FINANCE ACT 1990

Finance LAWS OF MALAYSIA REPRINT Act 420 FINANCE ACT 1990 Incorporating all amendments up to 1 January 2006 PUBLISHED BY THE COMMISSIONER OF LAW REVISION, MALAYSIA UNDER THE AUTHORITY OF THE REVISION OF LAWS ACT 1968 IN COLLABORATION WITH PERCETAKAN NASIONAL MALAYSIA BHD 2006 1 2 ACT 420 Laws of Malaysia FINANCE ACT 1990 Date of Royal Assent ... ... ... … 8 February 1990 Date of publication in the Gazette ... … 22 February 1990 PREVIOUS REPRINT First Reprint ... ... ... ... ... 2001 Finance LAWS OF MALAYSIA Act 420 FINANCE ACT 1990 ARRANGEMENT OF SECTIONS CHAPTER I PRELIMINARY Section 1. Short title 2. Amendments of Acts CHAPTER II AMENDMENTS TO THE INCOME TAX ACT 1967 3. Commencement of amendments to the Income Tax Act 1967 4. Amendment of section 2 5. Amendment of section 3A 6. Amendment of section 6 7. Amendment of section 19 8. Amendment of section 44 9. New sections 60D and 60E 10. Amendment of section 61 11. New sections 63A and 63B 12. Amendment of section 110 13. Amendment of section 145 14. New Part VII of Schedule 1 15. Amendment of Schedule 4A 16. Amendment of Schedule 7A 3 4 Laws of Malaysia ACT 420 CHAPTER III AMENDMENT TO THE REAL PROPERTY GAINS TAX ACT 1976 Section 17. Commencement of amendment to the Real Property Gains Tax Act 1976 18. Amendment of section 2 CHAPTER IV AMENDMENT TO THE FINANCE ACT 1988 19. Commencement of amendment to the Finance Act 1988 20. Amendment of section 26 Finance 5 LAWS OF MALAYSIA Act 420 FINANCE ACT 1990 An Act to amend the Income Tax Act 1967, the Real Property Gains Tax Act 1976 and the Finance Act 1988, and to provide for matters connected therewith. [ ] BE IT ENACTED by the Seri Paduka Baginda Yang di-Pertuan Agong with the advice and consent of the Dewan Negara and Dewan Rakyat in Parliament assembled, and by the authority of the same, as follows: C HAPTER I PRELIMINARY Short title 1. This Act may be cited as the Finance Act 1990. Amendments of Acts 2. The Income Tax Act 1967 [Act 53], the Real Property Gains Tax Act 1976 [Act 169] and the Finance Act 1988 [Act 364] are amended in the manner specified in Chapters II, III and IV, respectively. C HAPTER II AMENDMENTS TO THE INCOME TAX ACT 1967 Commencement of amendments to the Income Tax Act 1967 3. (1) Except for sections 7, 8, 13, 15 and 16 this Chapter shall have effect for the year of assessment 1990 and subsequent years of assessment. 6 Laws of Malaysia ACT 420 (2) Sections 7, 8 and 15 shall be deemed to have effect for the year of assessment 1989 and shall have effect for subsequent years of assessment. (3) Section 13 shall be deemed to have come into force on 1 January 1989. (4) Section 16 shall have effect for the year of assessment 1991 and subsequent years of assessment. Amendment of section 2 4. Section 2 of the Income Tax Act 1967, which is referred to in this Chapter as the “principal Act”, is amended by inserting, after the definition of “approved loan”, the following definition: “approved operational headquarters company” has the meaning assigned thereto by section 60E;’. Amendment of section 3A 5. Section 3A of the principal Act is amended by inserting, after the words “under section 4 A”, the words “and that of a unit trust”. Amendment of section 6 6. Section 6 of the principal Act is amended— (a) in subsection (1), by substituting for the full stop at the end of paragraph (f) a semicolon; and (b) in subsection (1), by inserting, after paragraph (f), the following paragraph: “(g) (i) subject to subparagraph (ii), income tax shall be charged for each year of assessment upon the chargeable income of an approved operational headquarters company in relation to the source consisting of the provision of qualifying services at the appropriate rate as specified under Part VII of Schedule 1; Finance 7 (ii) the rate specified under Part VII of Schedule 1 shall apply only for a period of five years of assessment commencing from the year of assessment in the basis period in which the date of approval of the approved operational headquarters company falls: Provided that where the Minister is satisfied that the company has by the end of the period met such requirements as may be specified by him at the time of approval, he may extend the period for a further period not exceeding five years of assessment.”. Amendment of section 19 7. Section 19 of the principal Act is amended, in subsection (5), by substituting for the words “3 and 4” the words “3, 4 and 4A”. Amendment of section 44 8. Section 44 of the principal Act is amended, in subsection (6), by substituting for the words “subsection (2) or Schedule 4 or both” the words “subsection (2), Schedule 4 or Schedule 4A”. New sections 60D and 60E 9. The principal Act is amended by inserting, after section 60C, the following sections: “Venture capital companies 60D. (1) Where a venture capital company receives an amount in respect of gains from the disposal of shares in a venture company in the basis period for a year of assessment such amount shall be exempt from tax for that year of assessment: Provided that where the disposal of shares in a venture company takes place two years after the date on which the shares in the venture company are listed for quotation in the official list of a stock exchange in Malaysia, the gains from such disposal shall not be exempt from tax. 8 Laws of Malaysia ACT 420 (2) Paragraphs 5 and 6 of Schedule 7A shall apply mutatis mutandis to the amount exempt under subsection (1). (3) Where a venture capital company incurs a loss in respect of a disposal of shares in a venture company in the basis period for a year of assessment, there shall not be made any deduction under subsection 43(2) or 44(2) in respect of such loss in computing the aggregate income or total income of the venture capital company, as the case may be. (4) In ascertaining the total income of the venture capital company for the basis period for a year of assessment, there shall be deducted before any deduction falling to be made under paragraph 44(1)(c) an amount in respect of expenses incurred by that company during that period, which amount shall be determined in accordance with the formula A x B , 4C where A is the total of the permitted expenses incurred for that basis period; B is the gross income consisting of dividend, interest and rent chargeable to tax for that basis period; and C is the aggregate of the gross income consisting of dividend (whether exempt or not), interest and rent, and gains made from the disposal of shares in a venture company (whether chargeable to tax or not) for that basis period: Provided that where, by reason of an absence or insufficiency of aggregate income for that year of assessment, effect cannot be given or cannot be given in full to any deduction falling to be made to the venture capital company under this section for that year, that deduction which has not been so made shall not be made to the company for any subsequent year of assessment. Finance 9 (5) In this section— “permitted expenses” means expenses incurred by the venture capital company in respect of— (a) directors’ fees; (b) wages, salary, allowances; (c) management and advisory fees paid to fund managers; (d) secretarial, audit and accounting fees, telephone charges, printing and stationery costs and postage; and (e) rent and other expenses incidental to the maintenance of an office, which are not deductible under subsection 33(1); “venture capital company” means a company, incorporated in Malaysia, which— (a) is resident in Malaysia for the basis year for a year of assessment; (b) holds shares exclusively in a venture company, the shares in which are not listed for quotation in the official list of a stock exchange in Malaysia at the time of acquisition of such shares by that venture capital company; and (c) is approved by the Minister for the purposes of this section; “venture company” means a company incorporated in Malaysia, which— (a) is resident in Malaysia for the basis year for a year of assessment; and (b) is involved in any high risk venture or new technology in relation to a product or activity which the Minister is satisfied would promote or enhance the economic or technological development of Malaysia. Approved operational headquarters company 60E. (1) Where an approved operational headquarters company carries on a business in Malaysia of providing qualifying services, and a business or businesses in Malaysia other than that of providing qualifying services, the business of providing such qualifying services shall be treated as a separate and distinct business and source of that company. 10 Laws of Malaysia ACT 420 (2) The chargeable income in relation to the source consisting of the provision of qualifying services for a year of assessment shall be the statutory income from that source reduced by any deduction falling to be made pursuant to subsection 43(2) relating to that source. (3) The chargeable income in relation to the source or sources other than the source consisting of the provision of qualifying services for a year of assessment shall be the statutory income from that source or the aggregate of the statutory income from each of those sources, as the case may be, reduced by any deductions falling to be made pursuant to subsections 43(2) and 44(1): Provided that in so making the deductions under subsections 43(2) and 44(1), no regard shall be had to the adjusted loss, if any, from the source consisting of the provision of qualifying services. (4) Where it appears to the Director General that the chargeable income of an approved operational headquarters company in relation to a source consisting of the provision of qualifying services ought not to have been charged to tax at the rate specified under Part VII of Schedule 1 by reason of the withdrawal of the approval of the operational headquarters company, he may, at any time within twelve years after the expiration of the year of assessment for which that rate was applied, make such additional assessments upon that company as appear to him to be necessary in order to counteract any benefit obtained under Part VII of Schedule 1. (5) Dividends received by an approved operational headquarters company in the basis period for a year of assessment from a related company outside Malaysia shall be exempt from tax for that year of assessment: Provided that the exemption— (a) shall apply for a period of ten years of assessment commencing from the year of assessment in the basis period in which the date of approval of the operational headquarters company falls; and (b) shall apply only to a company which is incorporated in Malaysia on or after the coming into force of this section. Finance 11 (6) Paragraphs 5 and 6 of Schedule 7A shall apply mutatis mutandis to income exempt under subsection (5). (7) For the purposes of this section— “approved operational headquarters company” means a company— (a) the entire issued share capital of which is held— (i) by a foreign company or companies; or (ii) by an individual or individuals who are not citizens at any time in the basis year for a year of assessment; or (iii) by a foreign company or companies, and an individual or individuals who are not citizens at any time in the basis year for a year of assessment; (b) which carries on a business in Malaysia of providing qualifying services to its offices outside Malaysia or to its related companies outside Malaysia; and (c) which is approved by the Minister for the purposes of this section, but does not include a company which carries on a finance business or which provides professional services; “foreign company” means a foreign company as defined under the Companies Act 1965 [Act 125]; “qualifying services” means— (a) services provided by an approved operational headquarters company to its offices outside Malaysia or to its related companies outside Malaysia in res