FINANCE ACT 2005

LAWS OF MALAYSIA REPRINT Act 644 FINANCE ACT 2005 Incorporating all amendments up to 1 June 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 2 Laws of Malaysia ACT 644 FINANCE ACT 2005 Date of Royal Assent ... ... ... … … 30 December 2005 Date of publication in the Gazette … … 31 December 2005 Finance LAWS OF MALAYSIA Act 644 FINANCE ACT 2005 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 19 5. Amendment of section 25 6. Amendment of section 32 7. Amendment of section 39 8. Amendment of section 43 9. Amendment of section 44 10. Special provision relating to section 44 11. New section 44A 12. Amendment of section 45A 13. Amendment of section 46 14. Amendment of section 48 15. Amendment of section 60 16. Amendment of section 60F 17. New section 60FA 18. Special provision relating to section 60FA 19. Amendment of section 75A 3 4 Laws of Malaysia ACT 644 Section 20. Amendment of section 91 21. Amendment of section 95 22. Amendment of section 107C 23. Amendment of section 111B 24. Amendment of section 125 25. Amendment of section 127 26. Amendment of section 134 27. Amendment of section 136 28. Amendment of section 146 29. Amendment of section 147 30. Amendment of section 153 31. Special provision relating to section 153 32. Amendment of Schedule 3 33. Special provision relating to paragraph 75A 34. Deletion of Schedule 4A 35. Deletion of Schedule 4C 36. Amendment of Schedule 6 37. Amendment of Schedule 7A 38. Saving and transitional provisions CHAPTER III AMENDMENTS TO THE REAL PROPERTY GAINS TAX ACT 1976 39. Commencement of amendments to the Real Property Gains Tax Act 1976 40. Amendment of section 9 41. Amendment of section 15 42. Amendment of section 24 43. New section 24A 44. Amendment of section 45 45. Amendment of section 55 46. Amendment of section 56 47. Amendment of Schedule 2 48. Amendment of Schedule 3 49. Saving and transitional provisions Finance 5 CHAPTER IV AMENDMENTS TO THE STAMP ACT 1949 Section 50. Commencement of amendments to the Stamp Act 1949 51. Amendment of section 21 52. Amendment of section 43 53. Amendment of section 80 54. New section 80A 55. Amendment of First Schedule 56. Amendment of Fifth Schedule CHAPTER V AMENDMENTS TO THE PETROLEUM (INCOME TAX) ACT 1967 57. Commencement of amendments to the Petroleum (Income Tax) Act 1967 58. Amendment of section 2 59. Amendment of section 39 60. New section 50A 61. Amendment of section 69 62. Amendment of section 77 63. Amendment of section 78 64. Amendment of section 81 CHAPTER VI AMENDMENT TO THE LABUAN OFFSHORE BUSINESS ACTIVITY TAX ACT 1990 65. Amendment of section 18 6 Laws of Malaysia ACT 644 7 Finance LAWS OF MALAYSIA Act 644 FINANCE ACT 2005 An Act to amend the Income Tax Act 1967, the Real Property Gains Tax Act 1976, the Stamp Act 1949, 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 2005. Amendment of Acts 2. The Income Tax Act 1967 [Act 53], the Real Property Gains Tax Act 1976 [Act 169], the Stamp Act 1949 [Act 378], 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, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 21, 22, 24, 32, 33, 34, 35, 36 and 37 have effect for the year of assessment 2006 and subsequent years of assessment. 8 Laws of Malaysia ACT 644 (2) Sections 23 and 30 come into operation on 1 January 2006. (3) Section 25 is deemed to have come into operation on 1 October 2005. Amendment of section 19 4. The Income Tax Act 1967, which is referred to as the “principal Act” in this Chapter, is amended in subsection 19(5) by deleting the words “, 4A”. Amendment of section 25 5. Section 25 of the principal Act is amended— (a) in subsection (1), by substituting for the word “Where” the words “Subject to subsection (1A), where”; and (b) by inserting after subsection (1) the following subsection: “(1 A ) The gross income from an employment in respect of any right to acquire shares in a company of the kind to which paragraph 13(1)(a) applies, shall where the right is exercised, assigned, released or acquired in the relevant period be treated as gross income of the relevant person for that relevant period.”. Amendment of section 32 6. Section 32 of the principal Act is amended by inserting after subsection (1) the following subsection: “(1A)(a) Where in the relevant period a relevant person acquired any right to acquire shares in a company of the kind to which paragraph 13(1)(a) applies, under his name or in the name of his nominee or agent, the amount in respect thereof to be included in his gross income from the employment shall be— (i) the market value of the shares where the right shall be exercised, assigned, released or acquired on a specified date or where the right shall be exercised, Finance 9 assigned, released or acquired within a specified period, the first day of that period; or (ii) the market value of the shares on the date of the exercise, assignment, release or acquisition of the right, whichever is the lower less the amount paid for the shares. (b) In this subsection, “market value” means— (i) in the case of a company listed on Bursa Malaysia, the average price of the shares which is ascertained by averaging the highest and the lowest price of the shares for the day; or (ii) in any other case, the net asset value of the shares for the day.”. Amendment of section 39 7. Paragraph 39(1)(e) of the principal Act is amended— (a) by inserting the word “or” at the end of subparagraph (ii); (b) by substituting for the words “; or” at the end of subparagraph (iii) a full stop; and (c) by deleting subparagraph (iv). Amendment of section 43 8. Subsection 43(1) of the principal Act is amended— (a) by substituting for the words “The aggregate” the words “Subject to this Act, the aggregate”; and (b) in paragraph (c), by deleting the words “or 4A”. Amendment of section 44 9. Section 44 of the principal Act is amended— (a) in subsection (1)— (i) in paragraph (b), by substituting for the words “, 4A, 4B or 4C” the words “or 4B”; 10 Laws of Malaysia ACT 644 (ii) in paragraph (c), by deleting the word “and” at the end of that paragraph; (iii) in paragraph (d)— (A) by substituting for the word “thereafter” the word “next”; and (B) by substituting for the full stop at the end of that paragraph the words “; and”; and (iv) by inserting after paragraph (d) the following paragraph: “(e) thereafter, by any deduction falling to be so made pursuant to section 44A.”; (b) by inserting after subsection (5) the following subsections: “(5A) The amount ascertained under subsection (4) or (5) for any relevant year in respect of a company shall be disregarded for the purposes of section 43 unless the Director General is satisfied that the shareholders of that company on the last day of the basis period for that relevant year in which such amount is ascertained were substantially the same as the shareholders of that company on the first day of the basis period for the year of assessment in which such amount would otherwise be deductible under that section and such amount disregarded shall not be allowed as a deduction in subsequent years of assessment. (5B) For the purpose of subsection (5A)— (a) the shareholders of the company at any date shall be substantially the same as the shareholders at any other date if on both those dates— (i) more than fifty per cent of the paid-up capital in respect of the ordinary share of the company is held by or on behalf of the same persons; and (ii) more than fifty per cent of the nominal value of the allotted shares in respect of ordinary share in the company is held by or on behalf of the same persons; and (b) shares in the company held by or on behalf of another company shall be deemed to be held by the shareholders of the last mentioned company. Finance 11 (5C) In subsection (5B), “ordinary share” means any share other than a share which carries only a right to any dividend which is of— (a) a fixed amount or at a fixed rate per cent of the nominal value of the shares; or (b) a fixed rate per cent of the profits of the company. (5D ) Where there is a substantial change in the shareholders of a company referred to in subsection (5A), the Minister may under special circumstances exempt that company from the provisions of that subsection.”; and (c) in subsection (8), by substituting for the words “and in respect of contributions to public libraries” the words “, to public libraries”. Special provision relating to section 44 10. (1) Notwithstanding the provisions of section 43 of the principal Act and subsection 44(5A) of the principal Act as introduced by section 9 of this Act, any amount ascertained under subsection 44(4) or (5) of the principal Act in respect of a company for any year of assessment preceding the year of assessment 2006 shall be disregarded for the purpose of section 43 of the principal Act unless the Director General is satisfied that the shareholders of that company on the last day of the basis period for the year of assessment 2005 were substantially the same as the shareholders of that company on the first day of the basis period for the year of assessment in which such amount would otherwise be deductible under section 43 of the principal Act and such amount disregarded shall not be allowed as a deduction in subsequent years of assessment. (2) For the purpose of subsection (1)— (a) the shareholders of the company at any date shall be substantially the same as the shareholders at any other date if on both those dates— (i) more than fifty per cent of the paid-up capital in respect of the ordinary share of the company is held by or on behalf of the same persons; and 12 Laws of Malaysia ACT 644 (ii) more than fifty per cent of the nominal value of the allotted shares in respect of ordinary share in the company is held by or on behalf of the same persons; (b) shares in the company held by or on behalf of another company shall be deemed to be held by the shareholders of the last mentioned company; and (c) where the basis period of a company for the year of assessment 2005 ends on or after 1 October 2005, the last day of the basis period for that company for the year of assessment 2005 shall be deemed to be 30 September 2005. (3) Where there is a substantial change in the shareholders of a company referred to in subsection (1), the Minister may under special circumstances exempt that company from the provisions of that subsection. (4) In this section, “ordinary share” has the same meaning assigned to it under subsection 44(5C) of the principal Act. New section 44A 11. The principal Act is amended by inserting after section 44 the following section: “Group relief for companies (1) Subject to this section, a company (referred to in this section as a “surrendering company”) may surrender not more than fifty per cent of its adjusted loss in the basis period of a year of assessment to one or more related companies (referred to in this section as a “claimant company”): Provided that the surrendering company and the claimant company shall be resident in the basis year for that year of assessment and incorporated in Malaysia. (2) Subsection (1) shall app