Malaysia's 2018 Budget includes a number of initiatives to help drive the economy. But the most important action for the business community to prepare for is the implementation of BEPS action points and the CRS.
Malaysia's 2018 Budget was unveiled on 27 October by Prime Minister and Minister of Finance 'Datuk Seri Najib Tun Razak. There are a number of business-focused initiatives in the budget, which will be actioned over the course of the next year. One of the highlights of the budget is Malaysia's commitment to joining the OECD's Base Erosion and Profit Shifting (BEPS) and Common Reporting Standard (CRS) information-sharing initiatives in September 2018. I will outline more about these initiatives below, but first let's take a brief look at other budget initiatives for business.
- Private investment is expected to outpace public investment in Malaysia in 2018, with further government promotion of the five Main Corridors and an extension of the Principal Hub tax incentive until 31 December 2020.
- The government is introducing a financing support scheme, subsidies and training grants for SMEs to further support their growth. The aim is to have the small-to-medium-sized enterprise sector contributing 41% of Malaysia's GDP by 2020.
- Venture capital activities will be promoted through various incentives such as a RM 1bn investment fund coordinated by the Securities Commission. Incentives such as income tax exemptions will also be on offer for venture companies across certain categories including management and performance fees, and there will be incentives for individual angel investors.
- GST relief will be provided to airline and shipping companies registered in Malaysia. The relief will also cover oil & gas companies registered in Malaysia for importing oil rigs and floating structures.
- A Digital Free Trade Zone (DFTZ) will be established to stimulate growth and transform Kuala Lumpur International Airport into a regional gateway for electronic trade.
BEPS and CRS
Common Reporting Standard (CRS) is a major movement towards a
globally coordinated approach to the exchange of financial
information about individuals and organisations between
The OECD has put forward a global standard for the annual automatic exchange of financial account information, and it will give governments worldwide a clear picture of the assets their tax residents hold outside their home jurisdiction.
BEPS, the OECD's Base Erosion and Profit Shifting initiative, will fundamentally transform the global tax landscape. Its 15 actions aim to eliminate tax mismatches, increase the level of transparency with tax authorities and create a consistent global tax platform.
Under action point 13, multinational companies headquartered in Malaysia with total group revenue of more than RM 3bn in 2016 are obliged to notify the Director General of the identity and tax residence of the reporting entity for its group by 31 December 2017. The entity then must prepare and file a Country-by-Country Report (CbCr) by 31 December 2018.
With Malaysia committed to joining BEPS and CRS, Malaysian businesses have to start preparing to meet the compliance requirements. Failure to do so will result in penalties impacting not only a company's bottom line, but also its reputation.
Preparations involve arming your internal resources with appropriate skills and knowledge, or deciding to seek assistance from an external provider – such as ourselves – who already understand and are up to date with the latest reporting requirements. Companies that already work with external providers should be talking to them about their support capabilities.
While BEPS and CRS may sound ominous for business, they are positive initiatives that will promote transparency and better corporate governance. With forewarning delivered during the budget speech in October, Malaysian companies should feel confident they have sufficient time to put measures in place to comply with BEPS and CRS. What's important is that they do not wait; now is the time to be testing documentation, knowledge and systems.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.