Malaysia

MALAYSIA

Introduction

Investment Considerations

Taxation of Resident Entities

Taxation of Nonresident Entities

Taxation of Groups of Companies

Branches and Subsidiaries

Corporate Assessments and Payments

Taxation of Individuals

Personal Assessments and Payments

Withholding Taxes

Other Taxes

Introduction

Malaysia is made up of 13 states and two federal territories-Kuala Lumpur, its capital, and Labuan, an island off the state of Sabah. Sabah and Sarawak are located on the island of Borneo, while the other eleven states are located in Peninsular Malaysia. The South China Sea separates the two parts. The population is approximately 19 million. Bahasa Malaysia is the national language, but other languages, including English, are widely spoken. The unit of currency is the ringgit Malaysia (RM).

Malaysia is a constitutional monarchy. Legislative power is vested in the two houses of Parliament, the Dewan Rakyat (House of Representatives) and the Dewan Negara (Senate). National executive power is vested in the prime minister and the Cabinet. The Malaysian judiciary is a single system comprising the Supreme Court and subordinate courts established by Parliament. The Malaysian economy operates along the principle of free enterprise, but the government subscribes to a new development policy, based on the eradication of poverty and the restructuring of society to correct the imbalance between the rural and urban populations as well as among the various ethnic groups. Malaysia's economy is considered well developed by Asian standards.

International services: Mohd. Kassim Bin Sulong, Kuala
Lumpur Audit services: Stanley Yap Kok Leong, Kuala Lumpur
Tax services: Patrick Yeoh Chong Swee, Kuala Lumpur
Management consulting services: Azman Mohd. Zain, Kuala Lumpur
Telephone: +60 (3) 2320711
Telecopier: +60 (3) 2300585 or +60 (3) 2304746

Investment Considerations

Forms of Business Organization. The most popular form of business organization among foreign investors is the limited liability company, which may be formed either as a private company (sendirian berhad) or as a public company (berhad). A private company is one whose bylaws restrict the right to transfer the company's stock, limit the number of shareholders to fifty, and prohibit a public offering of its stock. Other business entities include unlimited companies, sole proprietorships, partnerships, and branches of foreign companies. For income tax purposes, partnership income is taxed at the level of the partners rather than at the level of the entity.

Exchange Controls. Malaysia's exchange control regime is liberal. No restrictions are imposed on the repatriation of dividends, interest, capital, and other sums to a foreign parent company. Remittances abroad of more than RM 50,000 require the completion of forms for statistical purposes.

Local Participation Requirements. The extent of foreign participation permissible varies according to the type of project. If a project depends to a large extent on the internal market or on the exploitation of natural resources, the government will require substantial majority ownership to belong to Malaysians. If a project is mainly export oriented, foreign ownership of up to 100% may be allowed. However, according to government policy, by 2000 at least 70% of the paid-up capital of companies in Malaysia, taken as a whole, should be in domestic ownership, with 30% ownership retained by foreign investors.

Investment Incentives. Investment incentives in Malaysia are designed to provide total or partial income tax relief to companies investing in new enterprises or expanding existing ones. Principal incentives are described below.

Labuan offshore financial center. Labuan Island has been developed into an international offshore financial center. The tax rate for offshore companies with offshore trading companies is either 3% of net profits or the fixed annual rate of RM 20,000, at the company's election. Offshore companies engaged in nontrading activities are exempt from tax.

Incentives for approved operational headquarters. Incentives are available to multinational companies that set up their operational headquarters (OHQ) in Malaysia. Qualifying companies with OHQ status enjoy a concessionary 10% tax rate for five to ten years on income arising from the provision of qualifying services by an OHQ to its offices or related companies outside Malaysia.

Effective 1995, locally owned companies are allowed to set up OHQs in Malaysia. Previously, a company was granted OHQ status only if its entire equity was held by foreign companies or individuals who were not citizens of Malaysia. Qualifying services that the OHQ must be engaged in are broadly classified into the five categories of management and administrative services, treasury and fund management services, other financial services, research and development, and training and personnel management. The OHQ-qualifying sectors are also extended to all economic sectors such s as manufacturing services, agriculture, construction, and mining.

Tax scheme for venture capital companies. A venture capital company (VCC) is a company incorporated in Malaysia that holds shares in a venture company (VC) involved in high-risk ventures and new technology that would promote or enhance the economic or technological development of Malaysia and is approved by the minister of finance. An exemption from income tax applies to gains that accrue to a VCC from the disposal of the shares (within three years from the date of listing) and dividends distributed out of those gains.

Losses arising from the disposal of shares in a VC-or incurred in a liquidation of a VC-qualify for a deduction in computing the aggregate income or total income of the VCC, as applicable. Also, a portion of certain expenses (such as directors' fees, management and advisory fees, rent, and other expenses incidental to the maintenance of an office) incurred by a VCC are deductible, subject to a maximum of 25% of those expenses.

Tax perks for unit trusts. Unit trusts enjoy a number of incentives. Gains arising from the realization of shares and property are not treated as income of a unit trust. Income distributed out of these gains to unit holders is not subject to tax in the hands of the unit holders. When income distributed by a unit trust is chargeable to tax on a unit holder, the tax chargeable on the unit trust is set off against the tax charged on the unit holder.

Unit trusts are allowed a special deduction for capital expenditure incurred on machinery and plant installed for the purpose of deriving income from the letting of real property. The deduction is in the form of an allowance equal to 10% of the expenditure. Qualifying capital expenditure includes installation and building expenses in relation to the provision of machinery or plant. Unabsorbed allowances may not be carried forward to subsequent years.

A unit trust is allowed to deduct a portion of certain expenses that are not normally allowable, subject to a minimum of 10% and a maximum of 25%. These expenses include managers' remuneration and share registration expenses.

Overseas projects of construction companies. Construction companies resident in Malaysia are taxable on income from overseas sources on a remittance basis. However, 70% of income remitted and declared by resident construction companies on their returns is exempt if this income is derived from construction projects carried on outside Malaysia.

Incentives under the Promotion of Investments Act of 1986. The Promotion of Investments Act (POIA), enacted in May 1986, provides for several forms of incentives; however, certain incentives are mutually exclusive and some may not apply concurrently with the others. Incentives under the POIA were altered in 1991. The rules described below are those currently in effect:

* Companies enjoying pioneer status receive special tax benefits. Seventy percent (85% for projects in the eastern corridor of Peninsular Malaysia, in Sabah, and in Sarawak) of statutory income is tax exempt and is credited to an exempt income account. The balance is then taxed at the current corporate income tax rate. Pioneer status revolves around whether the company is engaged in a promoted activity or produces a promoted product. Small-scale companies are automatically accorded pioneer status upon application if they participate in a promoted activity or produce a promoted product. A small-scale company is a resident company incorporated in Malaysia under the Companies Act of 1965 whose shareholders' funds do not exceed RM 500,000. The minister of trade and industry may set certain conditions. As an alternative to applying for pioneer status, a company may be eligible for an investment tax allowance.

* An investment tax allowance (ITA) is available to approved companies of 60% (80% in the eastern corridor of Peninsular Malaysia, in Sabah, and in Sarawak) of qualifying capital expenditures incurred within five years of the date of approval of the allowance. The ITA can be set off against 70% (85% in the eastern corridor of Peninsular Malaysia, in Sabah, and in Sarawak) of statutory income in the year of assessment. Any unused portion of the ITA will be carried forward to future years for deduction.

* A double deduction is granted for approved export promotion expenses in arriving at adjusted business income. Companies resident in Malaysia can claim a double deduction for all qualifying outlays and expenses incurred primarily in seeking opportunities or creating or increasing demand for the export of goods or agricultural produce manufactured, produced, assembled, processed, packed, graded, or sorted in Malaysia. A double deduction of freight charges incurred by manufacturers in Sabah and Sarawak that export rattan and wood-based products (excluding sawn timber and veneer) is also available. A double deduction is also granted to hotels and tour operators for qualifying expenses incurred on overseas promotions, and a double deduction is allowed on approved expenses incurred on training programs to upgrade the level of skills and professionalism in the tourist industry. A pioneer company is not given a deduction under this incentive during the tax relief period; however, the deductions that would have been allowed had the company not had pioneer status may be accumulated, and the aggregate amount will be allowed as a deduction in its first basis period as a postpioneer business expense.

Reinvestment allowance. All existing companies engaged in manufacturing that are not enjoying any form of capital expenditure incentive under the POIA are eligible for a reinvestment allowance amounting to 50% of the expenditures on plant, machinery, and industrial buildings incurred for expansions, modernization, or diversification.

Industrial building allowance. An industrial building allowance is available, as discussed in "Taxation of Resident Entities," under "Depreciation."

Incentives for research and development. Approved research companies carrying out research and development (R&D) projects for their holding, subsidiary, and associated companies will be granted a research allowance of 100% of the qualifying capital expenditure incurred within a period of ten years. This allowance will be abated from statutory income but restricted to 70% of statutory income for each assessment year.

Currently, payments for the services of an approved research institute or company qualify for a double deduction under section 34B of the Income Tax Act. With effect from year of assessment 1994, payment for the services of an R&D company or a contract R&D company, qualifies for a double deduction. However, a related company of an R&D company that has been approved for an investment tax allowance under the POIA whose qualifying period has not ended would not qualify for this double deduction. An R&D company is one that provides R&D services in Malaysia to its related company or any other company, while a contract R&D company provides R&D services only to a company other than its related company. A company is related to another if the company is the other' s holding company, subsidiary, or fellow subsidiary.

With effect from year of assessment 1995, a building used for the purpose of research undertaken by an R&D company or a contract R&D company is regarded as an industrial building that qualifies for an industrial building allowance.

Taxation of Resident Entities

Residents are taxed on income accruing in, derived from, or received in Malaysia. With effect from year of assessment 1995, income arising from sources abroad is taxable only if it is received in Malaysia by a company carrying on the business of banking, insurance, or shipping on air transport. A company is resident in Malaysia if, at any time during the year, the management and control of any of its businesses are exercised in Malaysia, regardless of where the company is incorporated. The management and control of a company are deemed to have been exercised in the place where its directors' meetings are held. Thus, if a company incorporated in Malaysia has its central management and control situated outside Malaysia, it is taxed as a nonresident rather than as a resident.

Corporate Income Tax Rate. The standard corporate income tax rate is 30%.

Taxable Income. The first step in computing taxable income is to determine what gross income a company has falling into any of the following taxable categories:

* Gains or profits from a business.

* Dividends, interest, or discounts.

* Rents, royalties, or premiums.

* Annuities or other periodic payments not mentioned above.

* Gains or profits not mentioned above.

Outgoings and expenses incurred wholly and exclusively in producing the gross income in each category are then deducted to arrive at the adjusted income (or adjusted loss) for each category. The various amounts of adjusted income are then reduced by tax depreciation (capital allowances) and increased by recoveries of tax depreciation (balancing allowances). The income remaining in the various categories is aggregated, after deducting any business losses brought forward from income in the business income category. The aggregate amount arrived at, less any adjusted losses for the current year or charitable or other gifts qualifying for deduction, is the company's taxable income.

Inventory valuation. Inventories are valued at the lower of cost or net realizable value. The first-in, first-out method and most other methods are acceptable, but the tax authorities do not recognize the last-in, first-out and the base-stock methods.

Dividend income. Dividends received by a resident company from another resident company are included in the recipient's chargeable income gross of the corporate income tax that will normally have been deducted by the paying company. The tax deducted is creditable against the recipient's income tax liability.

Foreign-source income. Residents receiving income from foreign countries that have not concluded treaties with Malaysia may claim a tax credit, which is limited on a country-by-country basis to the lower of Malaysian tax chargeable on income from the country concerned or 50% of the foreign tax payable with respect to that income.

Bilateral credit for a foreign tax paid is available to residents when Malaysia has a tax treaty with the foreign country concerned. Click to see Withholding Tax Rates for Treaty Counties. The taxpayer may claim relief for the whole of the foreign tax paid, but the tax credit must not exceed the Malaysian tax due on the foreign income and cannot give rise to a repayment of Malaysian tax. The Malaysian tax due is calculated by dividing foreign income by total income, then multiplying by the Malaysian tax payable.

Malaysia has included tax-sparing provisions in some of its double tax treaties. The effect of these provisions is to give full relief to the foreign investor on income that is subject to tax in his or her home country by exempting this income or taxing it at reduced rates in Malaysia.

Exchange differences. Foreign currency gains and losses arising on revenue account are taxable and deductible, respectively, when realized.

Capital gains. As a rule, capital gains are not subject to income tax. However, with some exceptions, profits from the sale of fixed assets are taxed as income to the extent that they represent the recovery of tax depreciation allowances previously granted. A separate tax is levied on gains from disposals of real property (or shares in a real property company) situated in Malaysia.

Income of special businesses. Special rules govern the taxation of certain sectors. Business subject to special rules include petroleum operations, insurance businesses, Malaysian resident banks, sea or air transport businesses, approved operational headquarters, venture capital companies, and unit trusts.

Deductions. In general, all outgoings and expenses that are wholly and exclusively incurred in the production of income and that are not of a capital or private nature may be deducted.

Depreciation. Depreciation charged by a company in its financial statements is not deductible for income tax purposes. Instead, tax deductions in the form of capital allowances, industrial building allowances, agriculture and forest allowances, and mining allowances are granted. Capital allowances are granted for qualifying expenditures incurred on machinery and plant equipment. An allowance of 20% is generally granted in the first year. Annual allowances at prescribed rates are granted for the first year and subsequent years until the full cost of the expenditures is allowed, provided that the assets are in use in the business at the end of each basis period. The straight-line basis is adopted.

Industrial building allowances are granted for industrial buildings, including those used for industrial training or as factories, docks, wharves, warehouses, bulk storage installations for goods for export, licensed private hospitals, maternity homes, and nursing homes. An initial allowance of 10% of the cost of construction is allowed in the case of newly constructed industrial buildings. An annual allowance of 2% of the cost is allowed for the next forty-five years. For the purchase of an existing industrial building, no initial allowance is available, but an annual allowance in a permitted fraction will be granted.

Interest. Loan interest and interest payable to shareholders are usually deductible if the funds are used for business purposes. Interest paid on funds borrowed to finance non-income-producing investments or to make interest-free loans is not deductible. Malaysia has no thin capitalization rules.

Provisions. Provisions for bad and doubtful debts are deductible only if the provisions are specific and the debts are trade debts; general provisions based on percentages are not deductible. Tax-free reserves are permitted only in the case of general insurance companies.

Taxes. Taxes other than Malaysian and foreign income taxes and real property gains tax are usually deductible. Stamp duties are generally deductible unless they relate to transactions of a capital nature.

Other payments. Royalties are generally deductible, as are cash contributions to approved charitable institutions. With some exceptions, entertainment expenses are not deductible. Excessive employee remuneration may be disallowed, especially when paid by a closely held company. However, a double deduction is allowed for salaries paid to trainees in an approved training scheme. Contributions to an approved pension fund are deductible up to 16% of the remuneration of each employee.

Tax Treatment of Losses. Business losses are deducted from other taxable income arising in the same accounting period. Any excess loss not applied against the current year's income may be carried forward indefinitely, to be applied against the taxpayer's future income from any business source. Losses may not be carried back.

Taxation of Nonresident Entities

A nonresident company-one that is not managed and controlled in Malaysia-is liable for income tax accruing in or derived from Malaysia. Unlike a resident company, it is not liable on foreign income remitted to Malaysia. Income arising from a business carried on within Malaysia is taxed at the standard corporate income tax rate of 30% on the net amount after deducting allowable expenses. Other types of income derived from Malaysia, such as interest, royalties, technical assistance fees, and rentals from leasing equipment, are taxed at special rates on the gross amount without any deduction for expenses. Usually, such tax is withheld at the source. Click for information on Withholding Taxes. Income tax is also withheld from payments to nonresident contractors, although such withholdings represent a payment on account of the contractor's final tax liability after deductions for expenses.

Residents of countries that have concluded tax treaties with Malaysia are normally liable for tax arising from a business carried on in Malaysia only if the business is conducted through a Malaysian permanent establishment. A permanent establishment includes a place of management; branch; office; factory; workshop; building site; and construction, installation, or assembly project that exists for more than six months.

Taxation of Groups of Companies

Malaysian law contains no provisions for affiliated companies to file a consolidated tax return. If assets qualifying for capital allowances are transferred between two companies, one of which controls the other or both of which are under common control, the actual transfer price is disregarded for income tax purposes and no balancing adjustments are made, provided that both companies are liable for Malaysian tax. The transferee continues to claim annual allowances as if there had been no change of ownership. However, in general, no exemption is given from other taxes or duties on intragroup sales, and dividends paid between affiliated companies are not subject to special treatment.

Arm's-length principles apply to all transactions between related parties.

Branches and Subsidiaries

Branches are subject to tax at the same rate as companies. Remittances of foreign income into Malaysia are exempt from Malaysian tax because the company is not resident. The branch is normally allowed to claim as a deduction head office administration expenses in managing the branch operations. Income remitted by the branch to its overseas head office is not subject to any tax since the income of the branch is already taxed at the standard corporate income tax rate. However, as Malaysia has adopted the imputation system of corporate taxation, in fact no additional tax is levied on dividends payable by subsidiaries other than the tax on the profits out of which the dividends are paid. In summary, there are no significant differences between the treatment of the branch and the treatment of the subsidiary.

Corporate Assessments and Payments

Income tax is imposed for each year of assessment on income earned in the preceding calendar year. However, in the case of a business whose accounting year ends on a date other than 31 December, the tax authorities normally accept the accounting year ending within the preceding calendar year as the basis period for the year of assessment.

Tax returns must normally be filed within one month of the issue of return forms, which usually takes place in February. However, extensions can generally be obtained until May, June, July, or August. Limited liability companies must submit audited financial statements with their returns.

On receipt of a completed income tax return, the Department of Inland Revenue may either accept the return and accordingly make an assessment of the tax payable or refuse to accept the return and raise an assessment of the tax payable based on an estimate of the taxpayer's chargeable income. A taxpayer that disagrees with an assessment has the right to appeal. However, the tax assessed is due and payable when the notice of assessment is served, notwithstanding an appeal or objection. A late payment penalty of 10% is imposed on the amount of tax remaining unpaid after thirty days from the date on which the notice of assessment was served. Any amount of tax remaining unpaid after sixty days from the date of imposition of the 10% penalty is subject to a further 5% penalty.

Arrangements can be made with the Department of Inland Revenue for the assessed tax to be paid in installments. Normally, payments in installments beyond the month of September are not permitted.

Taxation of Individuals

The extent of an individual's liability depends on residence status. A resident is liable for income tax on income derived from and accruing in Malaysia. A resident is taxable on income arising from sources abroad only if the income is received in Malaysia. A nonresident is liable for income tax on Malaysian-source income only. Employment income from employment services performed in Malaysia is regarded as Malaysian-source income, but such income may be exempt anyway.

An individual must meet one of the following to be tax resident in Malaysia:

* Reside in Malaysia in the basis year for 182 days or more. The days need not be consecutive.

* Reside in Malaysia for fewer than 182 days in the basis year if that period is linked to another period of 182 or more consecutive days during which the individual is present in Malaysia. A temporary absence in connection with the following may be counted as part of the 182 or more consecutive days: service matters; conferences, seminars, or study abroad connected with the service in Malaysia; ill health of the individual or a member of his or her immediate family; and social visits totaling to no more than fourteen days.

* Reside in Malaysia for 90 days or more (not necessarily consecutive) in the basis year and have been either a resident or present in Malaysia for at least 90 days in three of the four immediately preceding basis years.

* Although not present in Malaysia in the basis year, be a resident in the following basis year and for the three immediately preceding basis years.

Treatment of Families. Each spouse is assessed separately on his or her income. A child's income is also taxed separately if the child does not receive the income from the family. A wife may, however, elect that her total income for a year of assessment be aggregated with her husband's total income and be assessed in his name. If the wife is nonresident, she must be a citizen to make this election.

Personal Income Tax Rates. With effect from year of assessment 1995, residents are taxed at graduated rates. Nonresident individuals are taxed at flat rates according to the type of income; income from employment or a business is taxed at 30%.

Taxable Income. The steps for computing taxable income for individuals are much the same as the rules for companies except that employment income is added to the list of taxable categories of gross income and, as a final step in computation, a resident may deduct various personal allowances.

Employment income. Employment income includes cash remuneration; benefits-in-kind, excluding medical or dental treatment and leave passages; the value of living accommodations provided by an employer; amounts received from an unapproved pension or provident fund on that portion of the contribution made by an employer; and compensation for loss of employment.

Temporary visitors who are employed in Malaysia for a short period can claim exemption from tax on their employment income under Malaysian domestic legislation or as provided under the double tax treaties signed by Malaysia. Under domestic legislation, nonresidents who are employed in Malaysia and derive employment income from Malaysia for up to sixty days in a calendar year-or over two calendar years if there is a period of continuous presence straddling those two years-are exempt. Double tax treaties normally increase this period to 183 days, subject to the fulfillment of additional conditions. This provision does not apply to directors of companies and visiting artists.

Capital gains. Income tax is not levied on capital gains, but a separate tax is levied on gains from the disposal of Malaysian real estate and gains from the disposal of shares in real property companies. Click for information on Other Taxes

Deductions and Reliefs. In computing taxable income, a resident may deduct a basic personal allowance of RM 5,000. Other allowances include one of RM 800 for each of the taxpayer's children. With effect from year of assessment 1995, a tax rebate (reduction of tax payable) of RM 110 is granted to a taxpayer, and RM 60 to the spouse, if the taxpayer's taxable income is RM 10,000 or lower.

Nonresidents are not entitled to these reliefs. However, a nonresident who is a citizen of Malaysia or a resident of tax treaty country is entitled to a similar relief.

Personal Assessments and Payments

Basically, the assessment, payment, and appeals rules applying to individuals are the same as for companies. Click for information on Corporate Assessments and Payments. However, with effect from 1 January 1995, all employees are subject to the Schedular Tax Deductions Scheme, which deals with the collection of tax from employees by employers. Employers no longer have to wait for directives to deduct tax and remit it to the Department of Inland Revenue. For the majority of employees, the 1995 monthly deductions based on the 1995 monthly cash remuneration are for the payment of tax on 1994 income (which will be taxed in the year of assessment 1995). However, local employees and expatriates new to the work force in Malaysia will find, on commencing employment in 1995, that tax is deducted from their monthly pay on account of tax payable on income of the current year, that is, 1995, the income of which will be taxed in 1996; they are thus paying tax in advance on a pay-as-you-earn (PAYE) basis.

Withholding Taxes

Basic Rates. No withholding tax is imposed on dividends derived from Malaysia, as Malaysia has adopted the imputation system.

Interest derived from Malaysia by nonresidents is subject to a 15% withholding tax unless the interest is otherwise exempt from Malaysian tax. Exempt interest includes interest on government savings certificates, interest paid by a bank if specified conditions are met, and interest on loans approved by the Malaysian minister of finance. Approval may be given to (1) loans made to or guaranteed by the Malaysian government or a local authority or statutory body or (2) loans made to other persons provided that the loan amount exceeds RM 250 million. Other conditions may apply.

Interest received by resident individuals from commercial banks and licensed borrowing companies is subject to a 5% final withholding tax; otherwise, interest paid to residents is not subject to withholding tax.

The rate of withholding tax applicable to royalties paid to nonresidents is 10%. No tax is withheld from payments of royalties to residents.

Payments to a nonresident for services rendered in connection with the use of property or rights belonging to the nonresident or the installation or operation of any plant, machinery, or other apparatus purchased from the nonresident are subject to a 10% withholding tax. Payments to a nonresident for technical advice or assistance or services rendered in connection with technical management or administration of a scientific, industrial, or commercial undertaking, venture, project, or scheme are subject to a 10% withholding tax. In practice, the tax authorities consider remuneration for most types of services paid to nonresidents subject to the withholding tax, regardless of whether the services are performed in Malaysia.

Rental income deemed derived from Malaysia by a nonresident for the use of movable property is subject to a 10% withholding tax.

A withholding tax of 15% plus 5% is imposed on payments to nonresident contractors carrying out service contracts in Malaysia. The 15% portion is applicable toward settlement of the nonresident's Malaysian taxes, and any balance is refundable. The 5% element is refundable when the nonresident's employees have settled their Malaysian taxes.

Rates Under Double Tax Treaties. Basic withholding tax rates applicable to nonresidents are often reduced by double tax treaty provisions. Click to see Withholding Tax Rates for Treaty Countries Table .

Other Taxes

Real Property Gains Tax. Real property gains tax is levied at decreasing rates of between 20% and 5%, depending on the holding period involved. Relief for capital losses is granted against tax on gains realized in current or future tax years, except in the case of disposals of shares in a real property company.

An individual who is a citizen or permanent resident may claim an exemption from real property gains tax for one private residence during his or her lifetime. An exemption of RM 5,000 or 10% of the chargeable gains, whichever is greater, is granted to all individuals without any restriction with regard to their residential or citizenship status.

Petroleum Income Tax. Income from petroleum operations carried on in Malaysia is subject to a separate tax called petroleum income tax instead of normal income tax. Petroleum income tax is levied at the rate of 40% on taxable income arising from the exploration and discovery of petroleum in Malaysia. Expenses incurred wholly and exclusively in the production of gross income from petroleum operations are deductible in arriving at taxable income. Special depletion allowances and capital allowances are permitted.

Social Security Contributions. A contribution to the Employment Injury Insurance Scheme is payable by employers at approximately 1.25% of employee wages, and contributions to the Employment Injury and Invalidity Pension Scheme are payable by both employers and employees at approximately 1.56% and 0.44%, respectively, of employee wages. Contributions are payable only if the employee's monthly wages do not exceed RM 2,000.

All employers and employees contribute to the Employees Provident Fund at the rates of 12% and 10%, respectively, of employee wages. Employers in the manufacturing sector employing fifty or more employees are liable for a payment to the Human Resources Development Fund of 1% of employee wages. Employees that have contributed for six or months may apply for grants to assist in training their employees.

Sales Tax. A sales tax ranging from 5% to 15% is levied on goods imported for domestic consumption and on the sales value of goods manufactured and sold in Malaysia. For imported products, the sales tax is in addition to the customs duties levied on most imports. Certain products are exempt from sales tax.

Excise Duty. Excise duty is levied on certain goods manufactured in Malaysia, such as liquor, tobacco, petroleum products, and electrical appliances. The manufacturer must pay the duty upon selling the products.

Customs Duties. Customs duties include import duties, export duties, and a surtax. Rates of import and export duties vary from item to item. Import duties are levied on the importer and are normally at ad valorem rates, ranging from 0% to 100% of the cost, insurance, and freight value. Export duties and surcharges are levied on the export of primary commodities, including rubber, tin, palm oil, and timber. A surtax of 5% to 10% is levied on the value of goods imported into the country. Exemptions from duty are available.

Service Tax. A service tax of 5% is levied on food, drink, and tobacco and specified services sold or provided by hotels, bars, restaurants, health centers, dance halls, and similar establishments. The tax has also been extended to include many professional services, such as those of public accountants, lawyers, and professional engineers, as well as telecommunications services and services provided by recreational clubs, security and guard services, and so forth when taxable turnover exceeds prescribed thresholds. The service tax was most recently extended to courier, parking bay, dental, and veterinary services.

Miscellaneous Taxes. Registration fees are based on a company's share capital. Branches of foreign companies with share capital pay half the fee. Annual rates are levied on property by local authorities based on a percentage of the assessed value of the property. The amount is usually small. Other taxes include stamp duty, entertainment duty, and gaming tax.