Determination Of Residence Status Of Companies

Public Ruling No. 5/2011
Date of Issue: 16 May 2011
http://www.ctim.org.my/cms/file/news/14/00693_Residence%20Status%20of%20Companies%20And%20Bodies%20of%20Persons%20PR5_2011%20(160511).pdf

Determination Of Residence Status Of Companies Or Bodies Of Persons
Companies and bodies of persons must meet certain criteria to be considered a
resident in Malaysia.

Section 8 of the ITA 1967 provides for the determination of
residence status in respect of companies and bodies of persons (except trust
bodies) whereas subsection 61(3) of the ITA 1967 provides for the determination of
residence status of a trust body.

5.1 Residence status of a Hindu Joint Family
Pursuant to paragraph 8(1)(a) of the ITA 1967, a Hindu Joint Family is
resident in Malaysia for the basis year for a year of assessment if the
manager or karta is resident for that basis year. As such, if the manager or
karta is a non-resident, the Hindu Joint Family is deemed a non-resident in
Malaysia.
5.2 Companies or bodies of persons carrying on a business
Pursuant to paragraph 8(1)(b) of the ITA 1967, a company or a body of
persons (not being a Hindu Joint Family) carrying on a trade or business is
resident in Malaysia for the basis year for a year of assessment if at any
time during the basis year the management and control (as explained in
paragraph 5.5 of this Ruling) of its business or of any one of its businesses
are exercised in Malaysia.

Example 1
Jet Ltd, a company incorporated in Hong Kong has businesses in Hong
Kong, Singapore and Malaysia. All the businesses of the company are
managed and controlled by the head office in Hong Kong except for a brief
period in the year 2008 when the management and control was exercised in
Malaysia. This is because one of the board of directors meeting was held in
Kuala Lumpur, where important policy decisions were made, on 28.6.2008
which falls in the basis year for the year of assessment 2008.

Jet Ltd is resident in Malaysia for the basis year for the year of assessment
2008 as the management and control which involved important policy
making decisions was exercised in Malaysia in 2008.
Income derived in Malaysia is subject to tax
Therefore the income derived from the business carried on in Malaysia is subject to tax in Malaysia
for the year of assessment 2008.
Note: If the company is not a resident in Malaysia, it would still be taxable
on its income derived from Malaysia. Non-resident companies and persons
other than resident companies carrying on the business of banking,
insurance or sea or air transport are exempted from tax on income derived
from sources outside Malaysia and received in Malaysia.

Example 2
Simon Inc., was incorporated in the USA on 2.1.2000 and shortly after its
incorporation, it registered as a foreign company in Malaysia on 2.3.2000.
Simon Inc. (Malaysia) then commenced the business of provision of
management and consultancy services in Malaysia. Its revenue was largely
from fees charged for management, consultancy and other services
provided to a related company, Simon (Malaysia) Sdn Bhd.
The Board of Directors of Simon Inc. (Malaysia) comprised of an American
citizen who held the post of the president and 4 Malaysians who held the
posts of a general manager, director (2 persons) and an accountant.
However, the management and control of Simon Inc. (Malaysia) has been
carried on in the USA since incorporation by the board of directors in the
USA.
The financial accounting period of Simon Inc. (Malaysia) is the calendar
year. The company claimed to be a resident in Malaysia in the year of
assessment 2008 as the board of directors meeting was held in Kuala
Lumpur on 30.11.2008. An audit finding indicated that a board of directors
meeting was not held on the said date but a promotional and marketing
session was held instead.
Since a board of directors meeting was not held in Malaysia on 30.11.2008,
the management and control of the company was not exercised in Malaysia
in the year of assessmen 2008. Therefore, Simon Inc. (Malaysia) is not a
resident in Malaysia for the year of assessment 2008.
5.3 Any other company or body of persons
INLAND REVENUE BOARD MALAYSIA
RESIDENCE STATUS OF COMPANIES
AND BODIES OF PERSONS
Public Ruling No. 5/2011
Date of Issue: 16 May 2011
Issue: A Page 10 of 15
Pursuant to paragraph 8(1)(c) of the ITA 1967, any other company or body
of persons (not being a Hindu Joint Family) is resident in Malaysia for the
basis year for a year of assessment if at any time during the basis year the
management and control (as explained in paragraph 5.5 of this Ruling) of its
affairs are exercised in Malaysia by its directors or other controlling
authority, e.g. a board of management / directors. As for investment holding
companies, the management and control of its affairs includes the
management and important decisions in respect of investments.
Example 3
Smart Holdings Sdn Bhd (SHSB), an investment holding company was
incorporated in Malaysia on 2.1.2006. SHSB is wholly owned by Smart
Holding Ltd, the holding company in the British Virgin Islands. This holding
company is wholly owned by Smart Construction Holding Ltd, the ultimate
holding company in Bermuda.
The board of directors of SHSB comprises of 7 directors, 5 of whom are
citizens and residents of Hong Kong while the remaining 2 are Malaysians.
The board of directors meetings are held in both Hong Kong and Malaysia.
The meetings that were held in Hong Kong were only attended by the 4
directors from Hong Kong who have vast experience in investment and
finance. Meetings were also held in Malaysia but were attended by the 2
Malaysian directors and communication with the directors from Hong Kong
were through video conferencing and telephone. From the minutes of the
meetings, it was noted that all decisions regarding investments, share
management, finance and administration of SHSB were resolved in Hong
Kong by the 4 directors in Hong Kong. The meetings held in Malaysia
merely reported what had been decided in Hong Kong.
SHSB does not have a business premise in Malaysia. Its dividend income
is from investments in an Australian company, Smart Co. Ltd in Sydney and
interest income is from fixed deposits in various countries. None of SHSB’s
income has been remitted to Malaysia. SHSB does not have a bank account
in Malaysia and all its income has been remitted to a bank account in Hong
Kong.
SHSB claimed to be a resident in Malaysia from the year of assessment
2006 onwards as the management and control of its affairs were exercised
in Malaysia by its directors.
Note: If SHSB is a tax resident of Malaysia, the dividend income from
Australia should be subject to tax at 15% on gross in accordance with Article
10 of the Avoidance of Double Taxation Agreement between Malaysia and
Australia instead of the 30% tax rate levied by the Australian Tax Authorities
based on the Australian domestic tax laws.
INLAND REVENUE BOARD MALAYSIA