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RM 20K Rebate on Newly Set Up Companies: Conditions Apply

Updated: Sep 12, 2022

Taxation Techie Series 3

On 31st December 2021, Ministry of Finance added a new subsection 6D (4) of the Income Tax 1967 and P.U. (A) has been gazette.

The Income Act of 1967 to insert a new section 6D into Act 53 to provide for tax refund of RM20,000, it is applicable for company or Limited Liability Partnership if they meet conditions and requirements listed in the new section 6D (Condition for the Grand of Rebate).

Following the above, on December 31,2021, the Income Tax (Condition for the Grant of Rebate under Subsection 6D (4)) was gazette. The business must commence between 1 July 2020 to 31st December 2021 regardless on when the company was incorporated. Rebate will be given for each YA for the first 3 YAs is given to newly incorporated MSME’s. In the Budget 2022, the Ministry of Finance has given an extension till 31 December 2022. So good news for companies and LLP. You still got time!!

The orders indicates that the company or LLP must follow the Conditions to be eligible for the rebate:

1. Shall not own or be owned, either directly or indirectly, by a related business or associated LLP, at the start of the basis period for YA, has paid capital in respect of ordinary shares or a contribution of capital exceeding RM 2.5 million.

2. Shall conduct operations in different premises from its related company or its related LLP.

3. Shall not use the plant, equipment and facility owned by or disposed of form its related company or its related LLP.

4. Shall have different employee (except for its CEO and director) from its related company or its related LLP.

5. Shall carry put activity which is:

·Different from other related company or related LLP

·Different from a sole proprietorship where they converted to a company or an LLP.

6. Shall not be a partnership or company which has been converted into an LLP in accordance with section 29 or 30 of the Limited Liability Partnership Act 2012.

7. Shall not be a result of merger or acquisition of two or more companies or LLP’s which have a paid-up capital respect of ordinary shares or contribution of capital (whether in cash or in kind) of RRM 2.5 million and less at the beginning of the basis period for YA and gross income from a source or sources consisting of its business not exceeding of its business not exceeding RM 50 million in the basis period for that YA.

Important to take point

The order will be effective from YA 2021. In other words, a rebate may be awarded under the order for YA 2021 and 2022 only if a qualifying company or qualifying LLP first began operations on or after 1st July 2020 and its basis period ends on or before 31st December 2020.

The primary objective is to prevent exploitation by individuals who utilize their existing business resources to establish another Company to qualify for the RM20,000 rebate.

Therefore, it is wrongdoing the following and you will not be eligible for the tax rebate:

1. Merge two sole-proprietorship.

2. Close the existing sole proprietorship and set up another company.

3. Convert Company to LLP.

4. Convert Sole Proprietorship to LLP.

5. Close existing Company and set-up another company.

So, make sure to check if you do not have any wrongdoing in your Company or LLP, to apply for RM 20,000 rebate.

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