Malaysia Business Income Tax: Definition & Commencement Rules

Introduction

Under Malaysia’s Income Tax Act (“ITA”) 1967, business income forms a major source of taxable income. Understanding what qualifies as a “business” and when it is deemed to have commenced is crucial for proper tax compliance and planning.

1. What is “Business” under the ITA 1967?

• Defined in Section 2 of the Act.
• Includes profession, vocation, trade, manufacture, adventure, or concern in the nature of trade.
• Excludes employment income.

Reference: Section 3 – Income tax applies to income accruing in or derived from Malaysia, or received in Malaysia from overseas.

2. Defining Business Commencement

Business commencement refers to the point when activities undertaken in the course of business begin. The actual commencement date varies depending on the industry:

• Manufacturing → the first day raw materials are purchased.
• Retail → the first day the shop opens to customers.
• Agriculture → the first day of planting seedlings or purchasing livestock.

Note: These are examples only. The actual commencement date depends on the specific facts of each case.

3. Why the Commencement Date Matters

• Pre-commencement expenses → not deductible.
• Capital allowances → Qualifying Capital Expenditure (QCE) can only be claimed from the basis period starting at commencement.

4. Key Takeaways

• “Business” covers a wide scope but excludes employment.
• The commencement date is fact-sensitive and crucial for tax purposes.
• Correctly identifying commencement helps avoid disputes with the Inland Revenue Board (LHDN).

ANC Group – Your Personal Tax Advisor

Tax consulting is the core service of ANC Group. Our tax professionals provide clients with comprehensive tax support and guidance. We offer tax consulting and compliance services for expatriates, entrepreneurs, and listed and non-listed companies.

Our tax consulting services include business tax, transaction tax, personal tax, and corporate income tax. We don’t just guide you in interpreting and applying complicated taxation rules, but to explore new opportunities and business trends.

ANC Group keep you abreast with Malaysia tax updates and any changes in the local regulations.

We work closely with industry specialists, authorities, and associated professionals within ANC Group to provide the best-in-class integrated tax planning solutions. ANC specialists coordinate the accounting and taxation services to bring your business to success.

If you need professional tax advisory services regarding the Malaysia Income Tax Act 1967, our team is ready to assist you. Contact us here to discuss how we can support your business.