Category: Tax

Guide to e-invoicing: A fast track to compliance with Malaysia’s e-invoicing transition

Guide to e-invoicing A fast track to compliance with Malaysia’s e-invoicing transition

Guide to e-invoicing: A fast track to compliance with Malaysia’s e-invoicing transition

boardroomsuperadmin

E-invoicing was announced in Malaysia as the Inland Revenue Board’s (IRB) solution to combating the issue of the shadow economy and revenue leakage. With the first major deadline in August 2024 fast looming, now is the time for businesses to start preparing for the transition.

E-invoicing implementation is significant for all businesses, and major changes may be required for systems, processes and even strategic direction. While the rollout will be phased, implementation is essential, with all businesses expected to comply by 1 July 2025.

What is e-invoicing and how can you maximise the benefits for your business? Our comprehensive guide offers you insight into the requirements, what you need to do to switch over and the benefits it can bring.

How does e-invoicing work?

An e-invoice is a digital representation of a transaction between a supplier and a buyer. Many companies already issue electronic invoices, such as PDF invoices. However, having such electronic invoices does not necessarily mean being compliant with Malaysia’s e-invoicing requirements as set out by the Inland Revenue Board of Malaysia (IRBM). The Malaysia e-invoice requirements go beyond to include specific processes and reporting formats.

E-invoicing works by enabling seller’s accounts receivable to input invoices into their financial system, which then sends them in a structured electronic format directly to the buyer’s system. Upon receipt, the buyer’s e-invoicing system automatically processes and imports the data into their accounts payable system, which streamlines the payment process without the need for manual handling.

Only two formats of e-invoice are acceptable – XML and JSON. Both of these formats are easy for machines to read, which reduces the time it takes for a machine to translate and process the invoice.

E Invoicing Infographic

What is the timeline for implementation?

There are a number of dates that you need to be aware of in the transition. It’s critical to be mindful of the timeline, as e-invoicing implementation can take up to three to four months to complete.

The following table provides a breakdown of the key dates for the e-invoicing implementation rollout based on business turnover.

Annual Revenue of businessesImplementation Date
Businesses with an annual turnover greater than RM 100 million1 August 2024
Businesses with an annual turnover greater than RM 25 million and up to RM 100 million 1 January 2025
All businesses 1 July 2025

Read about the e-Invoice Guideline (Version 2.3) and the e-Invoice Specific Guideline (Version 2.1) issued by IRBM on 6 April 2024.​

Exemptions from e-invoicing requirements

Certain types of income expenses do not require an e-invoice.

These include:

  • Employment income
  • Pensions
  • Alimony
  • Dividend distribution by companies listed in Bursa Malaysia, or companies that are not required to deduct tax under Section 108 of the Income Tax Act 1967
  • Zakat

While government bodies, local authorities and statutory bodies are exempt from the e-invoicing requirements, they may voluntarily choose to participate. A complete list of exemptions is detailed in the IRBM’s official e-invoice guidelines.

A step-by-step guide to e-invoicing implementation

A step-by-step guide to e-invoicing implementation

E-invoicing implementation is quite complex. The process may include upgrading infrastructure, integrating systems and training staff to ensure a smooth transition.

Here is a step-by-step guide to help you understand the process and how you can best implement e-invoicing.

1. Confirm business turnover

Your turnover will dictate when you must transition to e-invoicing. Refer to your 2022 audited financial statement or tax return to confirm your business turnover.

If you had a change of accounting year end for financial year 2022, your turnover or revenue will be pro-rated to 12 months. This will be used to determine your implementation date.

2. Conduct a gap assessment analysis

Cheong Woon Chee, Head of Tax Services, BoardRoom Malaysia, says that a gap assessment analysis is a critical next step in the process.

“A gap assessment will help you to determine what you need to do to meet the e-invoicing implementation requirements,” explains Woon Chee. “This should encompass current systems and processes but also the people and the training you’ll need to undertake in preparation for the transition.”

A comprehensive gap assessment should include the following components:

Accounting system compatibility
Evaluate the compatibility of the current accounting system with e-invoicing requirements.
Invoice format compliance
Ensure the invoice format adheres to the required e-invoicing standards.
Self-billing e-invoices
Determine the need for self-billing e-invoices.
Transaction management
Assess how transactions with both B2B and B2C buyers will be managed.
Legal and contractual review
Conduct a thorough review of all legal documents, including contracts and employment agreements.

Once a gap assessment analysis has taken place, a tailored gap closure strategy should be developed that addresses the identified gaps. The strategy should provide detailed recommendations and action plans to ensure a seamless transition to e-invoicing. By understanding the requirements thoroughly, you can plan effectively, working backwards from the implementation date to ensure you are ready on time.

Having this lead time also gives you the opportunity to start talking to your clients, partners and service providers. They are critical in the transition, so it’s important to engage them early to understand their timelines and requirements.

3. Determine the best model for your needs

You have a choice between two e-invoicing models, which will depend on your business needs and size.

The first model uses the MyInvois portal, hosted by the IRB. This portal is available to all taxpayers, and Woon Chee says that if you’re processing around 20 invoices or less a month, MyInvois is a cost-effective solution.

“The other option is an application programming interface (API),” explains Woon Chee. “APIs are more suitable for businesses or taxpayers that process a substantial number of transactions.

“It is likely that your current systems will need enhancements or upgrades to support an API configuration, which comes with an upfront investment.”

Train staff on the new system

4. Train staff on the new system

E-invoicing implementation involves training in the lead up to the transition as well as after the transition to ensure a seamless changeover.

“E-invoicing isn’t like the standard invoices staff are familiar with,” adds Woon Chee. “Initially, training should focus on awareness before moving to additional rounds of training that go into detail about the new process.”

Training is crucial and should cover the strategic approaches the organisation is taking to implement e-invoicing effectively across departments, the tax implications and the compliance requirements. Staff must understand the effects e-invoicing will have on existing accounting processes, especially as the new forms now feature over 50 mandatory fields, raising the chance of errors. Post-implementation training can help identify errors and ensure they are rectified moving forward.

5. Understand the PEPPOL network

The Malaysian e-invoicing requirement is powered by the Pan-European Public Procurement Online (PEPPOL) network. PEPPOL is not a provider. It is an enabler that allows any organisation to send and receive business documents – in this case, e-invoices – through PEPPOL-accredited service providers.

While businesses aren’t required to use a PEPPOL service provider for e-invoicing, there are benefits to doing so. Namely, a PEPPOL-enabled solution ensures effortless compliance and security, seamless integration and error-free automation with real-time insights into your e-invoice progress.

6. Apply for grants and tax incentives

There are grants and tax incentives available to support you with the costs of investing in the infrastructure required to transition to e-invoicing.

These include:

Digital grant
Micro, small, and medium enterprises (MSME) can apply for a grant of up to RM 5,000 (total allocation of RM 100 million) to upgrade digital sales, inventory and accounting systems.
Tax deduction
From YA2024 to YA2027, MSME can receive a tax deduction of up to RM 50,000 for each Year of Assessment (including consultation fees incurred for e-invoicing implementation).
Capital allowance
The capital allowance claim period has been reduced from four years to three years. Capital allowance can be claimed on the purchase of ICT equipment and computer software packages, as well as consultation, licensing and incidental fees related to customised computer software development.

What are the benefits of e-invoicing?

According to the IRB, the benefits of e-invoicing include reducing manual work and associated human error. It will also help streamline operational efficiency, facilitate efficient tax filing, and digitise financial reporting to be in line with industry standards.

The Malaysia Digital Economy Corporate (MDEC) shares similar sentiments around the way e-invoicing will increase business efficiency, improve cash flow and facilitate effective tax reporting.

The BoardRoom team can see a range of benefits for our clients. Eunice Hooi, BoardRoom’s Managing Director Asia, Tax, explains that one of the biggest benefits is the minimisation of inaccuracies thanks to real-time monitoring.

“Shifting to e-invoicing will reduce inaccuracies, as both income and expenses are verified on the spot rather than retrospectively. This immediate validation allows businesses to promptly address any discrepancies identified by the tax authorities, such as disallowed expenses,” says Eunice.

What are the benefits of e-invoicing

The key benefits of implementing e-invoicing include:

  • Seamless compliance through adherence to the e-invoicing mandates, PEPPOL standards and data security.
  • Eliminate errors with automated creation, validation, delivery and archiving of invoices.
  • Smooth integration with existing ERP and business applications, enhancing overall business operations.
  • Gain real-time insights into the status of invoices to ensure timely payments, resulting in visibility and control.
  • Save time and resources by digitising and automating invoicing processes, boosting cost savings and efficiency.

The switch to e-invoicing is not just a system change. It’s a complete mindset shift. A reliable partner will be a critical part of ensuring a seamless transition and maximising your investment.

“We are currently working very closely with some of the API and IT solution providers,” adds Eunice. “Aside from tax services and outsourced accounting services, we can provide our clients with an integrated service, including the IT component with a PEPPOL-Enabled Solution.”

BoardRoom offers a range of services to support you with your e-invoicing implementation. From standalone comprehensive project management service to training workshops or ad hoc consulting, we can tailor a solution to your needs. As your strategic partner, the BoardRoom team will help you to navigate the transition with ease.

“As outsourced accountants and tax experts, we can work with the finance team to advise them on strategically leveraging the e-invoicing data for tax optimisation,” explains Eunice. “For example, we can identify the deductible expenses immediately and ensure we maximise the tax credit and tax deduction without delay.”

Your partner in e-invoicing

With the right experts on your side, you will set your business up with a strategic advantage to leverage the benefits of the e-invoicing requirements. Learn more about BoardRoom’s accounting and tax services to save you time and money for your e-invoicing transition and beyond.

Contact BoardRoom for more information:

Eunice Hooi

Eunice Hooi

Managing Director Asia, Tax

E: [email protected]

T: +60-3-7890 4800

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How to navigate transfer pricing in Malaysia: a guide for companies

How to navigate transfer pricing in Malaysia a guide for companies

How to navigate transfer pricing in Malaysia: a guide for companies

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For companies operating across multiple geographies in Asia, regulatory compliance stands as a strategic cornerstone for companies pursuing successful and sustainable growth. Therefore, keeping up to date with the local regulations in each region you operate is important. This includes learning about the transfer pricing rules as they apply to intercompany transactions.

In this article, we consult Cheong Woon Chee, Head of Tax Services for BoardRoom Malaysia, for an overview of transfer pricing in Malaysia, recent updates to reporting requirements and what businesses can do to ensure strong compliance.

What transfer pricing is

Transfer pricing is the setting of prices for the transfer of goods, services and intellectual property between associated parties.

In Malaysia, associated parties include entities within a multinational enterprise group, such as subsidiary companies and branches.

“These are parties who control one another or are under the common control of another party, either directly or indirectly,” Woon Chee says. Transfers between these entities are referred to as related party transactions.

“Transfer pricing exists because every country has a different tax rate,” Woon Chee explains. “For example, in Malaysia, our corporate tax rate is 24%, but in Singapore it’s 17%. Considering this huge difference, companies can use transfer pricing to save on tax.”

In addition, transfer pricing can support transparent transactions between related parties. However, a potential drawback of this transparency is that it may cause conflict internally.

“If the price is higher or lower than the market price, one of the entities may feel their interests are being sacrificed and deem it unjustifiable,” Woon Chee says.

Transfer Pricing in Malaysia

An overview of transfer pricing guidelines in Malaysia

Transfer pricing is strictly regulated by the Inland Revenue Board of Malaysia (IRBM). Companies must abide by the Malaysian Transfer Pricing Guidelines, which provide detailed standards and rules on how businesses should handle transfer pricing in accordance with Section 140A of the Income Tax Act 1967 and the Transfer Pricing Rules 2023.

The arm’s length principle

Central to these regulations is the arm’s length principle, which dictates that transactions between related entities should be priced as if they were conducted between independent parties.

“Ideally, the transfer price should not be very different from the market price,” Woon Chee says. “So companies must do benchmarking to understand whether the mark-up they apply as part of their transfer pricing is at the median range for their industry.

“If your pricing is too high or low, you will need to justify this when you make the transfer to your related party.”

Transfer pricing documentation

Transfer pricing documentation requirements

Malaysian regulations require taxpayers to prepare and keep transfer pricing documentation if their company:

  • makes over RM 25 million in gross income, and the total amount of related party transactions exceeds RM 15 million; or
  • provides financial assistance exceeding RM 50 million (this does not apply to transactions involving financial institutions).

“This documentation is simply a report to show how the transfer price was determined and justify why these prices are comparable to the price that would be applied to a third party in a similar situation,” Woon Chee says. “It enables the IRBM to ensure that the transactions between related parties were priced at arm’s length.”

The documents must be detailed and contemporaneous, meaning they should be prepared at the same time as transfer pricing policies are developed or implemented.

New transfer pricing rules introduced in May 2023 require companies to complete their contemporaneous documentation before their tax return for the year of assessment is due.

“In Malaysia, the timeline to file your corporate tax return is seven months after you close your financial year end,” Woon Chee says.

Companies that fall below the threshold are held to less scrutiny and can prepare a limited (simplified) version of transfer pricing documentation instead.

The following table shows the different types of information required for detailed and simplified transfer pricing documentation:

Analysis RequiredFull TPDSimplified TPD
Organisation structure
Nature of the business or industry and market conditions
Controlled transaction
Pricing policies
Assumption, strategies and information regarding factors that influence the setting of pricing policies
Comparability, functional and risk analysis
Selection of the transfer pricing metho
Application of the transfer pricing method
Financial information

Why compliance is vital

Taxpayers in Malaysia must supply their transfer pricing documentation upon request by the IRBM. You will only have 14 days to do so. Fail to provide your documents in time, and you may be subject to a fine between RM 20,000 and RM 100,000, or imprisonment of up to six months.

Common compliance challenges

If you are a company with multiple entities in the APAC region and looking to establish a local business in Malaysia, navigating transfer pricing regulations can be challenging. However, prioritising compliance is essential to avoid financial penalisation, potential imprisonment and reputational harm.

Without professional support, businesses often struggle with:

    Understanding their obligations
    Malaysia’s regulatory system is complex and constantly evolving, so it can be difficult to understand which rules and requirements apply to your company throughout its lifecycle.
    Maintaining robust documentation
    Preparing exhaustive transfer pricing documentation can be time-consuming and usually requires at least one month to complete.
    Conducting accurate benchmarking
    Conducting quality benchmarking ahead of transactions is not a simple process. A wealth of accurate, relevant data must be gathered before meaningful comparisons can be drawn.
    Resource constraints
    Many growing businesses lack the resources to establish robust transfer pricing practices and update them regularly.

    According to Woon Chee, the most effective way businesses can overcome the challenges of transfer pricing in Malaysia is by partnering with a knowledgeable corporate services provider.

    “Businesses often don’t have time to monitor all the developments in Malaysia’s rapidly changing tax regulations,” she says. “So it can be helpful to have an expert always on hand to advise on these updates.”

    Premium providers not only have extensive knowledge of local regulations but also maintain open communication with local authorities and industry bodies. This means, armed with their extensive knowledge, they serve as invaluable navigators, assisting your business to adeptly steer through the complex landscape of compliance and governance.

    Another benefit of having a skilled external team support your compliance is that it frees up your executive staff to focus on what really matters to your business.

    “Those running the business have more time to focus on revenue-generating operations,” Woon Chee says. “Why not leave it to the experts so that you can save time and also manage your risk?”

    Tailored support with transfer pricing in Malaysia

    Tailored support with transfer pricing in Malaysia

    BoardRoom provides a full suite of customised business solutions to help your company flourish in the Asia-Pacific region. Our highly sought-after service offerings include Corporate Secretarial, Company Incorporation, Accounting & Bookkeeping and Payroll, among others. With in-depth knowledge of the local tax and regulatory landscapes and a host of resources such as webinars on tax and Budget updates, our specialist Tax Advisory & Filing team can provide quality, customised support to enhance your financial planning and compliance.

    Let us manage transfer pricing compliance for you so you can concentrate on taking your business to new heights.

    Contact BoardRoom for more information:

    Woon Chee MY TAX

    Cheong Woon Chee

    Head of Tax Services for BoardRoom Malaysia

    E: [email protected]

    T: +60-3-7890 4800

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    Malaysia Budget 2024 – Tax Highlights

    MY 2024 Budget Report Banner

    Malaysia Budget 2024 – Tax Highlights

    boardroomsuperadmin

    Malaysia’s 2024 Budget introduced several tax reforms which will impact local businesses and disposable income of general Malaysians.

    On 13 October 2023, Malaysia’s Prime Minister and Finance Minister, YAB Dato’ Seri Anwar bin Ibrahim, presented the Budget 2024 focusing on three pivotal areas:

    • optimising governance for enhanced service agility
    • economic restructuring to foster growth, and
    • elevating the standards of living for Malaysian citizens.

    The expansionary budget is designed to address contemporary challenges and enhance the quality of life for Malaysians.

    To fortify the government’s fiscal responsibilities, reduce the deficit to 4.3%, and augment revenue to RM307.6 billion, the budget incorporates significant structural changes to the tax system, including:

    • E-invoicing for taxpayers with an annual turnover above RM100 million (starting 1 August 2024)
    • Capital Gains Tax (CGT) arising from the disposal of unlisted shares in local companies (starting 1 March 2024)
    • Global Minimum Tax (GMT) applicable to large multinational enterprises (MNEs) with global revenue of at least EUR 750 million (starting in the year 2025)
    • Service Tax will be raised to 8% for all services except food, beverage, and telecommunication services
    • Luxury Goods Tax ranging from 5% to 10%

     

    Download our Budget 2024 Report today to find out more. If you have any questions, please reach out to your respective BoardRoom client managers or email us at [email protected].

    DOWNLOAD THE FULL MALAYSIA BUDGET 2024 REPORT

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    Understanding ESOS and tax implications in Malaysia

    Understanding ESOS and tax implications in Malaysia

    Understanding ESOS and tax implications in Malaysia

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    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.

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    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

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    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

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    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.

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    Never Underestimate the Importance of Employee Engagement in a Hybrid Working Malaysia

    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 Working Malaysia

    boardroomsuperadmin

    In the wake of the global shift brought about by the COVID-19 pandemic, the dynamics of the workforce have evolved significantly. Understanding the changing landscape, particularly in Malaysia, is crucial for businesses striving to foster employee engagement in this post-COVID era.

    The “Great Resignation” phenomenon, as highlighted by Microsoft’s 2022 Work Trend Index, remains a noteworthy factor. It emphasises the need for businesses to adapt and prioritise employee engagement, as 41% of the global workforce is likely to consider leaving their current employer within the next year, with workers 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 in a hybrid working Malaysia simply cannot be underestimated.

    The hybrid working Malaysia 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 offices to suit a hybrid working Malaysian 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.

    5 ways to encourage employee engagement in the hybrid world of work

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

    Here are five ways how to increase employee engagement 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 employee engagement strategies.  

    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. Acknowledge and Show Employee Appreciation

    Publicly celebrating accomplishments might involve regular team shout-outs in virtual meetings, spotlighting achievements in company newsletters, or hosting virtual events to honour milestones. Establishing a culture of peer-to-peer recognition could involve platforms or channels where team members can acknowledge and commend each other’s efforts.

    For instance, a dedicated Slack channel for shout-outs or a monthly newsletter highlighting peer recognition contributes to a positive and appreciative work environment. These measures collectively foster engagement, which is particularly crucial for those managing the dynamics of hybrid roles.

    4. Promote Employee Development and Growth

    To promote continuous learning and growth, organisations can offer diverse training opportunities. This might include workshops on effective virtual collaboration, seminars on time management in a hybrid setting, or access to specialised online courses related to industry trends. Encouraging professional development could involve supporting employees in obtaining relevant certifications or sponsoring attendance at virtual conferences. Utilising feedback surveys and performance metrics allows organisations to gather insights on the effectiveness of these initiatives.

    For instance, a post-training survey could assess the perceived impact on job performance and satisfaction. Organisations can then tailor future programs based on this valuable feedback, ensuring that employee development remains aligned with their evolving needs and aspirations.

    5. 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 , 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 offer Employee Stock Options Plans (ESOP) Services for your business. 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 Malaysian regulations, as well as regional and international experience. 

    Wherever your employees work, we’ll be able to support the implementation and ongoing 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.

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    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

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      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

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      Mitigating Costs in an Economic Downturn

      mitigating_costs_in_an_economic_downturn

      Mitigating Costs in an Economic Downturn

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      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!

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