FINANCE ACT 1996

Finance LAWS OF MALAYSIA REPRINT Act 544 FINANCE ACT 1996 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 1996 Date of Royal Assent ... ... ... … … 24 January 1996 Date of publication in the Gazette … … 1 February 1996 PREVIOUS REPRINT First Reprint ... ... ... ... ... 2001 3 LAWS OF MALAYSIA Act 544 FINANCE ACT 1996 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 6 5. Amendment of section 34 6. Amendment of section 46 7. Amendment of section 48 8. Amendment of section 49 9. Amendment of section 50 10. Amendment of section 60 11. Amendment of section 60E 12. New section 60G 13. Amendment of section 133A 14. Amendment of Schedule 1 15. Amendment of Schedule 3 16. Amendment of Schedule 6 17. Amendment of Schedule 7A 18. New Schedule 7B 4 Laws of Malaysia ACT 544 CHAPTER III AMENDMENTS TO THE REAL PROPERTY GAINS TAX ACT 1976 Section 19. Commencent of amendments to the Real Property Gains Tax Act 1976 20. Amendment of Schedule 5 CHAPTER IV AMENDMENTS TO THE PETROLEUM (INCOME TAX) ACT 1967 21. Commencement of amendments to the Petroleum (Income Tax) Act 1967 22. Amendment of section 16 CHAPTER V AMENDMENTS TO THE STAMP ACT 1949 23. Commencement of amendments to the Stamp Act 1949 24. Amendment of section 36 25. Amendment of First Schedule CHAPTER VI AMENDMENTS TO THE LABUAN OFFSHORE BUSINESS ACTIVITY TAX ACT 1990 26. Commencement of amendments to the Labuan Offshore Business Activity Tax Act 1990 27. Amendment of section 2 CHAPTER VII AMENDMENTS TO THE GOODS VEHICLE LEVY ACT 1983 28. Commencement of amendments to the Goods Vehicle Levy Act 1983 29. Amendment of long title 30. Amendment of section 3 Finance 5 LAWS OF MALAYSIA Act 544 FINANCE ACT 1996 An Act to amend the Income Tax Act 1967, the Real Property Gains Tax Act 1976, the Petroleum (Income Tax) Act 1967, the Stamp Act 1949, the Labuan Offshore Business Activity Tax Act 1990 and the Goods Vehicle Levy Act 1983. [ ] 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 1996. Amendments of Acts 2. The Income Tax Act 1967 [Act 53], the Real Property Gains Tax Act 1976 [Act 169], the *Petroleum (Income Tax) Act 1967 [Act 45 of 1967], the Stamp Act 1949 [Act 378], the Labuan Offshore Business Activity Tax Act 1990 [Act 445] and the Goods Vehicle Levy Act 1983 [Act 294] are amended in the manner specified in Chapters II, III, IV, V, VI and VII respectively. *NOTE—The Petroleum (Income Tax) 1967 [Act 45 of 1967] has since been revised as the Petroleum (Income Tax) Act 1967 [Act 543]. 6 Laws of Malaysia ACT 544 CHAPTER II AMENDMENTS TO THE INCOME TAX ACT 1967 Commencement of amendments to the Income Tax Act 1967 3. (1) Except for paragraphs 10(a), 10(b), 11(a), 11(b), 16(c) and section 17, this Chapter shall have effect for the year of assessment 1996 and subsequent years of assessment. (2) Paragraphs 10(a), 10(b), 11(a), 11(b) and 16(c) shall have effect for the year of assessment 1995 and subsequent years of assessment. (3) Section 17 shall have effect for the year of assessment 1997 and subsequent years of assessment. Amendment of section 6 4. The Income Tax Act 1967, which is referred to as the “principal Act” in this Chapter, is amended in subsection 6(1)— (a) by substituting for the full stop at the end of paragraph (g) a semicolon; and (b) by inserting after paragraph (g) the following paragraph: “(h) income tax shall be charged for each year of assessment upon the chargeable income of a foreign fund management company in relation to the source consisting of the provision of fund management services to foreign investors for that year at the appropriate rate as specified in Part IX of Schedule 1.”. Amendment of section 34 5. Paragraph 34(4)(a) of the principal Act is amended by substituting for the word “sixteen” the word “seventeen”. Finance 7 Amendment of section 46 6. Section 46 of the principal Act is amended— (a) in paragraph (c) by substituting for the word “one” the word “five”; and (b) in paragraph (d) by substituting for the word “three” the word “five”. Amendment of section 48 7. Section 48 of the principal Act is amended— (a) in subsection (1) by substituting for the proviso to that subsection the following proviso: “ Provided that where a wife living together with her husband is assessed separately for any year of assessment on her income, she may elect in writing that the appropriate deduction be wholly allowed to her for that year of assessment.”; (b) in paragraph (2)(b) by substituting for the words “one thousand six hundred” the words “five thousand”; and (c) by substituting for subsection (9) the following subsection: “ (9) In this section “child”, in relation to an individual or his wife, means a legitimate child or step-child of his or his wife, or a child proved to the satisfaction of the Director General to have been adopted by the individual or his wife in accordance with any law.”. Amendment of section 49 8. Section 49 of the principal Act is amended— (a) by inserting after subsection (1A) the following subsection: “(1 B ) (a) Subject to this section, in the case of an individual resident for the basis year for a year of assessment who has paid any premium for insurance on education or for medical benefits, there shall be allowed for that year of assessment in addition to the deduction allowed under subsection (1), 8 Laws of Malaysia ACT 544 a deduction of the aggregate amount of the payments or a deduction of two thousand ringgit, whichever is the less; (b) where paragraph 50(3)(b) applies there shall be allowed for that year of assessment, in addition to the deduction allowed under this subsection, a deduction of the aggregate amount of the payments for any premium for insurance on education or for medical benefits or a deduction of two thousand ringgit, whichever is the less: Provided that where the wife has no total income the total deduction under this subsection shall not exceed two thousand ringgit.”; and (b) by inserting after subsection (3) the following subsection: “(4) For the purposes of subsection (1B) reference to an insurance means an insurance contracted for by an individual for himself, his wife or child, or in the case of a wife, for herself, her husband or child.”. Amendment of section 50 9. Section 50 of the principal Act is amended— (a) by deleting subsection (2); and (b) in paragraph (3)(b) by inserting after the words “paragraph (a)” the words “and any premium for any insurance on education or medical benefits”. Amendment of section 60 10. Section 60 of the principal Act is amended— (a) by substituting for paragraph (3 A )(b) the following paragraph: “(b) deducting from that aggregate— (i) 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 realising those investments or rights; and Finance 9 (ii) so much of the amount transferred from the shareholders’ fund as is equal to the actuarial deficit (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.”; (b) by substituting for paragraph (4 A )(b) the following paragraph: “(b) deducting from that aggregate— (i) 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 realising those investments or rights; and (ii) so much of the amount transferred from the shareholders’ fund as is equal to the actuarial deficit (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.”; and (c) by substituting for subsection (7) the following subsection: “(7) Where an insurer carrying on general business has re-insured the risk or part of the risk with a re-insurer who either does not carry on the business of insuring risks of that kind in Malaysia or does not re-insure the risk through a branch in Malaysia, there may be deducted under subparagraph (5)(b)(ii) or (6)(b)(ii) in respect of such risks which are re-insured only ninety-five per cent of the amount which would otherwise be deductible: Provided that in a case to which subsection (6), (6 A) or (6B) applies— (a) the insurer may elect that no deductions shall be made under subparagraph (6)(b)(ii); and 10 Laws of Malaysia ACT 544 (b) where he does so— (i) the election shall be irrevocable and shall apply in relation to the basis period for the year of assessment for which it is made and for the basis periods for all subsequent years of assessment; and (ii) amounts recoverable under reinsurance contracts shall be disregarded for the purposes of subparagraph (6)(a)(iv).”. Amendment of section 60E 11. Subsection 60E(7) of the principal Act is amended— (a) in the definition of “qualifying services” by substituting for paragraph (b) the following paragraph: “(b) provision of treasury and fund management services to its offices outside Malaysia or its related companies outside Malaysia and, where such services include the provision of credit facilities, the funds for providing such facilities can be obtained from outside Malaysia or within Malaysia and where such funds are obtained from within Malaysia the amount shall not exceed ten million ringgit; and”; and (b) in the definition of “related company”— (i) by substituting for the colon at the end of paragraph (c) a full stop; and (ii) by deleting the proviso thereto. New section 60G 12. The principal Act is amended by inserting after section 60F the following section: “Foreign fund management company 60G. (1) Where a foreign fund management company carries on business in Malaysia of providing fund management services to foreign and local investors, the income derived from the provision of fund management services to foreign investors Finance 11 shall be treated as a separate and distinct business source from that source of income derived from the provision of fund management services to local investors. (2) The chargeable income in relation to the source consisting of the provision of fund management services to foreign investors 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 fund management services to foreign investors 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 fund management service to foreign investors. (4) The chargeable income of a foreign fund management company, resident in Malaysia for the basis year for a year of assessment in relation to the source consisting of the provision of fund management services to foreign investors, after deduction of the tax thereon, shall be credited to an account to be kept by