1. RESIDENCE STATUS

2. Learning Objectives You should learn from this topic:
Determination of residence status of individuals
Determination of residence status of companies & bodies of persons
Significance of residence status

3. Residence Status of Individuals
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

4. Situation 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.

5. Resident

6. Situation A (Cont’d) Example 1 (Single period)
In Malaysia: (>182 days)
Y/A 2005: Resident by virtue of S 7(1)(a)
Example 2 (Multiple periods)
Period I (89 days)
Period II (108 days)
Period III (31 days)
Y/A2005: Resident by virtue of S 7(1)(a)

7. Situation 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.

8. In B4 and in After

9. Situation B (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)

10. STILL PRESENT

11. Situation B (Cont’d) Example 3 In Malaysia: 1.5.2004 - 2.2.2005
Y/A 2004: (>182 days)
Resident by virtue of S 7(1)(a)
Y/A 2005: (33 days)
Resident by virtue of S 7(1)(b)

12. Situation B (Cont’d) Example 4 In Malaysia:
(17 days)
(212 days)
(31 days)

13. Situation B (Cont’d) 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)

14. Situation B (Cont’d) Example 5 15.12.04 - 29.12.04 15 days in Malaysia
days social visit to
Singapore
days in Malaysia
days social visit to Thailand
days in Malaysia

15. Situation B (Cont’d) 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 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)

16. Situation 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.

17. 3 OUT OF 4 & 90 days

18. Situation C (Cont’d) Example 6
Y/A Period of stay No. of days Resident status
2000 (pyb) R – S 7(1)(a)
2000 (cyb) R – S 7(1)(a) NR
R – S 7(1)(a)
R – S 7(1)(a)
R – S 7(1)(c) NR

19. Situation D Section 7(1)(d)
need not be present in Malaysia in a basis year
resident in Malaysia for the immediately preceding years and is also a resident in the following year

20. THE GAP YEAR

21. Situation D (Cont’d) Y/A No. of days Resident status 210 R – S 7(1)(a)
Example 7
Y/A No. of days Resident status
R – S 7(1)(a)
R – S 7(1)(a)
R – S 7(1)(a)
R – S 7(1)(d)
R – S 7(1)(a)

22. Residence Status of Individuals
Exercises to determine tax residence status . . .

23. Period of stay in Malaysia
Exercise 1
Period of stay in Malaysia
No. of days
Y/A
Residence status
Relevant provision to to to to

24. Period of stay in Malaysia
Exercise 1 (Answer)
Period of stay in Malaysia
No. of days
Y/A
Residence status
Relevant provision to
181
(<182)
2003
Non-
resident - to
213 (>182)
2004
Resident
S 7(1)(a) to
= 243 (>182)
2005

25. Period of stay in Malaysia
Exercise 2
Period of stay in Malaysia
No. of days
Y/A
Residence status
Relevant provision to to to

26. Period of stay in Malaysia
Exercise 2 (Answer)
Period of stay in Malaysia
No. of days
Y/A
Residence status
Relevant provision to 15
+ 184
= 199
(>182)
2004
Resident
S 7(1)(a) to to 46
2005
S 7(1)(b)

27. Period of stay in Malaysia
Exercise 3
Period of stay in Malaysia
No. of days
Y/A
Residence status
Relevant provision to to to
to *
* to
* Attended conference on behalf of employer in Sydney from to

28. Period of stay in Malaysia
Exercise 3 (Answer)
Period of stay in Malaysia
No. of days
Y/A
Residence status
Relevant provision to 31
2001
Resident
S 7(1)(b) to
212 (>182)
2002
S 7(1)(a) to
2003
Non-
resident -
to *
205 (>182)
2004
* to 88
2005
* Temporary absence: to

29. Period of stay in Malaysia
Exercise 4
Period of stay in Malaysia
No. of days
Y/A
Residence status
Relevant provision
to *
* to to
* Sent by employer to attend annual conference in Australia from to

30. Period of stay in Malaysia
Exercise 4 (Answer)
Period of stay in Malaysia
No. of days
Y/A
Residence status
Relevant provision
to *
123
+ 51
= 174
(<182)
2004
Non-
resident -
* to to 31
2005
Resident
S 7(1)(b)
* Temporary absence: to (10 days).
174 days + 10 days = 184 days (> 182 days)

31. Period of stay in Malaysia
Exercise 5
Period of stay in Malaysia
No. of days
Y/A
Residence status
Relevant provision to to to to to

32. Period of stay in Malaysia
Exercise 5 (Answer)
Period of stay in Malaysia
No. of days
Y/A
Residence status
Relevant provision to
183 (>182)
2001
Resident
S 7(1)(a) to 90
2002
Non-
resident - to
334 (>182)
2003 to
245
(>182)
2004 to 91
(>90)
2005
S 7(1)(c)

33. Period of stay in Malaysia
Exercise 6
Period of stay in Malaysia
No. of days
Y/A
Residence status
Relevant provision to to to to to

34. Period of stay in Malaysia
Exercise 6 (Answer)
Period of stay in Malaysia
No. of days
Y/A
Residence status
Relevant provision to
184 (>182)
2001
Resident
S 7(1)(a) to 31
2002
S 7(1)(b) to 90
2003
Non-
resident - to
2004 to
120
(>90)
2005
S 7(1)(c)

35. Exercise 7 Y/A No. of days Residence status Relevant provision 2000
2001
190
2002
300
2003 -
2004
250

36. Exercise 7 (Answer) Y/A No. of days Residence status
Relevant provision
2000
200
(>182)
Resident
S 7(1)(a)
2001
190
2002
300
2003 -
S 7(1)(d)
2004
250

37. Period of stay in Malaysia
Exercise 8
Period of stay in Malaysia
No. of days
Y/A
Residence status
Relevant provision to 61 to
197 to 16 to
196 to
106 - to
202

38. Period of stay in Malaysia
Exercise 8 (Answer)
Period of stay in Malaysia
No. of days
Y/A
Residence status
Relevant provision to 61
2000
(pyb)
Non-
resident - to
197 (>182)
2000 (cyb)
Resident
S 7(1)(a) to 16
2001
S 7(1)(b) to
196 (>182)
2002 to
106
(>90)
2003
S 7(1)(c)
2004
S 7(1)(d) to
202 (>182)
2005

39. RESIDENCE

40. Residence Residence –Home of income really. Rights to tax
Rights not to be taxed
Rights of relief
Rights of refund
Accrued and Derived in –refers to source

41. Accrued /Derived (Source)-just to recap
Originating cause to receive income
Where service rendered
Where property located
Arising from
Where profit making activity located

42. COMPANIES
MANAGEMENT AND CONTROL

43. Residence 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]

44. Residence Status of Companies (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]

45. Residence Status of Companies (Cont’d)
Management and control
Any time during that basis year
Any one business
Once a company is resident, then the company is presumed to be tax resident until the company informs IRB otherwise
[S 8(2), ITA 1967]

46. Residence Status of Companies (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

47. What does not count for Residence
Location of Company- i.e. incorporation or registered office
Shareholders control
Residence of Board of Directors

48. Double Tax Treaties
Because residence is different under each country’s laws, tax treaties formulate ‘Permanent establishment”

49. Can there be Dual Residence
Yes
DTA can be a tie breaker

50. Body of Persons Unincorporated bodies:
What in any system of law prevailing in India is known as a Hindu joint family or coparcenary
(S 2, ITA 1967)
Hindu joint family
Trust
Estates
Club
Trade association
Co-operative society

51. Residence Status of Body of Persons
Hindu joint
family
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]

52. Significance of Residence Status - IndividualsNR
Income tax rate
Scaled rate (0 – 28%)
Flat rate (28%)
Personal relief
Entitled
Not entitled
Rebate for chargeable income ≤ RM35,000
Royalties from literary or artistic work
Exempted
Not exempted
Income from cultural performance approved by Minister

53. Significance of Residence Status - Individuals (Cont’d)NR
Income from musical composition
Exempted
Not exempted
Dividend income from approved unit trust
Withholding tax on contract payment, interest, royalty, technical fees and other Section 4A payment
Not applicable
Applicable (10% - 15%)
Interest income (non-exempt) from financial institutions
Taxed at 5%
Employment income ≤ 60 days
Taxable

54. Significance of Residence Status - CompaniesNR
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

55. Significance of Residence Status - Companies (Cont’d)NR
Derivation of dividends from Malaysia
Malaysian source dividends
Not Malaysian source dividends
Section 108 account to frank taxable dividend
Applicable
Not applicable
Withholding tax
Applicable (10% - 15%)
Double taxation relief

56. Significance of Residence Status - Companies (Cont’d)NR
Incentives available under Income Tax Act 1967 and Promotion of Investments Act 1986
Available
Not available
Foreign source income exempted
Exempt income a/c
No exempt income a/c

57. SOURCE/RESIDENCE SOURCE : PERTAINS TO THE INCOME
RESIDENCE : PERTAINS TO THE ENTITY

58. Learning Outcomes After studying this topic, you should be able to:
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

59. References in TEXT BOOK
Chapt. 1 – scope of tax and residence
Chapt 3. – basis of assessment
Chapt 6 –assessment year and basis periods
Chapt 7 – charge to income tax, accrued, derived, source and received,DTA
Chapt 11- corporate residence,dual residence & DTA
Chapter 20- DTA’S