FINANCE ACT 2003

Finance LAWS OF MALAYSIA REPRINT Act 631 FINANCE ACT 2003 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 FINANCE ACT 2003 Date of Royal Assent ... ... ... … … 17 December 2003 Date of publication in the Gazette … … 25 December 2003 PREVIOUS REPRINT First Reprint ... ... ... ... ... 2005 3 LAWS OF MALAYSIA Act 631 FINANCE ACT 2003 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 34 6. Amendment of section 34A 7. Amendment of section 35 8. Amendment of section 36 9. Amendment of section 39 10. New section 46A 11. Amendment of section 48 12. Amendment of section 77 13. Amendment of section 77A 14. Amendment of section 103 15. Amendment of section 103A 16. Amendment of section 107C 17. Amendment of section 108 4 Laws of Malaysia ACT 631 Section 18. Amendment of Schedule 1 19. Amendment of Schedule 3 20. Amendment of Schedule 6 CHAPTER III AMENDMENT TO THE FINANCE (NO. 2) ACT 1998 21. Amendment of section 3 CHAPTER IV AMENDMENT TO THE INCOME TAX (AMENDMENT) ACT 2000 22. Amendment of section 24 CHAPTER V AMENDMENT TO THE PETROLEUM (INCOME TAX) ACT 1967 23. Amendment of section 18 CHAPTER VI AMENDMENTS TO THE LABUAN OFFSHORE BUSINESS ACTIVITY TAX ACT 1990 24. Commencement of amendments to the Labuan Offshore Business Activity Tax Act 1990 25. New section 8A 26. Amendment of section 11 Finance 5 LAWS OF MALAYSIA Act 631 FINANCE ACT 2003 An Act to amend the Income Tax Act 1967, the Finance (No. 2) Act 1998, the Income Tax (Amendment) Act 2000, the Petroleum (Income Tax) Act 1967 and the Labuan Offshore Business Activity Tax Act 1990. [ ] ENACTED by the Parliament of Malaysia as follows: CHAPTER I PRELIMINARY Short title 1. This Act may be cited as the Finance Act 2003. Amendments of Acts 2. The Income Tax Act 1967 [Act 53], the Finance (No. 2) Act 1998 [Act 591], the Income Tax (Amendment) Act 2000 [Act A1093], the Petroleum (Income Tax) Act 1967 [Act 543] and the Labuan Offshore Business Activity Tax Act 1990 [Act 445] are amended in the manner specified in Chapters II, III, IV, V and VI respectively. CHAPTER II AMENDMENTS TO THE INCOME TAX ACT 1967 Commencement of amendments to the Income Tax Act 1967 3. (1) Sections 4, 6, 8 and 16 and paragraphs 17(a) and 19(b) have effect for the year of assessment 2003 and subsequent years of assessment. 6 Laws of Malaysia ACT 631 (2) Sections 12 and 15 have effect for the year of assessment 2003. (3) Sections 5, 7, 9, 11, 13, 14, 18 and 20 have effect for the year of assessment 2004 and subsequent years of assessment. (4) Section 10 has effect for the years of assessment 2003, 2004 and 2005. (5) Paragraph 17(b) is deemed to have come into operation on 1 January 2001. (6) Subparagraph 19(a)(i) is deemed to have come into operation on 13 September 2003. (7) Subparagraph 19(a)(ii) has effect for the year of assessment 2000 (current year) and subsequent years of assessment. Amendment of section 2 4. The Income Tax Act 1967, which in this Chapter is referred to as the “principal Act”, is amended in section 2 by inserting after subsection (7) the following subsection: “(8) Subject to subsection (7), any reference in this Act to the disposal of an asset or a lease shall exclude any disposal of an asset or lease by or to a person pursuant to a scheme of financing in accordance with the principles of Syariah.”. Amendment of section 34 5. Subsection 34(6) of the principal Act is amended— (a) by substituting for paragraph (k) the following paragraph: “(k) an amount equal to the expenditure incurred by the relevant person in the relevant period for sponsoring any local or foreign arts or cultural activity approved by the Ministry of Culture, Arts and Tourism: Provided that the amount deducted in respect of expenditure incurred for sponsoring those activities shall not in aggregate exceed three hundred thousand Finance 7 ringgit of which the amount deducted in respect of expenditure incurred in sponsoring foreign arts or cultural activities shall not exceed two hundred thousand ringgit;”; (b) by substituting for paragraph (m) the following paragraph: “(m) an amount equal to the expenditure, not being capital expenditure, incurred by a company in the relevant period for the purposes of— (i) obtaining certification for recognized quality systems and standards, and halal certification, evidenced by a certificate issued by a certification body as determined by the Minister; or (ii) obtaining accreditation for a laboratory or as a certification body, as evidenced by a certificate issued by the Department of Standards Malaysia: Provided that the expenditure incurred in the relevant period shall be deemed to be incurred by that company in the basis period for the year of assessment in which the certificate is issued;”; (c) in paragraph (n), by substituting for the full stop at the end of subparagraph (ii) the words “; and”; and (d) by inserting after paragraph (n) the following paragraph: “(o) an amount equal to the expenditure incurred by a company in the relevant period for participating in international standardization activities approved by the Department of Standards Malaysia.”. Amendment of section 34A 6. Section 34A of the principal Act is amended— (a) in subsection (4)— (i) by substituting for the full stop at the end of that subsection a colon; and 8 Laws of Malaysia ACT 631 (ii) by inserting below that subsection the following proviso to that subsection: “Provided that where subsection (4A) applies, the amount of deduction to be made shall be the amount of expenditure incurred.”; (b) by inserting after subsection (4) the following subsection: “(4A) A pioneer company may, in a return of income for the year of assessment in which the expenditure referred to in subsection (1) had been incurred, elect that the amount of that expenditure be deducted in the first basis period in respect of its post-pioneer business for a year of assessment”; and (c) by inserting after subsection (5) the following subsection: “(6) For the purposes of this section, the words “pioneer company” and “post-pioneer business” have the respective meanings assigned to them under the Promotion of Investments Act 1986.”. Amendment of section 35 7. Subsection 35(2) of the principal Act is amended by substituting for the words “and 34A” the words “, 34A and 34B”. Amendment of section 36 8. Section 36 of the principal Act is amended— (a) in subsection (1)— (i) in paragraph (a)— (A) in subparagraph (iii), by deleting the word “or”; (B) in subparagraph (iv), by substituting for the word “and” the word “or”; and (C) by inserting after subparagraph (iv) the following subparagraph: “(v) such other transaction as may be prescribed; and”; and Finance 9 (ii) in paragraph (b), by inserting after the words “adjusted income” the words “and statutory income”; and (b) in subsection (2)— (i) by substituting for the words “and adjusted income” the words “, adjusted income and statutory income”; and (ii) in paragraph (b), by inserting after the words “adjusted income” the words “and statutory income”. Amendment of section 39 9. Paragraph 39(1)(l) of the principal Act is amended— (a) by substituting for the words “any expenses” the words “a sum equal to fifty percent of any expenses”; and (b) in the proviso to that paragraph— (i) by deleting the word “or” appearing at the end of paragraph (vi); and (ii) by inserting after paragraph (vi) the following paragraph: “(vii) the provision of entertainment which is related wholly to sales arising from the business of that person; or”. New section 46A 10. The principal Act is amended by inserting after section 46 the following section: “Deduction for individual on interest expended 46A. (1) Subject to this section, in the case of an individual who is a resident for the basis year for the relevant year, there shall be allowed for that relevant year personal 10 Laws of Malaysia ACT 631 deduction in respect of interest expended in that basis year by the individual to finance the purchase of a residential property: Provided that— (a) the residential property is the first residential property purchased by the individual to be occupied as his place of residence; (b) the residential property had been purchased from a housing developer or statutory body or co-operative society; (c) the purchase price of the residential property is not less than RM100,000.00 and not more than RM180,000.00; and (d) the Sale and Purchase Agreement for the purchase had been executed on or after 1 June 2003 but not later than 31 May 2004. (2) The amount of deduction to be made under subsection (1) shall be a maximum of— (a) RM5,000 for the year of assessment 2003; (b) RM3,000 for the year of assessment 2004; (c) RM2,000 for the year of assessment 2005. (3) Where— (a) two or more individuals are each entitled to claim deduction for the relevant year under this section for interest expended in respect of the same residential property; and (b) the total amount of interest expended by those individuals in the basis year for that relevant year exceed the amount of deduction allowable for that relevant year under subsection (2), there shall be allowed to each of those individuals for that relevant year an amount to be determined in accordance with the following formula: A x B – C Finance where 11 A is the total amount of deduction allowed under subsection (2) for that relevant year; B is the total interest expended in the basis year for that relevant year by that individual; and C is the total interest expended in the basis year for that relevant year by all such individuals. (4) For the purposes of subsection (1), any amount expended by the wife or the husband in the relevant year, where— (a) subsection 45(2) applies, shall be deemed to have been expended by the husband of the wife who elects or by the wife of the husband who elects, as the case may be; or (b) the wife or the husband has no total income, shall be deemed to have been expended by the husband of that wife or the wife of that husband, as the case may be: Provided that where paragraph 45(2)(b) applies or the husband has no total income, any amount expended by the husband shall be deemed to have been expended by the wife who has been allowed a deduction under section 45A. (5) For the purposes of this section— “co-operative society” means a co-operative society registered or deemed to be registered under the Co-operative Societies Act 1993 [Act 502]; “first residential property” includes a second residential property purchased by the individual following the disposal of a low cost property by him; “housing developer” means a housing developer licensed under the Housing Development (Control and Licensing) Act 1966 [Act 118]; “low cost property” means the only residential property owned by the individual and that property had been held by the individual for not less than five years and purchased by him for not more than RM42,000.00; 12 Laws of Malaysia ACT 631 “relevant year” means the year of assessment 2003, 2004 or 2005; “residential property” means a completed house, condominium unit, apartment or flat which had been built as a dwelling house; “statutory body” means a body incorporated by a State or Federal law.”. Amendment of section 48 11. Paragraph 48(2)(a) of the principal Act is amended by substituting for the words “eight hundred” the words “one thousand”. Amendment of section 77 12. Section 77 of the principal Act, which has effect for the year of assessment 2003, is amended— (a) in subsection (1A), by substituting for the word “s