Companies (Amendment) Act 2007
The Companies (Amendment) Act 2007 (CA 2007) came into force on August 15 2007 and some of the more significant amendments introduced are discussed below.
Protection of whistle-blowers
Under section 368B of the Companies Act 1965 (CA 1965), protection is afforded to an officer of a company who reports any breaches or non-observance of any of the CA 1965 provisions or its regulations, or any serious offences involving fraud or dishonesty which has been, is being, or is likely to be committed by other officers of the company. The "whistle-blower's" employment as such shall not be affected by reason of such report made and the whistle-blower is protected from being sued in any court or being subjected to any disciplinary action if the report was submitted by the whistle-blower in good faith.
Director's duties of care and skill
Section 132(1) CA 1965 as amended provides that a director (as defined) of a company shall at all times exercise his powers for a proper purpose and in good faith in the best interest of the company. A new section 132(1A) imposes both objective and subjective standards of care as the exercise of a director's care, skill and diligence will be measured against the knowledge, skill and experience that a director having the same responsibilities reasonably ought to have and does in fact have. Directors who are qualified professionally will have to impute their professional knowledge in discharging their duties as directors.
With the deletion of section 132G from the CA 1965 in line with the Prime Minister's Budget speech in 2005, section 132E as amended prohibits acquisitions or disposals of shares or any property or interest in property other than cash of the requisite value between a company and a director or a substantial shareholder of the company or its holding company or a person connected with such a director or substantial shareholder. Such substantial property transactions shall be void unless approved by the shareholders of the company or the holding company (if the transaction is in favour of a director or substantial shareholder of its holding company or person connected with such director or substantial shareholder). However, by virtue of section 132E(3) of the CA 1965, such interested director or substantial shareholder or persons connected with them shall abstain from approving such a transaction.
Introduced in parliament on September 7 2007, Budget 2008 is part of the government's effort towards a more competitive tax regime. To enhance Malaysia's competitiveness, corporate tax rates will be further reduced to 25%, although there is still no indication as to when the goods and services tax would be implemented.
A major proposed amendment is the implementation of a single-tier tax system that, in the Ministry of Finance and the Revenue's view, will reduce administrative and compliance costs.
Certain business sectors, notably Islamic banking, finance and takaful, will enjoy enhanced tax incentives designed to, amongst others, make Malaysia an international Islamic financial centre. However, tax incentives granted to MSC status companies undertaking information and communication technology activities (including computer software development) outside the Cybercities and Cybercentres ceased from September 8 2007 in a move to centralise ICT activities.
Unless otherwise stated, the budgetary proposals discussed below will take effect from year of assessment (YA) 2008.
Corporate tax rate
The corporate tax rate would be reduced further to 25% with effect from YA 2009, from 27% (for YA 2007) and 26% (for YA 2008).
Single tier tax system
Under the imputation system, the only tax payable on dividends is the underlying corporate tax, which is attributable to the shareholder for "franking" dividends under the "section 108 account", being the account or balance kept by a company for purposes of accumulation/calculation of tax credits arising from corporate taxes paid. As the total income tax paid by a company flows to its shareholders, tax deducted at source by the company when it pays a dividend to its shareholders would be set off against the shareholder's taxes.
The single tier tax system will dispense with section 108 accounts. Tax on companies' profits would be a final tax and dividends distributed would be tax-exempt in the hands of shareholders. One consequence of this would be that taxpayers in the lower tax brackets who receive dividend income will no longer get any tax refunds as the tax deducted at source is a final tax.
Transitional measures proposed over a six-year period include allowing companies with section 108 account credit balances to continue using available tax credits. However, companies with nil balances as of January 1 2008 must immediately move to the single tier system and be subject to tax at 26%.
Labuan offshore companies
Labuan offshore companies carrying on offshore business activity can irrevocably elect to be taxed under the ITA (from YA 2008) instead of the Labuan Offshore Business Activity Tax Act 1990 (from YA 2009). Under the latter, it can elect to be taxed at 3% of net profits or a flat RM20,000 ($6,215). Offshore non-trading income including dividend, interest and royalty are tax-exempt.
By Michelle Wong Min Er & Irene Yong