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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

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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
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
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.
situation a cont d
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
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.
situation b cont d
Situation B (Cont’d)

*Temporary absencesignored 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)

situation b cont d1
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 d2
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 d3
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 d4
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 d5
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
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)residentin Malaysia, or

(ii)in Malaysia for 90 days or more.

situation d
Situation D
  • Section 7(1)(d)
  • need notbe 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
residence status of individuals1
Residence Status of Individuals

Exercises to determine tax residence status . . .

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

Exercise 1
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

Resident

S 7(1)(a)

Exercise 1 (Answer)
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

Exercise 2
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

Resident

S 7(1)(b)

Exercise 2 (Answer)
exercise 3

Period of stay in Malaysia

No. of days

Y/A

Residencestatus

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

Exercise 3

* Attended conference on behalf of employer in Sydney from 23.12.2004 to 02.01.2005.

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

Resident

S 7(1)(a)

01.01.2003 to 31.01.2003

31

2003

Non-

resident

-

01.06.2004 to 22.12.2004*

205 (>182)

2004

Resident

S 7(1)(a)

*03.01.2005 to 31.03.2005

88

2005

Resident

S 7(1)(b)

Exercise 3 (Answer)

* Temporary absence: 23.12.2004 to 02.01.2005.

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

Exercise 4

* Sent by employer to attend annual conference in Australia from 01.11.2004 to 10.11.2004.

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)

Exercise 4 (Answer)

* Temporary absence: 01.11.2004 to 10.11.2004 (10 days).

174 days + 10 days = 184 days (> 182 days)

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

Exercise 5
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

Resident

S 7(1)(a)

01.03.2004 to 31.10.2004

245

(>182)

2004

Resident

S 7(1)(a)

01.04.2005 to 30.06.2005

91

(>90)

2005

Resident

S 7(1)(c)

Exercise 5 (Answer)
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

Exercise 6
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

Resident

S 7(1)(b)

01.01.2003 to 31.03.2003

90

2003

Non-

resident

-

01.03.2004 to 31.03.2004

31

2004

Non-

resident

-

01.02.2005 to 31.05.2005

120

(>90)

2005

Resident

S 7(1)(c)

Exercise 6 (Answer)
exercise 7

Y/A

No. of days

Residence status

Relevant provision

2000

200

2001

190

2002

300

2003

-

2004

250

Exercise 7
exercise 7 answer

Y/A

No. of days

Residence status

Relevant provision

2000

200

(>182)

Resident

S 7(1)(a)

2001

190

(>182)

Resident

S 7(1)(a)

2002

300

(>182)

Resident

S 7(1)(a)

2003

-

Resident

S 7(1)(d)

2004

250

(>182)

Resident

S 7(1)(a)

Exercise 7 (Answer)
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

Exercise 8
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

Resident

S 7(1)(b)

01.01.2002 to 15.07.2002

196 (>182)

2002

Resident

S 7(1)(a)

01.04.2003 to 15.07.2003

106

(>90)

2003

Resident

S 7(1)(c)

-

-

2004

Resident

S 7(1)(d)

11.01.2005 to 31.07.2005

202 (>182)

2005

Resident

S 7(1)(a)

Exercise 8 (Answer)
residence1
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
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
COMPANIES
  • MANAGEMENT AND CONTROL
residence status of companies
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
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 d1
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 d2
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
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
Double Tax Treaties

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

can there be dual residence
Can there be Dual Residence
  • Yes
  • DTA can be a tie breaker
body of persons
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
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]

source residence
SOURCE/RESIDENCE
  • SOURCE : PERTAINS TO THE INCOME
  • RESIDENCE : PERTAINS TO THE ENTITY
slide58

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
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
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