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LABUAN BUSINESS ACTIVITY TAX (AMENDMENT) ACT 2020 is Malaysia Amendment Act, cited as Amendment Act A1614 2020, currently marked in force and first recorded in 2020.
Opening note
Paragraph 2(a) and sections 13 and 15 come into operation on the coming into operation of this Act.
Paragraph 2(b) and sections 3, 4, 5, 6, 7, 9, 10, 11, 12 and 14
have effect for the year of assessment 2020 and subsequent years of assessment.
Section 8 is deemed to have come into operation on 1 January 2019.
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Amendment of section 2
The Labuan Business Activity Tax Act 1990 [Act 445] which is referred to as the “principal Act” in this Act, is amended in subsection 2(1)—
by inserting after the definition of “shipping operations”
the following definition:
“Special Commissioners” means the Special
Commissioners of Income Tax appointed under section 98 of the Income Tax Act 1967;”.
Amendment of section 2b
Section 2b of the principal Act is amended by inserting after subsection (1) the following subsection:
“(1a) A Labuan entity carrying on a Labuan business activity which fails to comply with regulations made under subsection (1)
for a basis period for a year of assessment shall be charged to tax at the rate of twenty four per cent upon its chargeable profits for that year of assessment.”.
New section 3b
The principal Act is amended by inserting after section 3a the following section:
“Residence 3b. For the purposes of the double taxation arrangements effected under section 132 of the Income Tax Act 1967—
a Labuan entity carrying on a business or businesses is resident in Malaysia for the basis period for a year of assessment if at any time during that basis period the management and control of its business or of any one of its businesses, as the case may be, are exercised in Malaysia; and
Labuan Business Activity Tax (Amendment)
any other Labuan entity is resident in Malaysia for the basis period for a year of assessment if at any time during that basis period the management and control of its affairs are exercised in Malaysia by its directors, partners, trustees or other controlling authority.”.
Amendment of section 4
Subsection 4(2) of the principal Act is amended by substituting for the words “The chargeable profits” the words “Subject to this
Act, the chargeable profits”.
Amendment of section 6
in the shoulder note, by inserting after the word “Assessment”
the words “and additional assessment”;
by substituting for the words “in the prescribed form” the words “in accordance with section 6a”;
by inserting after the words “the Labuan entity concerned” the words “in accordance with section 6b”; and
by inserting after the renumbered subsection (1) the following subsections:
“(2) The Director General, where for any year of assessment it appears to him that no or no sufficient assessment has been made on a person chargeable to tax, may in that year or within five years after its expiration make an assessment or additional assessment, as the case may be, in respect of that person in the amount
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or additional amount of chargeable profit and tax or in the additional amount of tax, in which according to the best of the Director General’s judgment, the assessment with respect to that person ought to have been made for that year.
The Director General, where for any year of assessment it appears to him that no or no sufficient assessment has been made on a person chargeable to tax in consequence of the Director General’s determination pursuant to subsection 17d(3), may in that year or within seven years after its expiration make an assessment or additional assessment, as the case may be, in respect of that person in the amount or additional amount of chargeable profit and tax or in the additional amount of tax, in which according to the best of the Director General’s judgment, the assessment with respect to that person ought to have been made for that year.
The Director General where it appears to him that—
any form of fraud or wilful default has been committed by or on behalf of any person; or
any person has been negligent, in connection with or in relation to tax, may at any time make an assessment in respect of that person for any year of assessment for the purpose of making good any loss of tax attributable to the fraud, wilful default or negligence in question.”.
New sections 6a, 6b, 6c and 6d
The principal Act is amended by inserting after section 6 the following sections:
be made in the appropriate prescribed form;
Labuan Business Activity Tax (Amendment)
indicate, in addition to any other material included therein, the appropriate year of assessment and the amount or additional amount of chargeable profits and the tax charged thereon or the amount of tax or additional tax, as the case may be; and
specify in the appropriate space in that form the date on which that form was duly completed.
Where the form under subsection (1) appears to have been duly completed, the assessment shall, until the contrary is proved, be presumed to have been made on the date so specified.
Notice of assessment 6b. (1) As soon as may be after an assessment has been made under section 6, the Director General shall cause a notice of assessment to be served, personally or by post on the chargeable Labuan entity in respect of whom the assessment was made.
Where the tax charged under an assessment is increased on appeal to the Special Commissioners or a court, then, as soon as may be after the appeal has been decided there shall be served, personally or by post on the chargeable Labuan entity in respect of whom the assessment was made a notice of increased assessment.
A notice served under subsection (1) or (2) shall indicate, in addition to any other material included therein—
in the case of a notice served under subsection (1), the year of assessment and the amount or additional amount of the chargeable profits and the tax charged;
in the case of a notice served under subsection (2), the year of assessment and the amount of the increase in the tax charged; and
the place at which payment is to be made;
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any right of appeal which may exist under this Act.
Finality of assessment 6c. (1) The assessment made, agreed to or determined, shall be final and conclusive for the purposes of this Act, where—
no valid notice of appeal against an assessment has been given under section 99 of the Income Tax
Act 1967 within the time specified by that section or any extension of time granted;
an agreement has been come to with respect to an assessment pursuant to subsection 101(2) of the
Income Tax Act 1967; or
an assessment has been determined on appeal and there is no right of further appeal.
Nothing in subsection (1) shall prejudice the exercise of any power conferred on the Director General by section 6.
Right of appeal 6d. (1) A person aggrieved by an assessment made on him may appeal to the Special Commissioners against the assessment in the same manner as an appeal against an assessment of income tax made under the Income Tax
Act 1967, and sections 99, 100, 101 and 102 of the Income
Tax Act 1967, as far as they are applicable and with the necessary modifications, shall apply to an appeal against an assessment made under this Act as if—
every reference in those sections to income tax or to tax were a reference to Labuan business activity tax; and
every reference in those sections to income were a reference to chargeable profits.
Labuan Business Activity Tax (Amendment)
Schedule 5 to the Income Tax Act 1967 shall apply with necessary modifications in relation to the procedures of hearing of appeals to the Special Commissioners and to the procedures of hearing of further appeals.”.
Amendment of section 9
“Form and making of assessments 6a. (1) An assessment made under section 6 shall—
by inserting after the words “Notwithstanding section 3,” the words “the profit of”; and
by inserting after the words “be charged to tax”
the words “under this Act”; and
by inserting after the renumbered subsection (1) the following subsections:
“(2) For the avoidance of doubt, the profit of a
Labuan entity carrying on a Labuan business activity which is a Labuan non-trading activity referred to in subsection (1) shall not include any income derived from royalty and other income derived from an intellectual property right if it is receivable as consideration for the commercial exploitation of that right.
Any income derived from intellectual property right referred to in subsection (2) is subject to tax under the Income Tax Act 1967.
In this section, “intellectual property right” has the same meaning assigned to it under subsection 4(5).”.
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New section 13a
The principal Act is amended by inserting after section 13
the following section:
“Tax due and payable 13a. (1) Where an assessment is made under section 6, the tax payable under the assessment shall, on the service of the notice of assessment under section 6b, be due and payable on the person assessed at the place specified in that notice whether or not that person appeals against the assessment.
Where any tax due and payable under subsection (1) has not been paid within thirty days after the service of the notice, so much of the tax as is unpaid upon the expiration of that period shall without any further notice being served be increased by a sum equal to ten per cent of the tax so unpaid, and that sum shall be recoverable as if it were tax due and payable under this Act.”.
New sections 17c and 17d
The principal Act is amended by inserting after section 17b the following sections:
“Power to disregard certain transactions 17c. (1) The Director General may, without prejudice to such validity as it may have in any other respect or for any other purpose, disregard or vary the transaction and make such adjustments as he thinks fit, including the computation or re-computation of the chargeable profit, or the imposition of liability to tax, or make such assessment or additional assessment in respect of any person as may be necessary in consequence of his exercise of the powers, with a view to counteracting the whole or any part of any such direct or indirect effect of the transaction, where he has reason to believe that any transaction has the direct or indirect effect of—
altering the incidence of tax which is payable or suffered by or which would otherwise have been payable by any person or suffered by any person;
Labuan Business Activity Tax (Amendment)
relieving any person from any liability which has arisen or which would otherwise have arisen to pay tax or to make a return;
evading or avoiding any duty or liability which is imposed or would otherwise have been imposed on any person by this Act; or
In exercising his powers under this section, the Director
General may require by notice any person to pay to him within the time specified in the notice the amount of tax that would be deducted by that person under this Act in consequence of his exercise of those powers.
Without prejudice to the generality of subsections (1)
and (2), the powers of the Director General conferred by this section shall extend—
to the charging with tax of any person or persons who if not for any adjustment made by virtue of this section would not be chargeable with tax or would not be chargeable with tax to the same extent; and
to the charging of a greater amount of tax than would be chargeable if not for any such adjustment.
Where in consequence of any adjustment made under this section an assessment is made, a right to repayment is refused or a return of a repayment of tax is required, the particulars of the adjustment shall be given with the notice of assessment, with the notice refusing the repayment or with the notice requiring the return of a repayment, as the case may be.
Transactions—
between persons both of whom are controlled by some other person,
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shall be deemed to be transactions of the kind to which subsection (1) applies if in the opinion of the Director General those transactions have not been made on terms which might fairly be expected to have been made by independent persons engaged in the same or similar activities dealing with one another at arm’s length.
For the purposes of this section—
a person shall be taken to have control over the other in the same manner as provided under section 139
of the Income Tax Act 1967 as far as it is applicable and with the necessary modifications; and
“transaction” means any trust, grant, covenant, agreement, arrangement or other disposition or transaction made or entered into orally or in writing, whether before or after the commencement of this
Act, and includes a transaction entered into by two or more persons with another person or persons.
Power to substitute the price on certain transactions 17d. (1) This section shall apply notwithstanding section 17c and subject to any regulations prescribed under this Act.
Subject to subsection (3), where a person in the basis period for a year of assessment enters into a transaction with an associated person for that year for the acquisition or supply of property or services, then, for all purposes of this
Act, that person shall determine and apply the arm’s length price for such acquisition or supply.
Where the Director General has reason to believe that any property or services referred to in subsection (2) is acquired or supplied at a price which is either less than or greater than the price which it might have been expected to fetch if the parties to the transaction had been independent persons dealing at arm’s length, the Director General may in the determination of the chargeable profit of the person, substitute the price in respect of the transaction to reflect an arm’s length price for the transaction.
Labuan Business Activity Tax (Amendment)
The transactions referred to in subsection (2) shall be construed as a transaction between—
persons both of whom are controlled by some other person, in this section referred to as “third person”.
Without prejudice to the generality of paragraph 17c(6)(a), for the purpose of subsection (4), “control” refers to persons one of whom owns shares of the other person, or a third person who owns shares of both persons, where the percentage of the share capital held in either situation is twenty per cent or more and—
the business operations of that person depends on the proprietary rights, such as patents, non-patented technological know-how, trademarks or copyrights, provided by the other person or a third person;
the business activities, such as purchases, sales, receipt of services, provision of services, of that person are specified by the other person, and the prices and other conditions relating to the supply are influenced by such other person or a third person;
or
where one or more of the directors or members of the board of directors of a person are appointed by the other person or a third person.
In this section, “transaction” has the same meaning assigned to it under paragraph 17c(6)(b).”.
New sections 22b, 22c, 22d, 22e and 22f
The principal Act is amended by inserting after section 22a the following sections:
“Power to call for specific returns and production of books 22b. For the purpose of obtaining full information for ascertaining whether or not a person is chargeable to tax or
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for determining his liability, the Director General may by notice in writing require that or any other person—
to complete and deliver to the Director General within a time specified in the notice, not being less than thirty days from the date of service of the notice, any return specified in the notice;
to attend personally before the Director General and produce for examination all books, accounts, returns and other documents which the Director General deems necessary;
to make a return in accordance with paragraph (a)
and also to attend in accordance with paragraph (b);
or
to provide in writing such information or particulars which the Director General deems necessary.
Power to call for statement of bank accounts, etc.
Quoted provision
The Director General may by notice in writing require any person to furnish within a time specified in the notice, not being less than thirty days from the date of service of the notice, a statement containing particulars of—
all banking accounts, being accounts which are in existence or have been in existence at any time during a period to be specified in the notice,—
in his own name or in the name of a wife or dependent child of his or jointly in any such names;
all savings and loan accounts, deposits, building society accounts and co-operative society accounts in regard to which he has or has had any interest or power to operate jointly or solely during that period;
Labuan Business Activity Tax (Amendment)
all assets which he and any wife or dependent child of his possess or have possessed during that period;
all facts bearing upon his present or past chargeability to tax.
Power to access buildings and documents, etc.
Quoted provision
Where the Director General exercises his powers under subsection (1), the occupiers of such lands, buildings and places shall provide the Director General or an authorized officer with all reasonable facilities and assistance for the exercise of his powers under this section.
The Director General may take possession of any books, documents, objects, articles, materials and things to which he has access under subsection (1) where in his opinion—
the inspection of them, the copying of them or the making of extracts from them cannot reasonably be undertaken without taking possession of them;
they may be interfered with or destroyed unless he takes possession of them; or
they may be needed as evidence in any legal proceedings instituted under or in connection with this Act.
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A list of all things seized in the course of a search made under this section and of the places in which they are respectively found shall be prepared by the officer making the search and signed by him.
Where in the opinion of the Director General it is necessary for the purpose of ascertaining the chargeable profit from a business for any period to examine any books, accounts or records kept otherwise than in the national language or English, the Director General may by notice in writing require any person carrying on the business during that period to furnish within a time specified in the notice, not being less than thirty days from the date of service of the notice, a translation in the national language or English of the books, accounts or records in question.
Duty to keep documents for ascertaining chargeable profit and tax payable 22e. (1) Every person who is required to furnish a return of his profits for a year of assessment under this Act shall keep and retain in safe custody sufficient documents for a period of seven years from the end of that year of assessment for the purposes of ascertaining his chargeable profit and tax payable.
Where a person referred to in subsection (1) has not furnished a return as required under this Act for a year of assessment, that person shall keep and retain the documents referred to in subsection (1) that relate to that year of assessment for a period of seven years after the end of the year in which the return is furnished.
The Director General may waive all or any of the requirements under subsection (1) in respect of any profit.
Any person who is required by this section to keep documents and—
does so electronically, shall retain the document in an electronically readable form and shall keep the documents in such a manner as to enable the documents to be readily accessible and convertible into writing; or
Labuan Business Activity Tax (Amendment)
has originally kept documents in a manual form and subsequently converts those documents into an electronic form, shall retain those documents prior to the conversion in their original form.
All documents that relate to any profit in Malaysia shall be kept and retained in Malaysia.
For the purposes of this section, “documents” means—
invoices, vouchers, receipts and such other documents as are necessary to verify the particulars in a return.
Prosecution 22f. No prosecution for an offence under this Act shall be instituted except by or with the written consent of the Public
Prosecutor.”.
Amendment of section 23
Section 23 of the principal Act is amended—
by substituting for the comma at the end of paragraph (b)
the words “; or”; and
by inserting after paragraph (b) the following paragraph:
“(c) fails to comply with a notice given under sections 22b, 22c or subsection 22d(5),”.
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Substitution of section 24
The principal Act is amended by substituting for section 24
the following section:
Quoted provision
An offer under subsection (1) may be made at any time after the offence has been committed but before any prosecution for it has been instituted, and where the amount specified in the offer is not paid within the time specified in the offer, or such extended time as the Director General may grant, prosecution for the offence may be instituted at any time after that against the person to whom the offer was made.
Where an offence has been compounded under subsection (1), no prosecution shall be instituted in respect of the offence against the person to whom the offer to compound was made, and any document or thing seized in connection with the offence may be released by the Director General, subject to such terms as the Director General thinks fit.
All sums of money received by the Director General under this section shall be paid into and form part of the
Consolidated Fund.”.
Amendment of section 27
“Compounding of offences
Section 27 of the principal Act is amended by inserting after the words “other than” the words “a notice of assessment issued under section 6 or”.
Labuan Business Activity Tax (Amendment)
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Savings
of the principal Act which is pending immediately before the date of coming into operation of this Act shall, on or after the coming into operation of this Act, continue to be valid and shall be dealt with under section 24 of the principal Act as if section 24
had not been amended by this Act.
KUALA LUMPUR