1 RESIDENCE STATUS. 2 Learning Objectives You should learn from this topic: Determination of residence status of individuals Determination of residence

11

RESIDENCE STATUSRESIDENCE STATUS

22

Learning Objectives

You should learn from this topic: Determination of residence Determination of residence

status of individualsstatus of individuals

Determination of residence Determination of residence status of companies & bodies status of companies & bodies of personsof persons

Significance of residence Significance of residence statusstatus

33

Residence Status of Residence Status of IndividualsIndividuals

Quantitative test

under S 7(1), ITA 1967

• no. of days present in Malaysia during a particular calendar year

• Part of a day - consider as a full day in Malaysia

• 4 situations

44

Situation ASituation A

Section 7(1)(a) An individual must be

physically present in Malaysia in that basis year for a period (i.e. a single period) or periods (i.e. multiple periods) amounting in total to 182 days or more.

55

ResidentResident

66

Situation A Situation A (Cont’d)(Cont’d)

Example 1 (Single period)

In Malaysia: 1.2.2005 - 1.9.2005 (>182 days) Y/A 2005: Resident by virtue of S 7(1)

(a) Example 2 (Multiple periods)

Period I 1.1.2005 - 30.3.2005 (89 days) Period II 15.4.2005 - 31.7.2005 (108 days) Period III 1.12.2005 - 31.12.2005 (31 days)

Y/A2005: Resident by virtue of S 7(1)(a)

77

Situation BSituation B

Section 7(1)(b) in Malaysia for a period of less than

182 days

that period is linked by or to another period of 182 or more consecutive days* throughout which he is in Malaysia in the basis year immediately preceding or immediately following that particular basis year.

88

In B4 and in AfterIn B4 and in After

99

Situation B Situation B (Cont’d)(Cont’d)

* Temporary absences ignored for ascertaining the 182 consecutive days requirements

(i) Service matters/ conferences/ seminars abroad

(ii) Ill-health (self/ immediate family member)

(iii) Social visits (Max: 14 days in aggregate)

1010

STILL PRESENTSTILL PRESENT

1111


Example 3

In Malaysia: 1.5.2004 - 2.2.2005

Y/A 2004: 1.5.2004 - 31.12.2004 (>182 days) Resident by virtue of S 7(1)(a)

Y/A 2005: 1.1.2005 - 2.2.2005 (33 days) Resident by virtue of S 7(1)(b)

1212


Example 4

In Malaysia:

15.12.2001 - 31.12.2001 (17 days)

1.1.2002 - 31.7.2002 (212 days)

1.1.2003 - 31.1.2003 (31 days)

1313


Example 4 (Cont’d)

Y/A 2001: Resident by virtue of S 7(1)(b)

Y/A 2002: Resident by virtue of S 7(1)(a)

Y/A 2003: Non-resident(physically present in Malaysia for < 182 days and this period is neither linked to nor linked by a longer period of >182 days)

1414


Example 5

15.12.04 - 29.12.04 15 days in Malaysia 30.12.04 - 31.12.04 2 days social visit to

Singapore

1.1.05 - 31.1.05 31 days in Malaysia 1.2.05 - 2.2.05 2 days social visit to Thailand 3.2.05 - 31.7.05 179 days in Malaysia

1515


Example 5 (Cont’d)

Y/A 2004: Resident by virtue of S 7(1)(b)

(The period in 2004 is linked to a consecutive period of at least 182 days in 2005. The temporary absence is within the 14 days and it is treated as physical presence in Malaysia)

Y/A 2005: Resident by virtue of S 7(1)(a)(210 days)

1616

Situation CSituation C

Section 7(1)(c)

in Malaysia for a period or periods amounting to 90 days or more in a basis year

in any 3 out of the 4 immediately preceding basis years -

(i) resident in Malaysia, or

(ii) in Malaysia for 90 days or more.

1717

3 OUT OF 4 & 90 days3 OUT OF 4 & 90 days

1818

Situation C Situation C (Cont’d)(Cont’d)

Y/A Period of stay No. of days Resident status

2000 (pyb) 1.1.99 - 31.7.99 212 R – S 7(1)(a)

2000 (cyb) 1.4.00 - 30.9.00 183 R – S 7(1)(a)

2001 1.1.01 - 31.3.01 90 NR

2002 1.1.02 - 30.11.02 334 R – S 7(1)(a)

2003 1.3.03 - 31.10.03 245 R – S 7(1)(a)

2004 1.4.04 - 30.6.04 91 R – S 7(1)(c)

2005 1.1.05 - 31.1. 05 31 NR

Example 6

1919

Situation DSituation D

Section 7(1)(d)

need not be present in Malaysia in a basis year

resident in Malaysia for the 3 immediately preceding years and is also a resident in the following year

2020

THE GAP YEARTHE GAP YEAR

2121

Situation D Situation D (Cont’d)(Cont’d)

Y/A No. of days Resident status

2001 210 R – S 7(1)(a)

2002 183 R – S 7(1)(a)

2003 300 R – S 7(1)(a)

2004 - R – S 7(1)(d)

2005 300 R – S 7(1)(a)

Example 7

2222

Residence Status of Residence Status of IndividualsIndividuals

Exercises to determine tax residence status . . .

2323

Exercise 1Exercise 1

Period of stay in Malaysia

No. of days Y/A

Residence status

Relevant provision

01.01.2003 to 30.06.2003

01.01.2004 to 31.07.2004

01.01.2005 to 30.04.2005

01.07.2005 to 31.10.2005

2424

Exercise 1 (Answer)Exercise 1 (Answer)


No. of days Y/A

Residence status

Relevant provision

01.01.2003 to 30.06.2003

181(<182)

2003Non-

resident-

01.01.2004 to 31.07.2004

213 (>182)

2004 Resident S 7(1)(a)

01.01.2005 to 30.04.2005

120 + 123= 243 (>182)


2525



No. of days Y/A

Residence status

Relevant provision

01.06.2004 to 15.06.2004

01.07.2004 to 31.12.2004

01.01.2005 to 15.02.2005

2626



No. of days

Y/A Residence status

Relevant provision

01.06.2004 to 15.06.2004 15

+ 184= 199(>182)


01.07.2004 to 31.12.2004

01.01.2005 to 15.02.2005

46 2005 Resident S 7(1)(b)

2727



No. of days Y/A

Residence status

Relevant provision

01.12.2001 to 31.12.2001

01.01.2002 to 31.07.2002

01.01.2003 to 31.01.2003

01.06.2004 to 22.12.2004*

*03.01.2005 to 31.03.2005

* Attended conference on behalf of employer in Sydney from 23.12.2004 to 02.01.2005.

2828

Exercise 3 Exercise 3 (Answer)(Answer)

* Temporary absence: 23.12.2004 to 02.01.2005.


No. of days

Y/AResidence

statusRelevant provision

01.12.2001 to 31.12.2001

31 2001 Resident S 7(1)(b)

01.01.2002 to 31.07.2002

212 (>182)


01.01.2003 to 31.01.2003

31 2003Non-

resident-

01.06.2004 to 22.12.2004*

205 (>182)


*03.01.2005 to 31.03.2005

88 2005 Resident S 7(1)(b)

2929



No. of days

Y/AResidence


01.07.2004 to 31.10.2004*

*11.11.2004 to 31.12.2004

01.01.2005 to 31.01.2005

* Sent by employer to attend annual conference in Australia from 01.11.2004 to 10.11.2004.

3030


* Temporary absence: 01.11.2004 to 10.11.2004 (10 days). 174 days + 10 days = 184 days (> 182 days)


No. of days

Y/AResidence


01.07.2004 to 31.10.2004*

123 + 51

= 174(<182)

2004Non-

resident-

*11.11.2004 to 31.12.2004

01.01.2005 to 31.01.2005

31 2005 Resident S 7(1)(b)

3131



No. of days Y/A

Residence status

Relevant provision

01.04.2001 to 30.09.2001

01.01.2002 to 31.03.2002

01.01.2003 to 30.11.2003

01.03.2004 to 31.10.2004

01.04.2005 to 30.06.2005

3232



No. of days


Relevant provision

01.04.2001 to 30.09.2001

183 (>182)


01.01.2002 to 31.03.2002

90 2002Non-

resident-

01.01.2003 to 30.11.2003

334 (>182)


01.03.2004 to 31.10.2004

245(>182)


01.04.2005 to 30.06.2005

91(>90)

2005 Resident S 7(1)(c)

3333



No. of days


Relevant provision

01.07.2001 to 31.12.2001

01.01.2002 to 31.01.2002

01.01.2003 to 31.03.2003

01.03.2004 to 31.03.2004

01.02.2005 to 31.05.2005

3434



No. of days


Relevant provision

01.07.2001 to 31.12.2001

184 (>182)


01.01.2002 to 31.01.2002

31 2002 Resident S 7(1)(b)

01.01.2003 to 31.03.2003

90 2003Non-

resident-

01.03.2004 to 31.03.2004

31 2004Non-

resident-

01.02.2005 to 31.05.2005

120(>90) 2005 Resident S 7(1)(c)

3535


Y/ANo. of days

Residence status

Relevant provision

2000 200

2001 190

2002 300

2003 -

2004 250

3636


Y/ANo. of days

Residence status

Relevant provision

2000200(>182)

Resident S 7(1)(a)

2001190(>182) Resident S 7(1)(a)

2002300(>182) Resident S 7(1)(a)

2003 - Resident S 7(1)(d)

2004250(>182) Resident S 7(1)(a)

3737



No. of days Y/A

Residence status

Relevant provision

01.10.1999 to 30.11.1999

61

01.01.2000 to 15.07.2000

197

16.12.2001 to 31.12.2001

16

01.01.2002 to 15.07.2002

196

01.04.2003 to 15.07.2003 106

- -

11.01.2005 to 31.07.2005

202

3838



No. of days

Y/AResidence


01.10.1999 to 30.11.1999

61 2000(pyb)

Non-resident

-

01.01.2000 to 15.07.2000

197 (>182)

2000 (cyb)

Resident S 7(1)(a)

16.12.2001 to 31.12.2001

16 2001

Resident S 7(1)(b)

01.01.2002 to 15.07.2002

196 (>182)


01.04.2003 to 15.07.2003

106(>90)

2003 Resident S 7(1)(c)

- - 2004 Resident S 7(1)(d)11.01.2005 to

31.07.2005202 (>182)


3939

RESIDENCERESIDENCE

4040

ResidenceResidence

Residence –Home of income really.Residence –Home of income really.

Rights to taxRights to tax

Rights not to be taxedRights not to be taxed

Rights of reliefRights of relief

Rights of refundRights of refund

Accrued and Derived in –refers to Accrued and Derived in –refers to sourcesource

4141

Accrued /Derived Accrued /Derived (Source)-just to recap(Source)-just to recap Originating cause to receive Originating cause to receive

incomeincome Where service renderedWhere service rendered Where property locatedWhere property located Arising fromArising from Where profit making activity Where profit making activity

locatedlocated

4242

COMPANIESCOMPANIES

MANAGEMENT MANAGEMENT AND CONTROLAND CONTROL

4343

Residence Status of CompaniesResidence Status of Companies

A company carrying on a business or businesses is resident in Malaysia for the basis year for a year of assessment if at any time during that basis year the management and control of its business or of any one of its businesses, are exercised in Malaysia. [S 8(1)(b) of ITA 1967]

4444

Residence Status of Companies Residence Status of Companies (Cont’d)(Cont’d)

Any other company is resident in Malaysia for the basis year for a year of assessment if at any time during that basis year the management and control of its affairs are exercised in Malaysia by its directors or other controlling authority.

[S 8(1)(c) of ITA 1967]

4545

Residence Status of CompaniesResidence Status of Companies(Cont’d)(Cont’d)

• Management and control

• Any time during that basis year

• Any one businessOnce a company is resident, then the company is presumed to be tax resident until the company informs IRB otherwise [S 8(2), ITA

1967]

4646

Residence Status of CompaniesResidence Status of Companies(Cont’d)(Cont’d)

Management and control

- normally exercised by its directors Location of meeting - in Malaysia? Major decisions are made in the

meeting to direct and control the company?

Yes Resident in Malaysia

What does not count What does not count for Residencefor Residence Location of Company- i.e. Location of Company- i.e.

incorporation or registered officeincorporation or registered office Shareholders controlShareholders control Residence of Board of DirectorsResidence of Board of Directors

4747

Double Tax TreatiesDouble Tax Treaties

Because residence is different Because residence is different under each country’s laws, tax under each country’s laws, tax treaties formulate ‘Permanent treaties formulate ‘Permanent establishment”establishment”

4848

Can there be Dual Can there be Dual ResidenceResidence YesYes DTA can be a tie breakerDTA can be a tie breaker

4949

5050

Body of PersonsBody of Persons

• Hindu joint family• Trust• Estates• Club• Trade association• Co-operative society

Unincorporated bodies:

What in any system of law prevailing in India is known as a Hindu joint family or coparcenary

(S 2, ITA 1967)

5151

Residence Status of Body of PersonsResidence Status of Body of Persons

Hindu jointfamily

Trust, estates, club,trade association &

co-operative society

Manager/ karta is

resident in Malaysia

Control & management in Malaysia

[S 8(1)(a), ITA 1967]

[S 8(1)(b) & (c), ITA 1967]

5252

Significance of Residence StatusSignificance of Residence Status- Individuals- Individuals

RR NRNR

Income tax rateIncome tax rate Scaled rate Scaled rate (0 – 28%)(0 – 28%)

Flat rate Flat rate (28%)(28%)

Personal reliefPersonal relief EntitledEntitled Not Not entitledentitled

Rebate for chargeable Rebate for chargeable income income ≤ RM35,000≤ RM35,000

EntitledEntitled Not Not entitledentitled

Royalties from Royalties from literary or artistic literary or artistic work work

ExemptedExempted Not Not exempted exempted

Income from cultural Income from cultural performance performance approved by approved by Minister Minister

ExemptedExempted Not Not exemptedexempted

5353

Significance of Residence StatusSignificance of Residence Status- Individuals - Individuals (Cont’d)(Cont’d)

RR NRNR

Income from musical Income from musical composition composition

ExemptExempteded

Not Not exemptedexempted

Dividend income from Dividend income from approved unit trust approved unit trust

ExemptExempteded

Not Not exemptedexempted

Withholding tax on Withholding tax on contract payment, contract payment, interest, royalty, technical interest, royalty, technical fees and other Section 4A fees and other Section 4A payment payment

Not Not applicabapplicab

lele

ApplicablApplicable (10% - e (10% -

15%)15%)

Interest income (non-Interest income (non-exempt) from financial exempt) from financial institutionsinstitutions

Taxed at Taxed at 5%5%

ExemptedExempted

Employment income Employment income ≤ 60 ≤ 60 daysdays

TaxableTaxable ExemptedExempted

5454

Significance of Residence StatusSignificance of Residence Status- Companies- Companies

RR NRNR

Scope of charge

Companies carrying on business of banking, insurance, shipping and air transport - the business income is taxable on a world income scope. Other companies - income accrued or derived in Malaysia

Income accrued or derived in Malaysia

5555

Significance of Residence Significance of Residence StatusStatus

- Companies - Companies (Cont’d)(Cont’d)RR NRNR

Derivation of Derivation of dividends dividends from Malaysiafrom Malaysia

Malaysian Malaysian source source dividendsdividends

Not Malaysian Not Malaysian source source dividendsdividends

Section 108 Section 108 account to account to frank taxable frank taxable dividend dividend

ApplicableApplicable Not applicableNot applicable

Withholding Withholding taxtax

Not applicableNot applicable Applicable Applicable (10% - 15%)(10% - 15%)

Double Double taxation relieftaxation relief

ApplicableApplicable Not applicableNot applicable

5656

Significance of Residence Significance of Residence StatusStatus

- Companies - Companies (Cont’d)(Cont’d)RR NRNR

Incentives available under Income Tax Act 1967 and Promotion of Investments Act 1986

AvailableAvailable Not availableNot available

Foreign source Foreign source income income exemptedexempted

Exempt Exempt income a/cincome a/c

No exempt No exempt income a/cincome a/c

SOURCE/RESIDENCESOURCE/RESIDENCE

5757

•SOURCE : PERTAINS TO THE INCOME

•RESIDENCE : PERTAINS TO THE ENTITY

5858

Learning Outcomes

Apply the quantitative tests to determine the residence status of individuals

Explain how companies and bodies of person may become tax residents in Malaysia

Outline the differences between a resident and a non-resident individual from income tax point of view

State the advantages and disadvantages of being a tax resident company in Malaysia

After studying this topic, you should be able to:

References in TEXT References in TEXT BOOKBOOK Chapt. 1 – scope of tax and residenceChapt. 1 – scope of tax and residence Chapt 3. – basis of assessmentChapt 3. – basis of assessment Chapt 6 –assessment year and basis Chapt 6 –assessment year and basis

periodsperiods Chapt 7 – charge to income tax, Chapt 7 – charge to income tax,

accrued, derived, source and accrued, derived, source and received,DTAreceived,DTA

Chapt 11- corporate residence,dual Chapt 11- corporate residence,dual residence & DTAresidence & DTA

Chapter 20- DTA’SChapter 20- DTA’S 5959

Documents

1 RESIDENCE STATUS. 2 Learning Objectives You should learn from this topic: Determination of residence status of individuals Determination of residence