FINANCE (NO. 2) ACT 2002

Finance (No. 2) LAWS OF MALAYSIA REPRINT Act 624 FINANCE (NO. 2) ACT 2002 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 (NO. 2) ACT 2002 Date of Royal Assent ... ... ... … … 20 December 2002 Date of publication in the Gazette … … 26 December 2002 PREVIOUS REPRINT First Reprint ... ... ... ... ... 2004 3 LAWS OF MALAYSIA Act 624 FINANCE (NO. 2) ACT 2002 ARRANGEMENT OF SECTIONS CHAPTER I PRELIMINARY Section 1. Short title 2. Amendment 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 6 5. Amendment of section 7 6. Deletion of section 11 7. Amendment of section 15A 8. Amendment of section 18 9. Deletion of section 31 10. Deletion of section 37 11. Amendment of section 38 12. Amendment of section 60C 13. Deletion of section 60E 14. Amendment of section 75 15. New section 75A 16. Amendment of section 82 17. New section 82A 18. Amendment of section 107A 4 Laws of Malaysia ACT 624 Section 19. Amendment of section 108 20. Amendment of section 111 21. Deletion of section 128 22. Amendment of section 131 23. Amendment of Schedule 1 24. Amendment of Schedule 3 25. Amendment of Schedule 4 26. Amendment of Schedule 4A 27. Amendment of Schedule 4C 28. Amendment of Schedule 6 29. Amendment of Schedule 7A CHAPTER III AMENDMENTS TO THE INCOME TAX (AMENDMENT) ACT 2002 30. Commencement of amendments to the Income Tax (Amendment) Act 2002 31. Amendment of section 30 32. Amendment of section 31 CHAPTER IV AMENDMENTS TO THE STAMP ACT 1949 33. Commencement of amendments to the Stamp Act 1949 34. Amendment of section 9 35. Amendment of section 47 A 36. Amendment of First Schedule CHAPTER V AMENDMENTS TO THE LABUAN OFFSHORE BUSINESS ACTIVITY TAX ACT 1990 37. Commencement of amendments to the Labuan Offshore Business Activity Tax Act 1990 38. Amendment of section 2 39. Amendment of section 16 40. New section 26 Finance (No. 2) 5 LAWS OF MALAYSIA Act 624 FINANCE (NO. 2) ACT 2002 An Act to amend the Income Tax Act 1967, the Income Tax (Amendment) Act 2002, the Stamp Act 1949 and the Labuan Offshore Business Activity Tax Act 1990. [ ] ENACTED by the Parliament of Malaysia as follows: C HAPTER I PRELIMINARY Short title 1. This Act may be cited as the Finance (No. 2) Act 2002. Amendment of Acts 2. The Income Tax Act 1967 [Act 53], the Income Tax (Amendment) Act 2002 [Act A1151], the Stamp Act 1949 [Act 378] and the Labuan Offshore Business Activity Tax Act 1990 [Act 445] are amended in the manner specified in Chapters II, III, IV and V respectively. C HAPTER II AMENDMENTS TO THE INCOME TAX ACT 1967 Commencement of amendments to the Income Tax Act 1967 3. (1) Sections 4, 6, 8, 9, 10, 11, 12, 13, 16, 17, paragraph 19(a), sections 20, 21, 22, 23, 28 and 29 shall have effect for the year of assessment 2003 and subsequent years of assessment. 6 Laws of Malaysia ACT 624 (2) Section 5 is deemed to have effect from the year of assessment 2002 and subsequent years of assessment. (3) Sections 7, 18 and 24 shall come into operation on 21 September 2002. (4) Sections 14, 15 and 27 shall have effect on the coming into operation of this Act. (5) Paragraph 19(b) is deemed to have effect from the year of assessment 2001 and subsequent years of assessment. (6) Sections 25 and 26 are deemed to have effect from the year of assessment 2000 (current year) and subsequent years of assessment. Amendment of section 6 4. Section 6 of the principal Act is amended by deleting paragraph (1)(g). Amendment of section 7 5. Section 7 of the principal Act is amended in paragraph (1)(b) in the proviso by inserting after the words “such period” the words “or that period, as the case may be, if he is in Malaysia immediately prior to and after that temporary absence”. Deletion of section 11 6. The principal Act is amended by deleting section 11. Amendment of section 15A 7. Section 15A of the principal Act is amended— (a) by substituting for the full stop at the end of subparagraph (iii) a colon; and (b) by inserting below subparagraph (iii) the following proviso to section 15A: “Provided that in respect of paragraphs (a) and (b), this section shall apply to the amount attributable to services which are performed in Malaysia.”. Finance (No. 2) 7 Amendment of section 18 8. Section 18 of the principal Act is amended by inserting after the definition of “insurance” the following definition: ‘ “licensed Malaysian offshore bank” has the meaning assigned to it by the Labuan Offshore Business Activity Tax Act 1990 [Act 445];’. Deletion of section 31 9. The principal Act is amended by deleting section 31. Deletion of section 37 10. The principal Act is amended by deleting section 37. Amendment of section 38 11. Section 38 of the principal Act is amended— (a) by substituting for subparagraph (1)(b)(ii) the following subparagraph: “(ii) any expenses incurred for the repair or maintenance of the premises (excluding expenses of a capital nature and expenses incurred in connection with the upkeep of land attached to the premises for use by way of amenity as garden or grounds) which the employee, pursuant to the terms on which that accommodation is so provided, is legally bound to meet in respect of that accommodation during that period;”; (b) in subsection (4), by substituting for the words “paragraph 37(3)(b)” the words “subsection (6)”; and 8 Laws of Malaysia ACT 624 (c) by inserting after subsection (5) the following subsection: “(6) In the application of subsection (4) in relation to a person’s gross income from his employment where the expenses, to which subparagraph (1)(b)(ii) applies is payable for a period (in this subsection referred to as the “overlapping period”) which overlaps the basis period or part of the basis period, the amount of the expense to be deducted from that gross income shall be determined in accordance with the following formula: A x C — B where A is the number of days living accommodation is provided in the basis period or part of the basis period that falls in the overlapping period; B is the total number of days in the overlapping period; and C is the amount of expenses to which subparagraph (1)(b)(ii) applies.”. Amendment of section 60C 12. Section 60C of the principal Act is amended by inserting after the word “derived” the words “excluding the gross income, adjusted income or adjusted loss and statutory income attributable to an offshore business activity of a licensed Malaysian offshore bank”. Deletion of section 60 E 13. The principal Act is amended by deleting section 60 E. Amendment of section 75 14. Section 75 of the principal Act is amended in subsection (1)— (a) by substituting for the words “Notwithstanding anything to the contrary to this Act or any other written law, the” the word “The”; and (b) by deleting the words “including the payment of tax”. Finance (No. 2) 9 New section 75A 15. The principal Act is amended by inserting after section 75 the following section: “Director’s liability 75A. (1) Notwithstanding anything to the contrary to this Act or any other written law, where any tax is due and payable under this Act by a company, any person who is a director of that company during the period in which that tax is liable to be paid, shall be jointly and severally liable for such tax that is due and payable and shall be recoverable under section 106 from that person. (2) In this section, “director” means any person who— (a) is occupying the position of director (by whatever name called), including any person who is concerned in the management of the company’s business; and (b) is, either on his own or with one or more associates within the meaning of subsection 139(7), the owner of, or able directly or through the medium of other companies or by any other indirect means to control, more than fifty per cent of the ordinary share capital of the company (“ordinary share capital” here having the same meaning as in the definition of “director” in section 2).”. Amendment of section 82 16. Section 82 of the principal Act is amended in subsection (1) by substituting for the word “Subject” the words “Notwithstanding section 82 A and subject”. New section 82A 17. The principal Act is amended by inserting after section 82 the following section: “Duty to keep documents for ascertaining chargeable income and tax payable 82A. (1) Subject to this section, every person who is required to furnish a return of his income for a year of assessment 10 Laws of Malaysia ACT 624 under this Act shall keep and retain in safe custody sufficient documents for a period of seven years from the end of that year of assessment for the purposes of ascertaining his chargeable income and tax payable. (2) Where a person referred to in subsection (1) has not furnished a return as required under this Act for a year of assessment, that person shall keep and retain the documents referred to in subsection (1) that relate to that year of assessment for a period of seven years after the end of the year in which the return is furnished. (3) The Director General may waive all or any of the provisions of subsection (1) in respect of any income or deductions. (4) Any person who is required by this section to keep documents and— (a) does so electronically shall retain them in an electronically readable form and shall keep the documents in such a manner as to enable the documents to be readily accessible and convertible into writing; or (b) has originally kept documents in a manual form and subsequently converts those documents into an electronic form shall retain those documents prior to the conversion in their original form. (5) All documents that relate to any income in Malaysia shall be kept and retained in Malaysia. (6) For the purposes of this section, “documents” means— (a) statement of income and expenditure; and (b) invoices, vouchers, receipts and such other documents as are necessary to verify the particulars in a return.”. Amendment of section 107 A 18. Section 107A of the principal Act is amended— (a) in paragraph (1)(a), by substituting for the word “fifteen” the word “ten”; and Finance (No. 2) 11 (b) in paragraph (1)(b), by substituting for the word “five” the word “three”. Amendment of section 108 19. Section 108 of the principal Act is amended— (a) by inserting after subsection (1) the following subsection: “(1A) For the purposes of subsection (1), where a company to which paragraph 2A of Schedule 1 applies, the rate applicable to that company shall be the higher of the two rates specified in that paragraph.”; and (b) by inserting after subsection (15) the following subsection: “(16) Notwithstanding the foregoing subsections, where— (a) the excess is increased by an amount under subsection (7) or (9); or (b) the amount due is increased by an amount under subsection (10), the Director General may in his discretion, for any good cause shown, remit the whole or any part of that amount and, where the amount remitted has been paid, the Director General shall repay the same.”. Amendment of section 111 20. Section 111 of the principal Act is amended by inserting after subsection (1) the following subsections: “(1A) Where a company has furnished a return in accordance with subsection 77(1A) to the Director General for a year of assessment and that company has paid tax in excess of the amount payable— (a) that return shall be deemed to be a notification under subsection (1); and (b) that company is deemed to have been notified of the excess amount on the day that return is furnished. 12 Laws of Malaysia ACT 624 (1B ) Where subsection (1 A) applies— (a) the reference to tax shall be taken to be a reference to an amount of t