services perform a thorough analysis of company structure before providing advice on long-term tax management. This empowers your staff to be able to identify and apply for tax benefits into the future.

Choosing the right tax partner

Cost and time savings are two of the main advantages of outsourcing your tax management. Your efficiency will go up, which in turn boosts profitability.

While cost considerations are important, avoid opting for the cheapest service when it comes to business tax advisory. Reputation is key to ensuring a reliable service.

Ask your potential tax partner these questions:

    How many clients do you service?
    How many years have you been in business?
    What is your business history?
    Do you have past accomplishments and results you can share?
    How many countries do you operate in?
    Can you service my company as it expands?
    What has your staff turnover rate been like?
    Do employees stay for a long time?

    A high-quality business tax advisory service provider will be able to answer these questions with confidence and pride. By partnering with them, you can rest assured your tax functions are managed in a professional, correct and timely manner.

    Top-tier firms like BoardRoom also guarantee:

    • Minimal errors: BoardRoom has been servicing Asia-Pacific businesses for over 50 years and is known for precision.
    • Attentive service: our low staff turnover rates mean we always have professionals on hand to meet your needs quickly and accurately.
    • Highly trained personnel: BoardRoom’s specialist team stays across local legislation as it evolves.

    Aim high, look beyond

    Organising today’s tax management is vital, but any executive knows that future planning is just as crucial for business success.

    If you are already a multi-country organisation with offices within the Asia-Pacific region, you may be thinking about further expansion. As you grow, you will have more legislative and cultural challenges to deal with.

    This is why global capabilities are a must when it comes to choosing a skilled tax advisory firm.

    For instance, BoardRoom partners with Andersen Global, a network of legal and tax experts based in 315 locations around the world. This means we possess outstanding knowledge of cross-border business taxation matters.

    Essentially, outsourcing your taxes to a global firm ensures you have all the specialist legal advice you need to expand into new countries and find success within them.

    Consider all outsourcing possibilities

    When selecting a tax partner, it is a good idea to ask whether they can provide additional corporate advisory and management services.

    Successful business growth requires the proficient handling of business functions related to tax compliance, such as company incorporation and corporate secretarial services.

    Engaging an advisory firm that provides a full suite of company services will support a simpler expansion process. You will save money and time, meaning you can direct more resources into your business’s primary objectives.

    Efficiency tends to become more crucial the larger your company becomes.

    Outsourcing

    When you find a reliable tax services partner, you might wonder what further business functions they can manage, such as:

    It makes sense to outsource multiple functions to a full-service provider because they will already have intimate knowledge of your business’s operations, structure and working methods. They will be able to support your company in a range of areas with minimal fuss.

    Streamline your processes through consolidation

    The advantages of consolidating multiple functions with one tax services provider are significant – especially when you take into account the cost and time involved in coordinating separate firms across the region. And if your partner is well-versed in the local tax breaks and incentives to which your business is entitled, you will enjoy substantial annual savings.

    But beyond cost savings, quality tax outsourcing will help streamline your operations on a company-wide scale.

    The complexity of tax management continues to grow. The solution may lie in engaging a reliable tax partner who can support your expansion throughout the Asia-Pacific region and ensure compliance with evolving rules and regulations.

    If you want to find out more about consolidating your business’s tax administration with one firm, chat with our tax specialists today.

    CONTACT US FOR A QUOTE

    Related Business Insights

    Malaysia Budget 2022 – Tax highlights including extensions on current incentives and new reliefs

    Malaysia Budget 2022

    Malaysia Budget 2022 – Tax highlights including extensions on current incentives and new reliefs

    boardroomsuperadmin

    On 29th October 2021, Malaysia’s 2022 Budget, themed “Keluarga Malaysia, Makmur Sejahtera”, was tabled by Finance Minister Tengku Datuk Seri Utama Zafrul bin Tengku Abdul with a wide range of tax incentives offered to both individuals and corporates. The expansionary budget is aimed to act as a catalyst to boost economic recovery and close the gap on the country’s fiscal deficit.

    If you have any questions relating to any of the information contained in this report or need tax consultancy services, please email our tax advisors via [email protected] or call us at +60 3 7890 4500.

    DOWNLOAD THE FULL MALAYSIA BUDGET 2022 REPORT

    Individual Tax Relief

    Individual Tax Relief

    New Corporate Tax Incentive

    New Corporate Tax Incentive

    New Sales & Service Tax Exemptions

    Sales and Service Tax Exemptions

    Related Business Insights

    Mitigating Costs in an Economic Downturn

    mitigating_costs_in_an_economic_downturn

    Mitigating Costs in an Economic Downturn

    boardroomsuperadmin

    The onset of the COVID-19 pandemic along with efforts to contain it has plunged much of the global economy into a recession. In April, the International Monetary Fund’s World Economic Outlook (WEO) projects global growth to shrink by 3 per cent. However, its October publication amended the projection to 4.9 per cent. The impact of the pandemic will continue into 2021, where the WEO projects global growth to be at 5.4 per cent, which is 6.5 per cent lower than the pre-COVID-19 projections of January 2020.

    Mitigating costs in an economic downturn-Growth projection

    Looking forward, we can expect the recession to leave lasting scars despite the extraordinary efforts of governments worldwide to alleviate the situation through fiscal and monetary policy support.

    During these unprecedented times, companies need to take affirmative action to mitigate risk amidst the economic downturn. Crafting recession strategies to retain or expand your customer base, learning to embark on affordable yet effective marketing or even taking this opportunity to review and better optimise business operations are all practical solutions businesses can explore. However, the immediate strategy for most companies would be to adopt cost-cutting measures.

    In this article, we will share some of the most popular and effective measures companies can take to mitigate costs during an economic downturn.

    Look to outsource

    Outsourcing is when a company engages a third-party service provider to handle or manage a business function externally instead of choosing to manage the particular service in-house.

    Of the numerous functions that exist in a company, payroll is perhaps the one that will offer the most significant benefit when outsourced during an economic downturn. By outsourcing payroll, your company can effectively improve its focus and expand its accessible talent pool, which are all essential to helping the company navigate through an economic recession. But most notably (and most beneficial during an economic downturn), outsourcing can reduce and control a company’s operating cost.

    While the actual cost-savings of outsourcing HR and payroll services may vary between businesses, the most common areas where they could come from are:

    • Reduced payroll employees or headcounts
    • Elimination or change of existing payroll management software (often to something like a cloud-based payroll system that offers automation solution)
    • HR and payroll system updates
    • Employee training
    • Hefty penalties that are incurred when payroll mistakes happen

    Outside of payroll, some of the most popular services that companies often outsource to mitigate and manage costs are accounting, administrative services (corporate secretary) and human resources.

    Look to your accountants

    During an economic downturn, it becomes imperative that you have experienced accountants to help you financially navigate through this challenging landscape. Beyond their capacity for keeping financial records, accountants can interpret them and provide you with a clear and succinct evaluation of the company’s current performance and financial position that could positively influence the outcome of any business decision during a recession.

    Given their unique position and objectivity, a critical and core function of accountants on mitigating costs during an economic downturn is to uncover opportunities to eliminate unnecessary expenses and save costs. In areas where it is not possible to cut costs completely, your accountant can strategically advise on how payments can be deferred to maintain a healthy cash flow during difficult periods.

    In addition to cutting cost, seasoned accountants can also analyse your business trends and provide effective forecasting. Such input is critical to helping you understand the changing performance of your business and assist with realigning projections, which can help you assess the viability of your current business plan and provide insights for new alternatives should the need arise.

    Look at tax relief and economic stimulus packages

    In an economic downturn, it is essential to monitor tax policy changes that can aid in providing financial relief for the company and improve cashflow. During such times, it is common for banks to begin cutting their interest rates while the government actively works to put forward spending and tax packages as well as offer administrative relief by extending tax-filing deadlines. Governments across the world might even introduce tax credits and tax cuts for companies that have experienced a significant drop in revenue.

    Additionally, most governments would also roll out stimulus packages as part of their plan to spur their respective economies. However, it is worthwhile to note that in the long term, these governments intend to recoup the funds that were used to finance the stimulus packages and their plans could impact the bottom line of many businesses later. A likely course of action would be adjustments made to policies and tax rates, including but not limited to Corporate Taxes and the Sales and Service Tax (SST). Therefore, we strongly advise that businesses continually revise their tax plan in response to any possible policy changes to achieve greater savings and maximising any tax benefits.

    As you embark on any tax planning efforts and find yourself lacking in experience or resources to do so adequately, it is a good idea to engage a professional. In doing so, you can ensure that your tax plan is continuously revised to strategically leverage every tax benefit, maximise tax deductions, and comply with the local tax regulation and statutory requirements.

    Look at better managing your working capital

    An economic downturn presents several working capital challenges for businesses across industries. To stay operational, companies must look for new ways to finance their working capital. According to the Hackett Group’s 2020 Working Capital Survey, organisations have focused on the availability of corporate debt as a source of working capital for too long. While this may be a common practice, it increases the company’s exposure to unavoidable risks, such as changing customer demands and disruption to the supply chain. During an economic downturn, these potential risks to your working capital could prove detrimental to the survival of the company.

    Companies need to manage their working capital during an economic downturn effectively to mitigate cost through individual strategies that address their levels of debtors, creditors, procurement and inventory, and receivables process.

    Mitigating cost and managing working capital in an economic downturn

    Look at BoardRoom to help you through this crisis

    During an economic downturn, when faced with numerous challenges, companies will naturally seek to hunker down and begin cost-cutting strategies. Such strategies are necessary, but it is also vital to note that even in crisis, there are opportunities. Companies will have to practice greater diligence and adapt to the changing landscape quickly through the adoption of forward-looking, growth-oriented plans that prepare the company for when the economy improves.

    BoardRoom can help you through any recession period and prepare your business for the inevitable upturn. As a market leader in providing accounting, payroll and corporate services, our in-house team of dedicated experts can help to provide effective cost strategies regardless of your business size or needs. Our in-depth understanding and experience of economic trends will empower your business to discover and explore new opportunities.

    Are you looking for a trusted partner and advisor as you weather this difficult time? We are here for you with your tax services needs. Contact our BoardRoom outsourcing experts here!

    Related Business Insights

    Malaysia Budget 2021 – The Tax Highlights for Rakyat and Enterprises

    Malaysia Budget 2021 - The tax highlights for Rakyat and Enterprises

    Malaysia Budget 2021 – The Tax Highlights for Rakyat and Enterprises

    boardroomsuperadmin

    Malaysia Budget 2021 – The Tax Highlights for Rakyat and Enterprises

    On 6 November 2020, Finance Minister Tengku Zafrul Aziz delivered the Malaysia Budget for 2021. The budget is anchored on three crucial goals – Rakyat’s well-being, Business continuity, and Economic resilience. The three goals are a continuity of the PRIHATIN, PRIHATIN SME PLUS, PENJANA, and KITA PRIHATIN stimulus packages. Find out more below as we summarise the key tax highlights for Rakyat and Enterprises in the Malaysia Budget 2021. For further details you can download our full report.

    Corporate Tax

    Key takeaways in relation to corporate tax cover the following areas:

    • Support for companies relocating their operations to Malaysia and undertaking new investments via tax incentives for both new and existing companies. This is an extension from the original incentives unveiled in PENJANA, however, the deadline for application has been extended until 31st December 2022.
    • New incentives added for companies who have Malaysia as their principle hub and a global trading centre.
    • Income tax exemption for Equity Crowd Funding to encourage alternate financing methods for technology start-ups.
    • Tax incentives for Maintenance, Repair & Overhaul activities
    • Preferential tax rate for manufacturers of pharmaceutical products
    • Extension of income tax exemption until YA2022 for export of private healthcare services
    • Simplify and merge the tax incentive for manufacturers of industrialised building system
    • Income tax exemption has been extended for both East Coast Development Corridor, Iskandar Malaysia and Sabah Development Corridor & Sustainable and Responsible Investments (“SRI”)
    • Tax incentives for non-resource-based R&D product commercialization activities will be reintroduced.
    • Tax incentives for commercialization of R&D product by public research institutions will be extended to private higher education institutions.
    • There were also a number of incentives released in relation to employment of senior citizens, ex-convicts, parolees, supervised persons and ex-drug dependents.
    • Income tax deduction on investment on ASNB wakaf fund
    • Extended implementation timelines for the Wage Subsidy Programme

    Individual Tax

    Several initiatives were released in relation to individual tax:

    • Reduction in income tax rate by 1% for the chargeable income band range of RM50,001 – RM70,000
    • There were also a number of incentives released across
      • Compensation due to job loss
      • National Education Savings Scheme
      • Education fees
      • Private Retirement Scheme contributions
      • Lifestyle expenses
      • Disabled spouse
      • Medical treatment
      • Employee Provident Fund (“EPF”) contributions
    • A special income tax rate for non-resident individuals holding key positions in companies investing in new strategic investments was announced
    • Amongst other incentives a flat 15% tax rate was announced for the Revision of Returning Expert Programme (“REP”)

    Sales & Services Tax (“SST”)

    The following initiatives were unveiled in relation to SST

    • Sales tax exemption for the purchase of locally assembled bus including air-conditioner
    • Increase of Sales Limit for Value-added and Additional Activities Carried Out in the Free Industrial Zones (“FIZs”) and Licensed Manufacturing Warehouses (“LMWs”)

    Stamp Duty

    The key takeaways from the budget in relation to Stamp Duty are as follows:

    • Stamp duty exemption of 100% for the purchase of a first residential home
    • Stamp duty exemptions for the revival of abandoned housing projects
    • Stamp duty exemption will be extended for 5 years for the purchase of insurance policies and takaful certificates for “Perlindungan Tenang”
    • Stamp duty exemption will be extended for another 5 years on the Trading of Exchange Traded Fund (“ETF”)

    There were a number of other incentives announced around Indirect Taxes. Our full report covers these and the above highlights in more detail.

     

    Download the full Malaysia Budget 2021 tax highlights here

    Related Business Insights

    FAQs on International Tax Issues Due To Covid-19 Travel Restrictions

    International Tax Issues Due to Covid-19 Travel Restrictions

    FAQs on International Tax Issues Due To Covid-19 Travel Restrictions

    boardroomsuperadmin

    The Inland Revenue Board of Malaysia (“IRBM”) has issued FAQs on 14 May 2020 to provide additional clarifications on international tax issues arising from travel restrictions imposed due to the global COVID-19 pandemic.

    Some of the key salient points are as follow:-

    1. I am currently outside of Malaysia because of COVID- 19 travel restrictions. How would my absence from Malaysia affect my residence status in Malaysia?

    It will not affect your residence status in Malaysia. The period of temporary absence from Malaysia because of COVID-19 travel restrictions is considered as part of your period or periods in Malaysia for the purpose of tax residence. However, relevant documentations and records (e.g. travel documents, local authority travel restrictions guideline etc.) should be kept upon request from the IRBM.

    2. My company is unable to convene a meeting of the Board of Directors (BOD) in Malaysia because of COVID- 19 travel restrictions. Will this have an effect on the company’s residence status in Malaysia?

    If your company is not able to convene its Board of Directors’ meeting in Malaysia due to COVID-19 travel restrictions, the company will be considered as a Malaysian resident provided that all the conditions below are met:

    1. the company is a resident in the immediate previous year of assessment;
    2. there are no changes to the economic circumstance of the company; and
    3. the directors of the company have to attend the BOD meeting held outside Malaysia (either physical meeting or via electronic means) due to COVID 19 travel

    Relevant documentations and records (e.g. board minutes stating the reason of directors were attending board meetings from their respective locations) should be kept upon request from the IRBM.

    3. My company is not resident in Malaysia. Does the temporary presence of my employees or personnel in Malaysia due to COVID-19 travel restrictions lead to the creation of a permanent establishment in Malaysia?

    Temporary presence of employees or personnel does not result in the creation of a permanent establishment in Malaysia, provided the criteria below are met:

    1. your company does not have a permanent establishment in Malaysia before the existence of COVID-19 travel restrictions;
    2. there are no other changes to the economic circumstances of the company;
    3. the temporary presence of the employees in Malaysia is solely due to travel restrictions relating to COVID-19; and
    4. the activities performed by the employees during their temporary presence would not have been performed in Malaysia if not for the COVID-19 travel

    Relevant documentations and records should be kept upon request from the IRBM.

    4. Before the MCO, I commute daily to Singapore from my home in Johor Bahru for work. Due to the MCO, I am temporarily working from home in Johor Bahru. Is my income taxable in Malaysia?

    Your employment income from your employment exercised in Malaysia due to COVID-19 travel restrictions will be considered as not derived from Malaysia if the criteria below are met:

    1. there is no change in the contractual terms governing your employment overseas before and after your return to Malaysia; and
    2. this is a temporary work arrangement due to COVID-19 travel restrictions.

    If any of the conditions are not met, normal tax rules will be applied to determine the taxability of your employment income for work done in Malaysia.

    5. I am currently temporarily working from overseas due to COVID-19 travel restrictions. Is my income taxable in the current location?

    If you would normally exercise your employment in Malaysia and is forced to work temporarily outside of Malaysia because of COVID-19 travel restrictions, you are regarded to be exercising your employment in Malaysia. The income is deemed derived from Malaysia and therefore, the income is still taxable in Malaysia.

    You may be subject to taxation in the locality where you are temporarily present if no special tax measures for COVID-19 are provided by that locality’s tax authority. If you are in a state that has a tax treaty with Malaysia, you will not be taxable if you are present for less than 183 days.

    6. I am a non-resident individual and currently working from Malaysia because of COVID- 19 travel restrictions.

    You will be considered as not exercising an employment in Malaysia for the period of your temporary presence due to COVID-19 travel restrictions and have been working remotely from Malaysia for your overseas employer during your temporary presence in Malaysia if the conditions below are met:

    1. the period of your temporary presence is for a period of not more than 60 days; and
    2. the work you have done during your temporary presence is not connected to your assignment in Malaysia and would have been performed overseas if not for COVID-19 travel restrictions.
    How we can help

    As a committed tax advisor to our clients, we welcome any opportunity to discuss the relevance of International Tax Issues that your business may be facing. Find out more on our tax advisory services for more information.

    Boardroom Limited is a well-established professional business service provider with a strong and reputable 50-year track record. Headquartered in Singapore, we are listed on the Singapore Exchange and ranked amongst Forbes Asia’s Top 200 Companies under a Billion. For seven years running, we have also been ranked in DP Information Group’s Singapore 1000. With our strong presence in the region, and a direct office presence in Singapore, Malaysia, Hong Kong, China and Australia, we are well positioned to support you.

    Our smart business solution suite comprises of the following services:

    Related Business Insights

    Boardroom Newsflash : Amendment of GST rate from 6% to 0%

    Boardroom Newsflash : Amendment of GST rate from 6% to 0%

    Boardroom Newsflash : Amendment of GST rate from 6% to 0%

    boardroomsuperadmin

    Related Business Insights