Changes relating to the disclosure of beneficial ownership

Extension of transitional period
Previously, the Companies Commission of Malaysia (CCM) had issued the Guidelines for the Reporting Framework for Beneficial Ownership of Legal Persons which came into force on 1 March 2020. Under these beneficial ownership guidelines, existing companies in Malaysia had until 31 December 2020 to obtain and update the requisite information about their beneficial owners. This was known as the transitional period, and such information collected had to be submitted to the CCM within 14 days from the end of the transitional period.

However, on 17 December 2020, the CCM announced an indefinite extension of the transitional period. (8) Specifically, the CCM clarified that the end of the extended transitional period would coincide with the Companies (Amendment) Bill 2020 (CA Bill) and the Limited Liability Partnerships (Amendment) Bill 2020 (LLPA Bill) coming into force. Apart from allowing companies, limited liability partnerships, company secretaries, and compliance officers to familiarise themselves with their obligations under the beneficial ownership guidelines. The transitional period was also extended to facilitate the practical implementation of the new provisions relating to beneficial ownership proposed under the CA Bill and LLPA Bill. 

At the time of writing, there is no information as to when the CA Bill and LLPA Bill will come into force.

New beneficial ownership-related provisions proposed under the CA Bill
Presently, Section 56 of the Companies Act empowers companies to, amongst others, request beneficial ownership-related information from their shareholders by way of a notice in writing and record the same in a separate part of the register of members.

Under the CA Bill, there are new provisions proposed to further augment the obligation for companies to identify and disclose their beneficial owners to the CCM. Some of the notable amendments proposed under the CA Bill include the following:

-- the definition of a beneficial owner is to be refined to mean "a natural person who ultimately owns or controls a company and includes an individual who exercises ultimate effective control over a company," expanding the ambit of the definition to include a non-member, as long as such person ultimately controls the company;
-- in addition to obtaining beneficial ownership information from its members, a company may also obtain such information from any person it knows or has reasonable grounds to believe (i) is a beneficial owner; or (ii) has information of a beneficial owner; 
-- beneficial owners will now have a duty to notify the company that they are a beneficial owner in relation to the company and provide such other information as may be prescribed;
-- companies will be required to include information on their beneficial owners in the annual returns that are filed to the CCM; and
-- the beneficial ownership register maintained by companies may be made available to, amongst others, the beneficial owners themselves, the Royal Malaysian Police, Malaysian Anti-Corruption Commission, Royal Malaysian Customs Department, the Central Bank of Malaysia and the Securities Commission of Malaysia.

New guidelines to be issued for the reporting of trusts
Malaysian companies registered under the Trust Companies Act 1949 are similarly required to comply with the beneficial ownership guidelines. In addition to this, the CCM has announced (9) that there will be separate guidelines issued for such trust companies to report the beneficial owners of the legal arrangements for which such trust companies act as trustees. At the time of writing, no further details have been released.

Common reporting standard (CRS) and automatic exchange of information in Malaysia
Updated List of Reportable Jurisdictions
The IRB published the first List of Reportable Jurisdictions on 15 January 2018 and subsequently updated the list several times. The latest update was on 15 January 2021 whereby Costa Rica, Curaçao, and Turkey were added. The list now includes 70 jurisdictions (previously 67 as at 15 January 2020).

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Other relevant updates
New public ruling on the taxation on trusts
On 6 November 2020, the IRB issued a Public Ruling No. 9/2020 on the Taxation of Trusts (Public Ruling). This Public Ruling provides an understanding of the interpretation taken by the IRB in respect of the taxation of trusts, including the ascertainment of the statutory income of a beneficiary.

Section 61 of the ITA provides that beneficiaries shall be taxed on, amongst others, income from their "further source", which includes the amount received outside of Malaysia from the trustee (that is subsequently remitted into Malaysia). Notably, under this Public Ruling, the IRB acknowledges that "further source" income is deemed to have been derived from outside of Malaysia and therefore not subject to Malaysian tax, in accordance with Paragraph 28 of Schedule 6 of the ITA.

Additionally, the Public Ruling provides that the remuneration paid to the trustee to manage and administer the trust is not deductible in ascertaining the total income of the trust. However, if it can be proven that the trustee is directly involved in carrying on the business of the trust, such remuneration may be deductible under Section 33 of the ITA if it is wholly and exclusively incurred in the production of income.

Updates on tax residency issues arising from the travel restrictions due to COVID-19
In view of extended travel restrictions as a result of the ongoing COVID-19 pandemic, the IRB had released an updated FAQ on International Tax Issues due to COVID-19 Travel Restrictions (10). Under the FAQ, the IRB has maintained that the presence in or absence from Malaysia due to COVID-19 travel restrictions will generally not affect an individual's tax residence status in Malaysia. Similarly, resident companies that cannot convene their board meetings in Malaysia or non-resident companies that have to convene their board meetings in Malaysia due to COVID-19 travel restrictions are unaffected in terms of tax residence, provided that certain conditions are met.

The FAQ has further clarified the type of documents to be retained and submitted to the IRB upon request in order to prove the inability to leave or enter Malaysia due to COVID-19 restrictions. Such documents include guidelines on local or foreign authority travel restrictions, documents that prove the individual's effort to leave or return to Malaysia (including responses from the Immigration Department of Malaysia or the relevant airlines) during the movement control order period in Malaysia, and minutes of directors' meetings stating the reasons why the directors were attending the meeting remotely from their respective locations. 

Additionally, the FAQ sheds some light on the taxation of income received by individuals temporarily working overseas or in Malaysia. Briefly: 

-- Malaysian tax residents who normally exercise their employment in Malaysia, but are forced to work temporarily overseas due to COVID-19 travel restrictions, are still regarded to be exercising employment in Malaysia and thus subject to Malaysian income tax; and 
-- the IRB is prepared to consider that non-resident individuals are not exercising employment in Malaysia even if such individuals are working from Malaysia due to COVID-19 travel restrictions, provided certain conditions are met. 

Expatriate-related developments
Suspension of the Malaysia My Second Home Programme (MM2H Programme)
New applications for the MM2H Programme, as well as processing new applications that have been submitted, have been suspended since 4 August 2020, while the Government reviews the programme. 

It was previously reported that the MM2H Programme will be relaunched in 2021 with some changes made to the terms and conditions. No formal announcements have been made at this juncture.  

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Extension of the Returning Expert Programme (REP)
The REP has been extended for three years until 31 December 2023. Under the REP, skilled Malaysians may avail themselves to, amongst others, a flat income tax rate of 15 per cent on employment income for five consecutive years, as opposed to being subject to the progressive income tax rate of up to 30 per cent.

Update on the issuance of tax identification numbers (TIN)
Previously, it was announced that Malaysian individuals who are 18 years old and older, as well as corporate entities, will automatically be assigned a TIN. At the time of writing, this has not been implemented.
 

 

Footnotes:

1,  The SVDP ran from 3 November 2018 to 30 September 2019.  
2,  A company undertaking PEH activities has been defined by the Labuan Investment Committee as a company that only holds equity participation and earns only dividends and capital gains. The receipt of interest from financial institutions arising from the placing of dividend monies or proceeds of disposal of shares, will not disqualify a company of its PEH status.
3,  Labuan Business Activity Tax (Requirements for Labuan Business Activity) 2018 (Amendment) Regulations 2020 (gazetted 24 December 2020).
4,  Directive on Management and Control Requirements for Labuan Entities that Undertake PEH Activities (Directive) issued by the LFSA on 10 August 2020.
5,  Directive read together with the Clarification on Board Meeting Requirement dated 10 September 2020 issued by the LFSA.
6,  Stamp Duty (Exemption) (No. 3) Order 2012.
7,  "Labuan business activity" means a Labuan trading or a Labuan non-trading activity carried on in, from or through Labuan, excluding any activity which is an offence under any written law.
8,  Frequently Asked Questions on the Extension of Time for the Transitional Period of the "Guidelines for the Reporting Framework for Beneficial Ownership of Legal Persons" to a Date to be Determined by the Registrar.
9,  Frequently Asked Questions on the Beneficial Ownership Reporting Framework of Legal Persons.
10, Issued on 9 February 2021.