RESIDENCE STATUS

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

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

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.

Resident

Situation A (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)

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.

In B4 and in After

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)

STILL PRESENT

Situation B (Cont’d) 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)

Situation B (Cont’d) 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)

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)

Situation B (Cont’d) 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

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 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)

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.

3 OUT OF 4 & 90 days

Situation C (Cont’d) Example 6 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

Situation 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

THE GAP YEAR

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 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)

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

Period of stay in Malaysia Exercise 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    

Period of stay in Malaysia Exercise 1 (Answer) Period of stay in Malaysia No. of days Y/A Residence status Relevant provision 01.01.2003 to 30.06.2003 181 (<182) 2003 Non- 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) 2005    

Period of stay in Malaysia Exercise 2 Period of stay in Malaysia 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    

Period of stay in Malaysia Exercise 2 (Answer) Period of stay in Malaysia No. of days Y/A Residence status Relevant provision 01.06.2004 to 15.06.2004 15 + 184 = 199 (>182) 2004 Resident S 7(1)(a) 01.07.2004 to 31.12.2004 01.01.2005 to 15.02.2005 46 2005 S 7(1)(b)    

Period of stay in Malaysia Exercise 3 Period of stay in Malaysia 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.

Period of stay in Malaysia Exercise 3 (Answer) Period of stay in Malaysia No. of days Y/A Residence status Relevant provision 01.12.2001 to 31.12.2001 31 2001 Resident S 7(1)(b) 01.01.2002 to 31.07.2002 212 (>182) 2002 S 7(1)(a) 01.01.2003 to 31.01.2003 2003 Non- resident - 01.06.2004 to 22.12.2004* 205 (>182) 2004 *03.01.2005 to 31.03.2005 88 2005   * Temporary absence: 23.12.2004 to 02.01.2005.

Period of stay in Malaysia Exercise 4 Period of stay in Malaysia No. of days Y/A Residence status Relevant provision 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.

Period of stay in Malaysia Exercise 4 (Answer) Period of stay in Malaysia No. of days Y/A Residence status Relevant provision 01.07.2004 to 31.10.2004* 123 + 51 = 174 (<182)   2004 Non- resident - *11.11.2004 to 31.12.2004 01.01.2005 to 31.01.2005 31 2005 Resident S 7(1)(b)     * Temporary absence: 01.11.2004 to 10.11.2004 (10 days). 174 days + 10 days = 184 days (> 182 days)

Period of stay in Malaysia Exercise 5 Period of stay in Malaysia 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    

Period of stay in Malaysia Exercise 5 (Answer) Period of stay in Malaysia No. of days Y/A Residence status Relevant provision 01.04.2001 to 30.09.2001 183 (>182) 2001 Resident S 7(1)(a) 01.01.2002 to 31.03.2002 90 2002 Non- resident - 01.01.2003 to 30.11.2003 334 (>182) 2003 01.03.2004 to 31.10.2004 245 (>182) 2004 01.04.2005 to 30.06.2005 91 (>90) 2005 S 7(1)(c)    

Period of stay in Malaysia Exercise 6 Period of stay in Malaysia No. of days Y/A Residence status 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    

Period of stay in Malaysia Exercise 6 (Answer) Period of stay in Malaysia No. of days Y/A Residence status Relevant provision 01.07.2001 to 31.12.2001 184 (>182) 2001 Resident S 7(1)(a) 01.01.2002 to 31.01.2002 31 2002 S 7(1)(b) 01.01.2003 to 31.03.2003 90 2003 Non- resident - 01.03.2004 to 31.03.2004 2004 01.02.2005 to 31.05.2005 120 (>90) 2005 S 7(1)(c)    

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

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    

Period of stay in Malaysia Exercise 8 Period of stay in Malaysia 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    

Period of stay in Malaysia Exercise 8 (Answer) Period of stay in Malaysia No. of days Y/A Residence status Relevant provision 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 S 7(1)(b) 01.01.2002 to 15.07.2002 196 (>182) 2002 01.04.2003 to 15.07.2003 106 (>90) 2003 S 7(1)(c) 2004 S 7(1)(d) 11.01.2005 to 31.07.2005 202 (>182) 2005

RESIDENCE

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

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

COMPANIES MANAGEMENT AND CONTROL

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]

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]

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]

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

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

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

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

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

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]

Significance of Residence Status - Individuals NR 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

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

Significance of Residence Status - Companies NR 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

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

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

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

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

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