Taxation of Partnerships in Malaysia
Updated on Wednesday 17th October 2018
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For the purpose of economic gain, foreign and local investors in Malaysia can start a joint venture. Partnerships are economic entities comprised of two or more persons who perform together a business in a specific sector. The Malaysian partnerships can operate with a maximum of twenty members and their liabilities are unlimited. There are certain rules and regulations that stipulate how a partnership can be registered, do business and pay taxes. Our team of specialists in company incorporation in Malaysia can provide an extensive presentation on the matter.
Taxes paid by partnerships in Malaysia
Malaysia offers a tax friendly environment with significantly low income tax. The incomes are earned by the individuals and not by the partnership; therefore the partners are liable for their profits under personal income tax regulations. The partners are taxed on their chargeable income at rates ranging from 2% to 26%, after the deduction of tax relief.
A self-assessment (SAS) system operates in Malaysia for payments, estimates and tax assessments. For Malaysian partnerships, the SAS became effective since 2004. Businessmen who need more information about taxation of partnerships in Malaysia can address to our team of company incorporation specialists in Malaysia.
However, businessmen who want to open a company in Malaysia that will be registered as a partnership should consider that the legal entity will be liable for taxation under the regulations of the Real Estate Property Gains Tax Act, provided that the partnership obtains taxable income from the disposal of real estate property.
In a partnership, the partners are taxed individually and thus, it is necessary for each partner to submit specific forms regarding the income he/she has obtained. According to the accounting procedures applicable in Malaysia, the members of a partnership are required to fill out their income forms no later than 31st of October of each financial year.
What are the tax requirements for a limited liability partnership in Malaysia?
Malaysia offers several types of partnerships, one of them being the limited liability partnership (LLP), which is incorporated in this country following the provisions of the Limited Liability Partnerships Act 2012. According to the regulations prescribed by the Inland Revenue Board of Malaysia, an LLP has to prepare accounting documents which offer a true image on the company’s profits and losses.
In this sense, the LLP should be able to provide information regarding its expenditures and income, a list of fixed and movable assets, the capital contribution of each partner, documents which attest the transactions concluded through the partnership. Our team of specialists in company registration in Malaysia can provide further information on other accounting requirements addressed to this business structure.
It is important to know that, in the situation of a LLP that is registered in Malaysia, the income tax will be applied at a rate of 20%, provided that the capital contribution of the partnership is of maximum RM 2.5 million. Another tax requirement for LLPs in Malaysia is given by the estimate of tax payable in a financial year. A Malaysian LLP is required to submit the Estimate of Tax Payable Form CP204 and, as a general rule, this legal entity is required to pay its taxes on a monthly basis.
The same regulation is also available for a business that operates as a converted LLP from a company or a partnership. Those who want to open a company in Malaysia as an LLP should know that they can benefit from a tax exemption on the distribution of profits to the LLP’s partners. At the same time, the distribution of profits is also exempted from paying the withholding tax.
Partnership Act 1961
In Malaysia, all economic partnerships are governed by the Partnership Act 1961. This document contains all the provisions for the establishment and functioning of partnerships, which are required to register with the Companies Commission of Malaysia (SSM); our team of company formation specialists in Malaysia can provide more information on the characteristics of a local partnership:
- equally share of profits and losses and the partners cannot withhold the interest of the capital invested in the partnership;
- the business management can be concluded by all the partners involved in the partnership;
- an 8% interest rate applies to loans and monetary advances made by partners to the business;
- the majority of partners is needed for reaching decisions and the consent of all partners is necessary for the change of the business nature;
- new partners can enter the business by an agreement, which is also required for leaving a partnership;
- books and accounts must be kept at the principal base of the business.
An in-depth presentation of the provisions of the Partnership Act 1961 can be given to you by our Malaysian company incorporation representatives. Please contact our consultants for assistance on the registration requirements imposed to a partnership, as well as on other tax regulations that are available in this case.