FINANCE ACT 1995

Finance LAWS OF MALAYSIA Reprint Act 531 Finance Act 1995 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 1995 Date of Royal Assent ... ... ... … … 7 February 1995 Date of publication in the Gazette … … 16 February 1995 Previous Reprint First Reprint ... ... ... ... ... 2002  LAWS OF MALAYSIA Act 531 FINANCE ACT 1995 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 3 5. Amendment of section 6a 6. Amendment of section 34b 7. Amendment of section 39 8. Amendment of section 44 9. Amendment of section 46 10. Amendment of section 47 11. Amendment of section 48 12. Amendment of section 60 13. New section 60ab 14. Amendment of section 60e 15. Amendment of section 65a 16. Amendment of section 108 17. Amendment of section 110 18. Amendment of section 154  Laws of Malaysia Act 531 Section 19. Amendment of Schedule 1 20. Amendment of Schedule 3 21. Amendment of Schedule 6 Chapter III AMENDMENTS TO THE PETROLEUM (INCOME TAX) ACT 1967 22. Commencement of amendments to the Petroleum (Income Tax) Act 1967 23. Amendment of section 2 24. Amendment of section 16 25. Amendment of section 22 Chapter IV AMENDMENT TO THE STAMP ACT 1949 26. Commencement of amendment to the Stamp Act 1949 27. Amendment of section 20b Chapter V AMENDMENTS TO THE PROMOTION OF INVESTMENTS ACT 1986 28. Commencement of amendments to the Promotion of Investments Act 1986 29. Amendment of section 2 30. Amendment of section 4b 31. New section 26g 32. New section 27g 33. Amendment of section 28 34. New section 29h 35. Amendment of section 37  Finance LAWS OF MALAYSIA Act 531 FINANCE ACT 1995 An Act to amend the Income Tax Act 1967, the Petroleum (Income Tax) Act 1967, the Stamp Act 1949 and the Promotion of Investments Act 1986. [ ] 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: Chapter I PRELIMINARY Short title 1. This Act may be cited as the Finance Act 1995. Amendments of Acts 2. The Income Tax Act 1967 [Act 53], the Petroleum (Income Tax) Act 1967 [Act 543], the Stamp Act 1949 [Act 378] and the Promotion of Investments Act 1986 [Act 327] 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) Except for section 6, paragraphs 19(c) and (e), this Chapter shall have effect for the year of assessment 1995 and subsequent years of assessment.  Laws of Malaysia Act 531 (2) Section 6 (except for subparagraph 6(a)(i)) shall have effect for the year of assessment 1994 and subsequent years of assessment. (3) Subparagraph 6(a)(i) shall be deemed to have come into force for the year of assessment 1991. (4) Paragraphs 19(c) and (e) shall come into force on 28 October 1994. Amendment of section 3 4. The Income Tax Act 1967, which is referred to as the “principal Act” in this Chapter, is amended by inserting after section 3b the following section: “Nonchargeability to tax in respect of income received in Malaysia from outside Malaysia 3c. Notwithstanding section 3, tax shall not be charged under this Act on income arising from sources outside Malaysia and received in Malaysia by a resident company (other than a company carrying on the business of banking, insurance, shipping and air transport).”. Amendment of section 6a 5. Subsection 6a(2) of the principal Act is amended— (a) in paragraph (a) by substituting for the word “ninety” the words “one hundred and ten”; and (b) in paragraph (b) by substituting for the word “fifty” the word “sixty”. Amendment of section 34b 6. Section 34b of the principal Act is amended— (a) in subsection (1)— (i) by substituting for the words “subsection (3)” the words “subsection (2)”; (ii) by deleting the word “or” at the end of paragraph (a); Finance  (iii) by substituting for the full stop at the end of paragraph (b) the punctuation mark and word “; or”; and (iv) by inserting after paragraph (b) the following paragraph: “(c) payment for the use of the services of a research and development company or a contract research and development company.”; (b) by substituting for the full stop at the end of subsection (2) a colon and inserting thereafter the following proviso: “Provided that no deduction in respect of that expenditure shall be made under this section to a person being a related company of a research and development company which has been given approval under subsection 27d(1) of the Promotion of Investments Act 1986 and whose period as prescribed under paragraph 29e(2)(b) of that Act has not ended.”; and (c) by substituting for the full stop at the end of paragraph (4)(b) a semicolon and inserting thereafter the following paragraph: “(c) a “contract research and development company”, a “related company” and a “research and development company” have the meaning assigned thereto in section 2 of the Promotion of Investments Act 1986.”. Amendment of section 39 7. The proviso to paragraph 39(1)(l) of the principal Act is amended— (a) by deleting the word “or” at the end of subparagraph (iv); and (b) by inserting after subparagraph (v) the following subparagraph: “(vi) the provision of promotional gifts within Malaysia consisting of articles incorporating a conspicuous advertisement or logo of the business; or”.  Laws of Malaysia Act 531 Amendment of section 44 8. Section 44 of the principal Act is amended— (a) in subsection (1)— (i) by deleting the word “and” at the end of paragraph (b); (ii) by substituting for paragraph (c) the following paragraph: “(c) next, by any deduction falling to be so made pursuant to subsection (6); and”; and (iii) by inserting after paragraph (c) the following paragraph: “(d) thereafter, in respect of an individual, by any deduction falling to be so made pursuant to subsection (8).”; (b) in the proviso to subsection (6) by substituting for the words “31 January 1994” the words “30 June 1994”; (c) in subsection (7), in the definition of “institution”— (i) by deleting the word “or” at the end of paragraph (d); (ii) by inserting the word “or” at the end of paragraph (e); and (iii) by inserting after paragraph (e) the following paragraph: “(f) a technical or vocational training institute established and maintained by a statutory body;”; and (d) by inserting after subsection (7) the following subsection: “(8) There shall be deducted pursuant to this subsection from the aggregate income of a person to whom paragraph 34(6)(g) does not apply, for the relevant year reduced by any deduction for that year pursuant to subsection (2) or Schedule Finance  4, 4a or 4b, an amount equal to any gift of money made by him in the basis year for that year, for the provision of library facilities which are accessible to the public and in respect of contributions to public libraries and libraries of schools and institutions of higher education, not exceeding twenty thousand ringgit.”. Amendment of section 46 9. Section 46 of the principal Act is amended— (a) by deleting the word “and” at the end of paragraph (c); (b) by substituting for the full stop at the end of paragraph (d) a semicolon; and (c) by inserting after paragraph (d) the following paragraphs: “(e) a further five thousand ringgit for that individual if he is a disabled person; and (f) an amount limited to a maximum of two thousand ringgit on fees expended in that basis year by that individual for any course of study in any institution in Malaysia recognized by the Government undertaken for the purpose of acquiring technical, vocational or industrial skills.”. Amendment of section 47 10. Section 47 of the principal Act is amended— (a) by substituting for subsection (1) the following subsection: “(1) In the case of an individual resident for the basis year for a year of assessment who in that basis year had a wife living together with him, there shall, subject to subsections (3) and (4), be allowed for that year of assessment a deduction of— (a) three thousand ringgit for the wife; and (b) a further two thousand five hundred ringgit for the wife if she is a disabled person.”; and 10 Laws of Malaysia Act 531 (b) in subsection (3) by substituting for the words “subsections (1) and (2)” the words “paragraph (1)(a) and subsection (2)”. Amendment of section 48 11. Section 48 of the principal Act is amended— (a) in paragraph (2)(a) by deleting the words “for the first five children in order of age,”; and (b) by deleting subsection (7). Amendment of section 60 12. Section 60 of the principal Act is amended— (a) by substituting for the full stop at the end of subparagraph (2)(b)(ii) a semicolon and inserting thereafter the following paragraph: “(c) where an insurer carries on life business, the income of the life fund shall be treated as a separate source of income from the income of the shareholders’ fund in respect of the life business.”; (b) by substituting for subsection (3) the following subsections: “(3) The adjusted income of the life fund for the basis period for a year of assessment of an insurer resident for the basis year for that year of assessment shall be ascertained by— (a) taking the aggregate of— (i) the amount of gross income for that period from the investments made out of any of the insurer’s life funds; and (ii) the amount of any gross proceeds (whether or not of an income nature) which are not gross income to which subparagraph (i) applies and which are first receivable in that period Finance 11 in connection with the realization of those investments or any rights arising from them; and (b) deducting from that aggregate where subparagraph (a)(ii) is applicable for that period to gross proceeds receivable in connection with any investments or rights, the cost of acquiring and realizing those investments or rights. (3a) The adjusted income of the shareholders’ fund for the basis period for a year of assessment of an insurer resident for the basis year for that year of assessment shall be ascertained by— (a) taking the aggregate of— (i) the amount of gross income for that period from the investments made out of any of the shareholders’ funds; and (ii) the amount of any gross proceeds (whether or not of an income nature) which are not gross income to which subparagraph (i) applies and which are first receivable in that period in connection with the realization of those investments or any rights arising from them; and (iii) the amount of the actuarial surplus (subject to any adjustment as the Director General may think fit to make in accordance with the provisions of this Act) for that period arising from the life fund as is apportioned to the shareholders’ fund; and (b) deducting from that aggregate where subparagraph (a)(ii) is applicable for that period to gross proceeds receivable in connection with any investments or rights, the cost of acquiring and realizing those investments or rights.”; 12 Laws of Malaysia Act 531 (c) by substituting for subsection (4) the following subsections: “(4) The adjusted income of the life fund of an insurer not resident for the basis year for that year of assessment shall where that business is wholly or partly carried on in Malaysia be ascertained by— (a) taking the aggregate of— (i) the amount of gross income for that period from investments made (in Malaysia or elsewhere) out of the insurer’s Malaysian life fund; and (ii) the amount of any gross proceeds (whether or not of an income nature