Tag: Royalty

  • Extension of Tax Incentive for Intellectual Property Development

    Extension of Tax Incentive for Intellectual Property Development

    Update: The Ismail Sabri Government Budget is no longer applicable.

    Malaysia’s national budget for 2023 was re-tabled again in February 2023; for more info, please visit – https://www.ccs-co.com/post/budget-2023-malaysia-madani.

    This tax incentive included in Budget 2023, tabled in Parliament on 7 October 2022, was not included in Budget 2023 (Re-tabled) on 24 February 2023.

    Response from MOF: MOF is currently reviewing off-budget items.

    The phrase “MOF is currently reviewing off-budget items” typically refers to the Ministry of Finance (MOF) conducting an evaluation or examination of expenses or financial matters that are not included in the official budget. Off-budget items are expenditures or revenue sources not directly accounted for in the regular budgeting process.

    Governments often create budgets to allocate funds for various programs, projects, and expenses. However, certain financial activities may fall outside the scope of the official budget. These off-budget items could include emergency spending, special funds, grants, subsidies, or other financial transactions not explicitly accounted for in the regular budgeting process.

    When the MOF reviews off-budget items, they are scrutinising these financial activities to assess their impact, legality, appropriateness, or potential risks. This review aims to ensure transparency, fiscal responsibility, and effective financial management within the government. It helps identify discrepancies, assess the necessity and effectiveness of off-budget items, and make informed decisions regarding their continuation or modification.

    Current Position

    The government proposed in Budget 2020 that qualifying intellectual property (IP)-generated income derived from the development of patents and copyright software be given a 100% income tax exemption for up to 10 years.

    In response to the proposal presented above, the Malaysian Investment Development Authority (MIDA) has published, with an effective date of January 1, 2020, the Guidelines on Incentives for Intellectual Property (IP) Development.

    For tax exemption computation, the income that qualifies for the exemption will be calculated based on the Modified Nexus Approach (MNA).

    Eligible applicants

    New/existing companies own the rights of the qualifying IPs and are receiving income from the qualifying IP activities related to the promoted activities/list prescribed under the Promotion of Investments Act 1986 (PIA) and the Income Tax Act 1967 (ITA).

    Qualifying IP asset types

    • Patent or utility innovation
    • Copyrighted software
    • Family of qualifying IPs

    Qualifying IP income types

    • Royalty
    • Licensing Fees

    Eligibility criteria

    • R&D activities must be conducted in Malaysia, where such activities lead to the development, improvement, modification or creation of the Qualifying Asset.
    • Adequate operating expenditure incurred annually to support the company in conducting its business operation in Malaysia.
    • The company must have at least 30% of science and technical staff have a degree or diploma with a minimum of five years of experience from related fields.

    Qualifying R&D expenditure

    • Eligible R&D expenditure for MNA calculation will align with the eligible expenditure types under s 34A of the ITA.
    • Includes expenditure under cost-sharing agreements, provided that the cost of payable R&D is clearly stated in the agreement.
    • Qualifying expenditure can be backdated up to three years from the date the IP is registered/filed.

    The incentive will apply to applications received by MIDA between 1 January 2020 and 31 December 2022. Three sets of the application are to be submitted to the following:

    • Chief Executive Officer
    • Malaysian Investment Development Authority (MIDA)
    • MIDA Sentral
    • No. 5, Jalan Stesen Sentral 5
    • Kuala Lumpur Sentral
    • 50470 Kuala Lumpur

    (Attention: Advanced Technology and Research & Development Division (ATRD) Division)

    Proposal [This tax incentive included in Budget 2023, tabled in Parliament on 7 October 2022, was not included in Budget 2023 (Re-tabled) on 24 February 2023]

    To further encourage R&D activities and IP registration in Malaysia, the proposed tax incentive will be extended for 3 years.

    Effective Date

    For applications received by MIDA from 1 January 2023 until 31 December 2025.

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  • Payment for Google and Facebook ads or Agoda is it Subject to Withholding Tax?

    Payment for Google and Facebook ads or Agoda is it Subject to Withholding Tax?

    1. The question of whether payments made to foreign digital service providers for software and payments for the use of or right to use the information and digitized products are subject to withholding tax has been debated for some time.

    2. The Inland Revenue Board (IRB) may take a position that differs from the position expressed by the taxpayers in any given situation.

    3. The IRB believes that the vast majority of payments made to overseas digital service providers who do not have a tax presence [permanent establishment, PE] in Malaysia should be subject to withholding tax under the royalty provisions of the Income Tax Act 1967.

    4. Businesses cannot operate without purchasing digital services to service customers, deal with suppliers, and run business functions in today’s society. 5. As a result, advertising on Facebook and Google has become a trend. 6. Owners of hotel accommodation are also using the services of the Agoda platform to attract more customers. 7. Are these payments subject to withholding tax? 8. In today’s article, we will discuss this topic.

    9. Join our Telegram – https://t.me/YourAuditor

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    1. 对于向外国数字服务提供商支付的软件费用以及为使用或有权使用的信息和数字化产品而支付的费用，是否需要缴纳预扣税 [withholding tax] 的问题，已经争论了一段时间了。

    2. 税收局（IRB）在任何特定情况下，都可能采取与纳税人不同的立场。

    3. 税收局认为，再《1967年所得税法令》的版权、特许权使用费条款下，绝大多数支付给在马来西亚没有设立常设机构 [permanent establishment, PE] 的海外数字服务提供商的款项，都应被预扣税。

    4. 现今的社会，如果不购买数字服务来服务客户、与供应商打交道和运营业务功能，企业就无法运营。

    5. 因此，在 Facebook 及 Google 打广告也成为一种风气。

    6. 而经营酒店住宿的业主，也大都在使用 Agoda 平台的服务，以招揽更多的客户。

    7. 那么，所支付的上述这些费用，是否需要缴付预扣税呢？

    8. 今天的这一篇文章，就来与大家一起探讨此课题。

    9. 加入我们的 Telegram – https://t.me/YourAuditor

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