B1 SELF ASSESSMENT FOR

COMPANIES
BACKGROUND
With the release of the Income Tax (Amendment) Act 2002, the official assessment system was changed to
the self assessment system in the following stages:
Type of taxpayers Effective year
Companies 2001
Businesses, partnerships and co-operatives 2004
Salaried individuals 2004
Under the self assessment system, the burden of computing the taxpayer’s liability is shifted from the Inland
Revenue Board (IRB) to the taxpayer and, accordingly, taxpayers are expected to compute their tax liability
based on the tax laws, guidelines and rulings issued by the IRB. The tax returns submitted will no longer be
subject to a detailed review by the IRB.
The main objective of the self assessment system is to inculcate a practice of voluntary compliance by the
taxpayers and at the same time reduce the workload of the IRB to enable them to concentrate on areas
which have a high tax risk and a potentially significant loss in revenue.
The implementation of the self assessment system has also resulted in changes to the tax compliance cycle
and the penalty provisions. These changes are explained in greater detail below.
Upon coming into operation of the Capital Markets and Services (Amendment) Act 2012 on 28 December
2012, the definition of “company” under the Income Tax Act 1967 (ITA 1967) includes a business trust.
Hence, the compliance with submission of estimate of tax payable and payment of instalments, filing of tax
returns etc, applicable to a company shall also apply to a business trust.

ESTIMATE OF TAX PAYABLE AND PAYMENT OF INSTALMENTS – COMPANIES

2.1 Estimate of tax
Under the self assessment system, every company is required to determine and submit in a prescribed form
(Form CP204) an estimate of its tax payable for a year of assessment, 30 days before the beginning of the
basis period. However, when a company first commences operations (i.e. during the first basis period), the
estimate of tax payable must be submitted to the IRB within 3 months from the date of commencement of its
business and thereafter no later than 30 days before the beginning of the basis period.
With effect from Y/A 2006 and subsequent years, the estimate of tax payable for that year cannot be less
than 85% of the revised estimate of tax payable for the immediate preceding year of assessment or if no
revised estimate is furnished, cannot be less than 85% of the estimate of tax payable for the immediate
preceding year of assessment.
A company is still required to submit the prescribed Form CP204 within the stipulated deadline even if it
expects its estimate of tax payable to be nil.
With effect from Y/A 2008, where a SME first commences operations in a year of assessment, the SME is
not required to furnish an estimate of tax payable or make instalment payments for a period of 2 years
beginning from the year of assessment in which the SME commences operations. For the purpose of tax

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administration, the IRB has confirmed that SMEs are still required to submit the prescribed Form CP204
within the stipulated deadline but without any estimate of tax payable.
With effect from Y/A 2011, where a company first commences operations in a year of assessment and the
basis period for that year of assessment is less than 6 months, that company is not required to furnish an
estimate of tax payable or make instalment payments for that year of assessment.
A SME which is exempted from furnishing an estimate of tax payable mentioned above is advised to submit
the prescribed Form CP204 notifying the IRB of its SME status without having to state the amount of
estimate of tax payable for that particular year of assessment to avoid any penalty for under-estimation of
tax or penalty for non-submission being wrongly imposed by the IRB.
With effect from Y/A 2014, where the SME which commences operations has no basis period for that year of
assessment and for the immediate following year of assessment, the SME is not required to furnish an
estimate of tax payable for that year and for the immediate 2 following years of assessment.
With effect from 30 December 2014, in order to be exempted from filing a tax estimate for a period of 2
years commencing from the year of assessment in which a SME commences operations, the SME must be
a tax resident and incorporated in Malaysia.
With effect from Y/A 2018, the tax estimate or revised tax estimate must be submitted by way of an
electronic medium or electronic transmission.
2.2 Instalment payment scheme (S. 107C of the ITA 1967)
When the estimate of tax payable has been submitted to the IRB, the company is required to remit this
amount to the IRB in equal monthly instalments according to the number of months in its basis period. For
example, if a company has a 12-month basis period, the estimate of tax payable must be paid over a 12-
month instalment scheme.
Each monthly instalment is due and payable to the IRB by the 10th day of the following month. For example,
the January instalment will be due for payment by the 10th of February and so forth. With effect from 1
January 2015, the due date to remit monthly instalment has been extended to 15th day of each month.
However, where a company first commences operations (i.e. during the first basis period), its first instalment
will commence from the 6th month of the basis period.
2.3 Revision of estimate of tax payable
Under S. 107C(7) of the ITA 1967, every company is allowed to revise its estimate of tax payable by
submitting a Form CP204A in the 6th month and the 9th month of its basis period. Where the revised
estimate exceeds the amount of instalments paid to date, the difference shall be payable in the remaining
months of the instalment scheme. Conversely, when instalments paid to date exceed the revised estimate,
the company may discontinue its original instalment scheme.
2.4 Penalty provisions
(a) Failure to furnish estimate of tax payable
Under S. 120(1)(f) of the ITA 1967, any company which, without reasonable excuse fails to submit the
estimate of tax payable for a year of assessment shall be guilty of an offence and upon conviction, be liable
to a fine ranging from RM200 to RM20,000 or face imprisonment for a term not exceeding 6 months or to
both.
With effect from Y/A 2011, where no prosecution is instituted by the Director General and no direction is
issued by the Director General under S. 107C(8) of the ITA 1967 but there is a tax payable by that company
for that year of assessment, such amount of tax payable will be subject to a penalty of 10%.

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(b) Late payment penalty
As explained earlier, monthly payments should be remitted to the IRB by the due dates. Failure to remit the
instalments on a timely basis will result in an automatic penalty of 10% being imposed on the unpaid
amount.
(c) Difference between the estimate submitted and final tax payable
When the tax payable for a particular year of assessment exceeds the original or the revised estimate (if a
revision is submitted) by an amount exceeding 30% of the tax payable, the difference will be subject to a
penalty of 10%.

RETURN BY EMPLOYER
3.1 Filing of Return by Employer
Under S. 83(1) and 83(1A) of the ITA 1967, every employer must furnish the return (Form E) of its
employees’ employment income no later than 31 March for each year. In addition, the employer must also
prepare and deliver to his/her employee the statement of remuneration (Form EA) on or before the last day
of February for each year.
Commencing from the year ending 31 December 2016, the Form E must be submitted by way of an
electronic medium or electronic transmission.
3.2 Penalty provisions
Under S. 120(1)(b) of the ITA 1967, any person who, without reasonable excuse fails to submit the return by
employer as well as prepare and deliver the statement of remuneration shall be guilty of an offence and
upon conviction, be liable to a fine ranging from RM200 to RM20,000 or to imprisonment for a term not
exceeding 6 months or to both.

DUTY TO FURNISH PARTICULARS OF PAYMENT MADE TO AN AGENT,

DEALER OR DISTRIBUTOR
4.1 Furnishing of Statement of Incentive Payment by Companies
Under S. 83A of the ITA 1967 (effective 1 January 2012), every company must prepare and furnish the
statement of monetary and non-monetary incentive payment (Form CP58) to an agent, dealer or distributor
no later than 31 March each year. However, the IRB granted an extension of time until 31 May 2012 for
companies to complete the Form CP58 for payments made during the calendar year 2011.
As a concession, a company is not required to furnish the Form CP58 if an annual statement for incentive
payment has been issued to the respective agents, dealers or distributors for the calendar years 2011 and
2012.
In addition, from calendar year 2012 onwards, the Form CP58 shall only need to be prepared and furnished
to an agent, dealer or distributor if the payment for monetary and non-monetary incentives exceeds
RM5,000.
4.2 Penalty provisions
Under S. 120(1)(b) of the ITA 1967, any person who, without reasonable excuse fails to furnish the
statement of incentive payment to an agent, dealer or distributor shall be guilty of an offence and upon
conviction, be liable to a fine ranging from RM200 to RM20,000 or to imprisonment for a term not exceeding
6 months or to both.

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 TAX RETURNS
5.1 Filing of tax returns
A fundamental difference between the previous official system and the self assessment system is the
discontinuance of a detailed review of returns submitted and the subsequent issuance of notices of
assessment by the IRB. This is due to the fact that the burden of computing the tax liability is passed on to
the taxpayer. Accordingly, all tax returns submitted by the taxpayer would be deemed as notices of
assessment being served on the taxpayer.
Under the self assessment system, all companies must file the tax returns within 7 months from the end of
the accounting period (S. 77(1A), ITA 1967) from Y/A 2004 onwards. For example, a company with an
accounting period ending on 31 January must file its tax return to the IRB by 31 August.
Effective Y/A 2014, the tax return must be submitted by way of an electronic medium or electronic
transmission.
Section 90(1B) of the ITA 1967 provides that under the self assessment system, the return filed by a
taxpayer will be deemed as a notice of assessment served upon the taxpayer. Accordingly, any balance of
tax payable after taking into account payments made via the instalment scheme would have to be remitted
to the IRB together with the tax return within 7 months from the end of the accounting period.
Effective Y/A 2009, taxpayers are allowed to make amendments for additional assessment subject to the
following conditions:
(i) amendments allowed are in respect of errors resulting in additional assessment such as errors
committed in under-reporting of income or over-claiming of deductions or expenses;
(ii) amendments be allowed only once for each year of assessment;
(iii) amendments be allowed within a period of 6 months from the due date of furnishing the tax returns;
and
(iv) taxpayer makes amendment in specified forms.
However, a taxpayer is subject to a penalty equivalent to the penalty imposed on a taxpayer who files a
correct return but defaults in paying tax due within the stipulated period. From Y/A 2010 onwards, a
company which commences business operations after 31 December 2007 is not required to submit the
Statement of Section 108 Balance (Form R) when filing its tax return to the IRB.
5.2 Penalty provisions
(a) Failure to submit a tax return
Failure to submit a tax return will constitute as an offence under the ITA 1967 and upon conviction, the
taxpayer will be liable to a fine ranging from RM200 to RM20,000 or face imprisonment for a term not
exceeding 6 months or to both.
Effective 30 December 2015, the fine for failure to furnish tax return for 2 years of assessment or more shall
upon conviction, be liable to a fine ranging from RM1,000 to RM20,000 and a special penalty equal to treble
the amount to be determined by the Director General at his best judgement.
However, if no prosecution is initiated, the Director General may require the person to pay a penalty equal to
treble the amount of tax and/or additional tax which is payable (before any set-off, repayment or relief) for
that year.
As a matter of practice, with effect from 1 October 2011, the IRB will impose penalties ranging from 20% to
35% of the tax payable for late filing of tax returns.

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(b) Failure to remit tax payable
As explained above, since the tax return is deemed as a notice of assessment, the balance of tax payable (if
any) should be remitted to the IRB together with the tax return. Failure to do so will result in the IRB
imposing a penalty equivalent to 10% on the balance of tax payable and if the tax is still not paid after 60
days, a further 5% penalty will be imposed.

TAX AUDITS

The IRB issued a revised Tax Audit Framework which takes effect from 1 February 2015. This revised tax
audit framework replaces the tax audit framework issued in April 2013.
6.1 Nature
Under the self assessment system, tax audits will be IRB’s key enforcement tool to ensure that the tax
returns submitted are correct and have been prepared in accordance with the provisions of the law,
guidelines and rulings issued by the IRB.
Essentially, an audit is an examination of a taxpayer’s records to ensure that the income and tax liability
declared to the IRB in the tax return are true, correct and comply with the tax laws and rulings.
IRB carries out 2 types of audits namely desk audit and field audit. The former will involve the review of
documents / information obtained by correspondence and interviews at the IRB’s offices whilst the latter
would entail a visit to the taxpayer’s premises for a detailed review of all relevant documents.
Cases for audit are selected through the computerised system based on risk analysis criteria and on various
criteria such as business performance, financial ratios, type of industry, past compliance records, third party
information, etc.
Once a taxpayer is selected for an audit, the IRB will inform the taxpayer via a telephone call followed by an
official notification letter sent via mail or fax. The period between the date of notification and the audit visit is
14 days. A shorter period of notification may be fixed by IRB with the consent of the taxpayer. The scope of
a tax audit under self assessment normally covers a period of 1 to 3 years, unless there are valid reasons to
go beyond that period. The time frame for the conclusion of a tax audit is normally within 4 months. The IRB
will notify the taxpayer if it requires more than 4 months to be completed.
Programme for Monitoring Deliberate Tax Defaulters [“MDTD”] was introduced to monitor taxpayers who
have failed to comply with the laws, i.e. those who have committed offence in furnishing incorrect
information in their income tax returns, including omission of business code or use of wrong business code.
These non-compliant taxpayers will be removed from listing of MDTD if the monitoring finds that they no
longer commit offences in the subsequent years of assessment.
Upon the completion of an audit, the IRB will issue a tax computation summarising the tax adjustments
based on their findings and subsequently an additional assessment to collect the additional taxes from the
taxpayer. The taxpayer may still appeal against this assessment by submitting the appeal, through the
prescribed Form Q to the Special Commissioners of Income Tax within 30 days from when the assessment
is raised.
With effect from 1 January 2014, the time-bar for tax audits is reduced from 6 years to 5 years.
6.2 Framework
To maintain and enhance public confidence in the tax administration, the IRB has issued the Revised Tax
Audit Framework and the Tax Investigation Framework. The main areas covered in the frameworks are as
follows:
(i) criteria for audit and investigation selection;

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(ii) tax audit and investigation methodology;
(iii) rights and responsibilities of taxpayers and tax agents, audit and investigation officers;
(iv) settlement upon completion of an audit or investigation; and
(v) offences and penalties.
The Tax Investigation Framework is effective 1 January 2007, whilst the revised Tax Audit Framework is
effective 1 February 2015.
For MDTD cases, a penalty of 100% of the tax undercharged will be imposed under S. 113(2) of the ITA
1967 if the taxpayers are found to have failed to comply with the law during the tax audit for second time.
6.3 Penalty provisions
(a) Penalties for omission / non-disclosure
Under the tax audit system, the IRB has also introduced a new penalty regime for non-disclosure and
omission of information that affects a taxpayer’s tax liability. The penalty regime is summarised as follows:
Voluntary disclosure before selection for audit  Within 60 days from the due : 10%
date for furnishing the return
form
 More than 60 days but less : 15.5%
than 6 months from the due
date for furnishing the return
form
 > 6 months to 1 year : 20%
 > 1 year to 3 years : 25%
 3 years and above : 30%
Voluntary disclosure after the case is selected  35%
for field audit but before audit commences. For
desk audit case, voluntary disclosure must be
made within 21 days after being notified of case
selected.
Non-disclosure (discovery during audit)  100% of tax undercharged (may consider for
45% for 1st offence)
Repeated offences under the MDTD cases  100%

(b) Penalty for not providing reasonable facilities and assistance

Under S. 116 of the ITA 1967, failure by a taxpayer to provide reasonable facilities and assistance to the IRB
when conducting an audit is an offence and upon conviction, the taxpayer may be liable to a fine of between
RM1,000 to RM10,000 or face imprisonment for a term not exceeding 1 year or to both.
(c) Failure to keep sufficient records
Under S. 119A of the ITA 1967, the company or persons responsible, upon conviction will be liable to a fine
of between RM300 to RM10,000 or face imprisonment for a term not exceeding 1 year or to both.

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 TRANSFER PRICING AUDIT

With the introduction of S. 140A of the ITA 1967 on transfer pricing, the IRB has issued the Transfer Pricing
Guidelines 2012 and Income Tax (Transfer Pricing) Rules 2012 which are deemed to come into operation
on 1 January 2009. Following this, the IRB has issued the Transfer Pricing Audit Framework which takes
effect from 1 April 2013.
7.1 Nature
Essentially, a transfer pricing audit is an examination to ensure that controlled transactions comply with the
arm’s length principle and in accordance with the provisions of the law, guidelines and rulings issued by the
IRB.
IRB carries out 2 types of audits namely transfer pricing desk audit and transfer pricing field audit. The
former will involve the review of documents / information obtained by correspondences and interviews at the
IRB’s office whilst the latter would entail a visit to the taxpayer’s premises for a detailed review of all relevant
documents.
Cases for audit are selected based on the significance in amount of controlled transactions between related
companies before a detailed risk analysis is carried out. The cases selected must be approved by a
Selection Committee before proceeding with an audit.
Prior to an audit visit, a taxpayer will be requested to submit the relevant documents which include Transfer
Pricing Documentation.
Once a taxpayer is selected for an audit, the IRB will inform the taxpayer via a telephone call followed by an
official notification letter sent via mail or fax. The period between the date of notification and the audit visit is
at least 14 days. The scope of a tax audit under self assessment normally covers a period of 3 to 6 years
depending on the transfer pricing issues. With effect from 1 January 2014, the years of assessment to be
covered will be restricted to 5 years, in line with the amendment to S. 91(1) of the ITA 1967.
Upon the completion of an audit, the IRB will issue a tax computation summarising the tax adjustments
based on their findings and subsequently an additional assessment to collect the additional taxes from the
taxpayer. The taxpayer may still appeal against this assessment by submitting the appeal, through the
prescribed Form Q to the Special Commissioners of Income Tax within 30 days from the date the
assessment is raised.
7.2 Framework
To maintain and enhance public confidence in the tax administration, the IRB has issued the Transfer
Pricing Audit Framework. The main areas covered in the framework are as follows:
(i) criteria for transfer pricing audit selection;
(ii) transfer pricing audit methodology;
(iii) rights and responsibilities of taxpayers and tax agents, audit officers;
(iv) settlement upon completion of an audit; and
(v) offences and penalties.
The Transfer Pricing Audit Framework is effective 1 April 2013.

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7.3 Penalty provisions
(a) Penalties for omission / non-disclosure
Under the transfer pricing audit system, the IRB has also introduced a new penalty regime for non-
disclosure and omission of information on transfer pricing issues that affects a taxpayer’s tax liability. The
penalty regime is summarised as follows:
Penalty Rate
Voluntary
disclosure after
the case is Voluntary
selected for audit disclosure before
Normal but before audit selection for
Condition
Case commences audit
Understatement or omission of income 45% 35% 15%
Taxpayer did not prepare transfer pricing 35% 30% 15%
documentation
Taxpayer prepared transfer pricing 25% 20% 10%
documentation but did not fully comply with
the requirements under the Transfer Pricing
Guidelines
Taxpayer prepared a comprehensive, good 0% 0% 0%
quality, contemporaneous transfer pricing
documentation in accordance with existing
legislations
Non-disclosure (discovery during audit) 100% of tax undercharged
Repeated offences +20% for each repeated offence not exceeding 100%

(b) Penalty for not providing reasonable facilities and assistance

Under S. 116 of the ITA 1967, failure by a taxpayer to provide reasonable facilities and assistance to the IRB
when conducting an audit is an offence and upon conviction, the taxpayer may be liable to a fine of between
RM1,000 to RM10,000 or face imprisonment for a term not exceeding 1 year or to both.
(c) Failure to keep sufficient records
Under S. 119A of the ITA 1967, the company or persons responsible, upon conviction will be liable to a fine
of between RM300 to RM10,000 or face imprisonment for a term not exceeding 1 year or to both.
7.4 Mutual Agreement Procedures
Taxpayers residing in Malaysia can apply for assistance from the competent authorities in Malaysia through
the Mutual Agreement Procedure, on issues arising from transfer pricing audit adjustments affecting cross-
border transactions with related companies in any treaty partner country.

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7.5 Offsetting Adjustment
Any additional adjustment in respect of transfer pricing for a particular assessment made in a controlled
transaction can be presented with an offsetting adjustment on the assessment of the related party in the
same transaction. The related party concerned must apply for the offsetting adjustment in writing within 21
days from the date of the notice of assessment / additional assessment is issued, to the branch where its tax
file is handled, with a copy to the branch of the taxpayer where the initial transfer pricing adjustment has
been made. The application for offsetting adjustment is subject to review and approval by the IRB.
7.6 Time Bar
Effective 30 December 2014, the Director General may make an assessment or additional assessment for a
year of assessment in that year of assessment or within 7 years after the end of that year of assessment if it
appears to the Director General 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 S. 140A(3) of the ITA 1967 in
relation to a transaction entered into between associated persons which is not at arm’s length.

APPEAL AGAINST AN ASSESSMENT

If a taxpayer is dissatisfied with an assessment deemed to be served on him/her, the taxpayer should file an
appeal by submitting an appeal letter or a Form Q within 30 days of the assessment being served on
him/her, i.e. within 30 days of the date of submission of the tax return. Specific details and the grounds of
appeal should be stated in the appeal letter.
In the event the IRB is unable to reach an agreement with the taxpayer, the case will be forwarded to the
Special Commissioners. If the appeal was done by way of a letter, a Form Q must be submitted by the
taxpayer.
Effective Y/A 2009, taxpayers with no chargeable income can file an appeal by using the Notification of Non-
Chargeability instead of notice of assessment. The appeal is to be filed through the Director General using
Form Q. Effective 1 January 2012, the issuance of Notification of Non-Chargeability is extended to the
following cases:
(i) persons exempted from tax under the ITA 1967 or the Promotion of Investments Act 1986 (PIA
1986);
(ii) persons with no statutory income from a business source but assessment has been made in
respect of other sources of income.
With the issuance of Public Ruling 3/2012 (Appeal Against An Assessment) by the IRB on 4 May 2012, an
appeal against an assessment has to be submitted by using Form Q. An appeal letter will no longer be
considered by the IRB.
Effective 24 January 2014, an appeal to the Special Commissioners is not applicable to the deemed
assessment made under S. 90(1) or S. 91A of the ITA 1967 except where the taxpayer is aggrieved by the
deemed assessment as a result of complying with the public ruling issued by the Director General.
Effective 30 December 2014, an appeal to the Special Commissioners can be made by a taxpayer in the
event that he is aggrieved by deemed assessment made under S. 90(1) or S. 91A of the ITA 1967 as a
result of complying with any practice of the Director General generally prevailing at the time when the
assessment is made.

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 MUTUAL ADMINISTRATIVE ASSISTANCE IN TAX MATTERS

Effective 24 January 2014, the Government of Malaysia may enter into a mutual administrative assistance
arrangement on tax matters with a foreign government for the purpose of implementing or facilitating the
operation of a mutual administrative assistance arrangement under S. 132B of the ITA 1967. Under this
arrangement, taxpayers are required to furnish, amongst others, country-by-country reports in accordance
with the relevant rules made under S. 154(1)(c) of the ITA 1967 for the aforesaid purpose.
Upon coming into operation of the Finance Act 2016, a person who fails to furnish a country-by-country
report or comply with the relevant rules made under S. 154(1)(c) of the ITA 1967 shall, upon conviction, be
liable to a fine ranging from RM20,000 to RM100,000 or to imprisonment not exceeding 6 months or to both
(2017 Budget).
Where a person is convicted of an offence mentioned above, the court may make a further order to direct
the person to comply with the relevant provision of the rules within 30 days, or such other period as the court
deems fit, from the date the order is made (2017 Budget).

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