Let us discuss the determination of tax resident status of a Malaysian company.
Section 8(1)(b) of the Income Tax Act refers to a resident status of a company. A company is said to be a resident if the control and management of its business are exercised in Malaysia. Control and management does not necessarily equate to the country in which the business is being carried out. This means that the physical operation or having trading activities may not necessarily equate to the place of control and management.
Now with reference to an Australian tax case, Koitaki Para Rubber Estates Ltd v Federal Commissioner of Taxation, the company’s central management and control usually is where the directors meet to conduct the business of the company, for instance where they hold their board meetings. It is the director’s action and not the shareholders’ actions which define control and management as the directors are the one who is managing the company. Therefore, company registered in Malaysia may be a tax resident abroad and a non tax resident in Malaysia.
With reference to Public Ruling 5/2011, management and control is the key factor to ascertain the residence status of a company in Malaysia. The management and control refers to three criterias:-
First, controlling authority which determines the policies to be followed by the company
Second, considered to be exercised where the directors meet to conduct the company’s business / affairs irrespective of where the company might be incorporated
Third, how the business is managed.
If in any time during the basis year for a years of assessment where at least one meeting is held by the board of directors in Malaysia concerning management and control, the company will be deemed to be a resident in Malaysia for the basis year. The basis year is reference to calendar year. The Tax rate for a non-resident company is 28%.
As an example, if the ANC Group was incorporated in Hong Kong and its accounts is made up to 30 June 2020. Its management and control were exercised in Hong Kong. On 1 August 2020, management and control of the company were transferred to Malaysia. ANC Group will deemed to be a resident in Malaysia for YA 2020 even though management and control were exercised outside Malaysia during such period.