FINANCE ACT 2004

Finance LAWS OF MALAYSIA Reprint Act 639 FINANCE ACT 2004 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   Finance act 2004 Date of Royal Assent ... … … … .... … 24 December 2004 Date of publication in the Gazette … … 30 December 2004  LAWS OF MALAYSIA Act 639 FINANCE ACT 2004 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 6 6. Amendment of section 6a 7. Amendment of section 34 8. Amendment of section 44 9. Amendment of section 45a 10. Amendment of section 46 11. Amendment of section 47 12. Amendment of section 49 13. Amendment of section 61 14. New section 61a 15. Amendment of section 63a 16. Amendment of section 63b 17. New section 63c 18. Special provision relating to section 63c  Laws of Malaysia Act 639 Section 19. New section 63d 20. Amendment of section 77 21. Amendment of section 86 22. Amendment of section 103 23. New section 109d 24. New section 111b 25. New section 111c 26. Amendment of section 151 27. Amendment of Schedule 1 28. Amendment of Schedule 3 29. Special provision relating to paragraph 3 of Schedule 3 30. Special provision relating to paragraph 35 of Schedule 3 31. Amendment of Schedule 4a 32. Amendment of Schedule 4c 33. Amendment of Schedule 6 Chapter III AMENDMENTS TO THE PETROLEUM (INCOME TAX) ACT 1967 34. Commencement of amendments to the Petroleum (Income Tax) Act 1967 35. Amendment of section 2 36. Amendment of section 18 37. Amendment of Second Schedule 38. Special provision relating to paragraph 3 of Second Schedule 39. Special provision relating to paragraph 18 of Second Schedule Chapter IV AMENDMENT TO THE REAL PROPERTY GAINS TAX ACT 1976 40. Commencement of amendment to the Real Property Gains Tax Act 1976 41. Amendment of Schedule 2 Finance Chapter V AMENDMENT TO THE STAMP ACT 1949 Section 42. Commencement of amendment to the Stamp Act 1949 43. Amendment of First Schedule   Laws of Malaysia Act 639  Finance LAWS OF MALAYSIA Act 639 FINANCE ACT 2004 An Act to amend the Income Tax Act 1967, the Petroleum (Income Tax) Act 1967, the Real Property Gains Tax Act 1976 and the Stamp Act 1949. [ ] ENACTED by the Parliament of Malaysia as follows: Chapter I PRELIMINARY Short title 1. This Act may be cited as the Finance Act 2004. Amendments of Acts 2. The Income Tax Act 1967 [Act 53], the Petroleum (Income Tax) Act 1967 [Act 543], the Real Property Gains Tax Act 1976 [Act 169] and the Stamp Act 1949 [Act 378] are amended in the manner specified in Chapters II, III, IV and V respectively. Chapter II AMENDMENTS TO THE INCOME TAX ACT 1967 Commencement of amendments to the Income Tax Act 1967 3. (1) Sections 4, 5, 6, and subparagraph 7(b)(ii) and sections 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 23, 27, 28, 29, 30, 31 and 32 have effect for the year of assessment 2005 and subsequent years of assessment.  Laws of Malaysia Act 639 (2) Paragraph 7(a) has effect for the year of assessment 2001 and subsequent years of assessment. (3) Subparagraph 7(b)(i) and sections 20, 21 and 22 have effect for the year of assessment 2004 and subsequent years of assessment. (4) Sections 24, 25 and 26 shall come into operation on 1 January 2005. (5) Paragraph 33(a) has effect for the year of assessment 2003 and subsequent years of assessment. (6) Paragraph 33(b) is deemed to have come into operation on 11 September 2004. Amendment of section 2 4. The Income Tax Act 1967, which is referred to as the “principal Act” in this Chapter, is amended in section 2— (a) in subsection (1)— (i) by inserting after the definition of “business” the following definition:   ‘ “Central Bank” means the Central Bank of Malaysia established under section 3 of the Central Bank of Malaysia Act 1958 [Act 519]’; and (ii) by inserting after the definition of “royalty” the following definition:   ‘ “Securities Commission” means the Securities Commission established under section 3 of the Securities Commission Act 1993 [Act 498]’; and (b) in subsection (8) by substituting for the words “in accordance with the principles of Syariah” the words “approved by the Central Bank or the Securities Commission, as a scheme which is in accordance with the principles of Syariah where such disposal is strictly required for the purpose of complying with those principles but which will not be required in any other schemes of financing”. Finance  Amendment of section 6 5. Subsection 6(1) of the principal Act is amended— (a) in paragraph (h) by substituting for the full stop at the end of that paragraph a semicolon; and (b) by inserting after paragraph (h) the following paragraph: “(i) subject to section 109d but notwithstanding any other provisions of this Act, income tax shall be charged for each year of assessment upon the income of a non-resident unit holder which consists of income distributed by the unit trust referred to in section 61a at the appropriate rate as specified under Part X of Schedule 1.”. Amendment of section 6a 6. Subsection 6a(3a) of the principal Act is amended by substituting for the words “four hundred” the words “five hundred”. Amendment of section 34 7. Section 34 of the principal Act is amended— (a) by inserting after subsection (3) the following subsections:   “(3a) The reference to the debt which is partly irrecoverable under paragraph (2)(b), shall be deemed, in the case of a bank, to include all interest in respect of a loan or credit facility accrued from the date that such loan or facility is classified as non-performing loan in accordance with the relevant guidelines issued by the Central Bank. (3b) For the purpose of subsection (3a), “bank” means a bank or a finance company or a banking and finance company licensed or deemed to be licensed under the Banking and Financial Institutions Act 1989 [Act 372] or Islamic Banking Act 1983 [Act 276], or an institution prescribed under the Development Financial Institutions Act 2002 [Act 618]”; and 10 Laws of Malaysia Act 639 (b) in subsection (6)— (i) 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 purpose of 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;”; and (ii) by inserting after paragraph (m) as amended the following paragraph: “(ma) an amount twice the amount of the expenditure, not being capital expenditure, incurred by a company in the relevant period for the purpose of obtaining certification for recognized quality systems and standards, and halal certification, evidence by a certificate issued by a certification body as determined by the Minister:  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;”. Amendment of section 44 8. Section 44 of the principal Act is amended— (a) in paragraph (1)(d) by substituting for the words “or (11)” the words “, (11) or (11a)”; and Finance 11 (b) by inserting after subsection (11) the following subsection: “(11 a ) There shall be deducted pursuant to this subsection from the aggregate income of a company for the relevant year reduced by any deduction for that year in accordance with subsection (1) an amount equal to the payment of zakat perniagaan which is paid in the basis period for that relevant year to an appropriate religious authority established under any written law or any person authorized by such religious authority:        Provided that— (a) the amount to be deducted pursuant to this subsection shall not exceed one-fortieth of the aggregate income of the company in the relevant year; and (b) the company is not an offshore company.”. Amendment of section 45a 9. Section 45a of the principal Act is amended by substituting for the word “two” the word “three”. Amendment of section 46 10. Subsection 46(1) of the principal Act is amended— (a) in paragraph (e), by substituting for the word “five” the word “six”; and (b) in paragraph (i), by substituting for the word “five” the word “seven”. Amendment of section 47 11. Paragraph 47(1)(b) of the principal Act is amended by substituting for the word “two” the word “three”. 12 Laws of Malaysia Act 639 Amendment of section 49 12. Section 49 of the principal Act is amended— (a) in subsection (1) by substituting for the word “five” the word “six”; and (b) in subsection (1A) by substituting for the word “five” the word “six”. Amendment of section 61 13. Section 61 of the principal Act is amended— (a) in the proviso to subsection (1a) by substituting for the words “exempt income” the words “income exempt from tax, other than income exempt under section 61a,”; and (b) by inserting after subsection (1a) the following subsection:       “(lb) Any income which is distributed by a unit trust to a unit holder under subsection (1a) shall be deemed to be derived from Malaysia.”. New section 61a 14. The principal Act is amended by inserting after section 61 the following section: “Exemption of Real Estate Investment Trust or Property Trust Fund 61 a . (1) The total income of a unit trust for a year of assessment which is equivalent to the amount of income distributed to the unit holder in the basis period for that year of assessment which is ascertained by reference to the unit holder’s share of that income shall be exempt from tax. (2) In this section, “unit trust” means a unit trust which is approved by the Securities Commission as Real Estate Investment Trust or Property Trust Fund.”. Finance 13 Amendment of section 63a 15. Section 63a of the principal Act is amended by inserting after subsection (5) the following subsection: “(6) This section shall not apply to a unit trust referred to in subsection 61a(2).”. Amendment of section 63b 16. Section 63b of the principal Act is amended by inserting after subsection (2) the following subsection: “(3) This section shall not apply to a unit trust referred to in subsection 61a(2).”. New section 63c 17. The principal Act is amended by inserting after section 63b the following section: “Special treatment on rent from the letting of real property of a Real Estate Investment Trust or Property Trust Fund 63 c . (1) The provision of this section shall apply notwithstanding any other provisions of this Act. (2) Where in the year of assessment, income of a unit trust consists of a rent from the letting of real property, the amount of the rent shall be treated as gross income of a unit trust from a source consisting of a business for that year of assessment. (3) In ascertaining, for a year of assessment, the adjusted income of a unit trust from a source referred to in subsection (2), any deductions to be made under this Act in arriving to that income, in respect of that source for the basis period for that year of assessment shall only be allowed against the gross income from that source but— (a) where the amount of the deduction exceeds the gross income from that source for that year of assessment, the excess shall be disregarded for the purposes of this Act; and 14 Laws of Malaysia Act 639 (b) where that source does not produce any income, the deduction from the gross income of that unit trust from that source of income shall not be allowed.   (4) In ascertaining, for a year of a