I INTRODUCTION

On 10 May 2018, after Malaysia's 14th general election, Malaysians woke up to a new Malaysia as Malaysians voted out Barisan Nasional, a political coalition that had governed Malaysia since its independence in 1957. In an equally riveting turn of events, after having already served 22 years in office from 1974 to 2004, 92-year-old Mahathir Mohamad was again sworn in as Malaysia's Prime Minister. While Malaysians look on with anticipation as the new government begins their race against time to carry out the promises laid down in its manifesto, which includes an abolishment of the unpopular goods and services tax (GST) (having only been introduced in 2016 but argued to be responsible for rising prices) and stabilisation of petrol prices;2,3,4 in the meantime, amid recent revelations of staggering national debt,5 Malaysia is faced with an uphill task to restore investors' confidence.

II TAX

i Personal taxation

Malaysia's taxation is principally governed by the Malaysian Income Tax Act 1967 (MITA). While the MITA lays out the fundamentals of personal income tax, there are other developments and case law in relation to personal income tax in Malaysia that should be taken into account in ascertaining the Malaysian taxation regime as a whole. Similar to other jurisdictions, such as Singapore, the scope of taxation in Malaysia is based on a territorial system.6

An individual in Malaysia is liable to income tax if he or she has income accruing in or derived from Malaysia (Malaysia-sourced income) or received in Malaysia from outside Malaysia (foreign-sourced income) for a year of assessment, for income in relation to banking, insurance, and sea or air transport businesses. Otherwise, all foreign-sourced income is exempt from tax.

The residence status7 of an individual is also an important factor in determining how an individual will be taxed, as a resident individual is taxed on both income accruing in or derived from Malaysia and foreign-sourced income, while a non-resident individual is only taxed on income accruing in or derived from Malaysia.

Pursuant to the 2016 Budget, the prime minister increased the tax rate for income earners of 600,001 ringgit to 1 million ringgit from 25 per cent to 26 per cent and for income earners of 1 million ringgit and above, from 25 per cent to 28 per cent.8

As stated earlier, the law imposes income tax on profits derived in two circumstances: Malaysia-sourced income and foreign-sourced income in relation to banking, shipping, insurance, and sea or air transport businesses. However, Malaysian law does not provide any definition of 'income'. Nonetheless, the MITA categorises income into a number of classes.9

Business income

Business income includes any gains derived from a trade, profession or vocation. In ascertaining whether the gains are derived from a trade, profession or vocation, one should look at the relevant case law (including countries with taxation laws that are pari materia to Malaysia) as the MITA does not provide any statutory definitions.

Trade

In determining whether an individual is carrying on a trade, one should consider the following factors (commonly known as the six badges of trade):

  1. the subject matter;
  2. period of ownership;
  3. frequency of transactions;
  4. supplementary work on or in connection with the asset realised to enhance marketability;
  5. organisation set up to dispose of goods; and
  6. motive for transaction.10

Profession

Profession is also not defined in the Act. Case law has defined 'profession' to involve 'the idea of an occupation requiring either purely intellectual skill, or if any manual skill, as in painting and sculpture, or surgery, skill controlled by the intellectual skill of the operator, as distinguished from an occupation that is substantially the production, or the sale, or arrangement for the production or sale of commodities'.11

Vocation

This word is also not defined in the MITA. Therefore, we look to case law for guidance on its definition. For instance, the case of Partridge v. Mallandaine ((HL) 2 TC 179) held that persons who attend races, engaging themselves in systematic bets, are involved in a vocation.

An individual engaged in a business that falls under any of the above categories is subject to income tax on gains obtained thereof. Similarly, other gains arising from the running of a business, such as rental income and interest income, are also taxable.

Employment income

Employment income is any gain derived from employment. Section 2 of the MITA defines employment as any situation where the relationship of 'master and servant' subsists, or any appointment or office, whether public or not and whether or not that relationship subsists, for which remuneration is payable.12

A fundamental principle of Malaysian income tax is that for income to be taxable as employment income it must be in respect of having or exercising an employment.13 The law in relation to employment income is quite clear in that one can clearly say that an individual who has a master and servant relationship or is remunerated for holding an appointment or office clearly falls under this category.

ii Gift

The Malaysian parliament has not specifically made laws to govern gifts. In general, gifts are not income and, hence, not taxable. Nonetheless, one should look at whether the gift is made voluntarily and whether it is connected to a business or employment. In short, the character of the gift would depend on the motive of the giver.14

iii Succession

There is no inheritance tax in Malaysia. Hence, property transferred by a predecessor to a successor in the context of effecting succession will not be taxed. Generally, capital gains are not taxed in Malaysia, except for gains derived from the disposal of real property or shares in a real property company (real property gains tax). Real property includes any land and any interest, option or right over such land in Malaysia.15 The rate for real property gains tax for individuals is between zero per cent (if the property is held for more than five years) and 30 per cent (if the property is disposed of within three years). For individuals who are not citizens or permanent residents,16 the rate applicable is 5 per cent (if the property is held for more than five years) and 30 per cent (if the property is disposed of within five years).17

iv Cross-border developments

With the worldwide focus on globalisation and the fact that cross-border transactions are becoming increasingly simpler to administer, international business operations and the use of international wealth structures by wealthy families or individuals are gaining popularity. In this regard, tax implications are inevitable.

Akin to many other countries, Malaysia operates a territorial scope of taxation. The same income from a cross-border transaction may be taxed in two or more countries depending on determination of residency and permanent establishment. In this circumstance, double tax agreements (DTAs) entered into with various countries accommodate and deal with the tax conflicts.

As such, in Malaysia, when the same income has been subject to tax in two or more countries, the MITA allows the minister to declare arrangements that afford relief or credit, with the view of reducing the incidence of double taxation.18 For countries that have signed a DTA with Malaysia, taxpayers are accorded bilateral credit.19 The relief is given by way of statutory order in the Government Gazette. For countries that do not enter into a DTA, taxpayers could resort to unilateral credit.20

In this context, one frequently asked question is that in the event of conflict, does the treaty or domestic law take precedence? In general, this is very much dependent on each respective country's view on international law. In countries such as the United States, treaties have the same footing as domestic law.21 By comparison, in Malaysia, by virtue of Section 132(1)(b) of the MITA, which reads, 'not withstanding anything in any written law', these legislated words clearly give DTA precedence over domestic law.22 This principle has been well established and confirmed by Malaysian courts on several occasions.23

To further foster cross-border transactions, specific provisions have recently been enacted to provide for tax information exchange arrangements and mutual administrative assistance arrangement.24 Treaty countries would exchange information and cooperate to eliminate tax avoidance. In fact, in an effort to improve global transparency and identify the movement of global wealth, Malaysia has joined over 100 other countries in agreeing to the automatic exchange of information relating to financial accounts under the Convention on Mutual Administrative Assistance in Tax Matters.25

The Organisation for Economic Co-operation and Development also developed the Common Reporting Standards (CRS), which set out the information to be collected and reported by financial institutions of participating jurisdictions, as well as the financial account information to be exchanged, the financial institutions required to report, the different types of accounts and taxpayers covered, and common due diligence procedures to be followed by financial institutions. Through the operation of this legislation, the Malaysian tax authorities have set down timelines for implementation of the CRS,26 with special provisions for pre-existing individual high-value accounts.27

The implementation of the CRS will have consequences28 that will impact more than just financial institutions. Entities, including individuals, will be required to reassess their CRS status to fully comply with the corresponding obligations and submit the supporting documents to the relevant reporting financial institutions. On top of this, certain entities, such as passive non-financial entities or investment entities managed by other financial institutions in a non-participating jurisdictions, would be required to disclose the identity of individuals who exercise control over the entity, trust or legal arrangement.

III SUCCESSION

i Introduction

Benjamin Franklin once said: 'In this world, nothing is certain except death and taxes.' Of the two, death, though certain, cannot be predicted as to when it will happen. It is, therefore, important to ensure that one's estate is well planned in advance.

The law of succession is an important law that regulates the inheritance and entitlement of properties both movable and immovable and even trusts and debts in the event of death. There are three main legislations in this area – the Wills Act 1959, the Probate and Administration Act 1959 and the Distribution Act 1958. The procedural requirements in court for probate proceedings are governed by Order 71 and Order 72 of Rules of Court 2012. The law of succession is influenced by English common law,29 owing to the fact that Malaysia was a colony of the British Empire prior to its independence on 31 August 1957.

ii Key changes and applicable changes affecting personal property

The major change to the Malaysian law of succession was made in 1997, when the Distribution Act 1958 was amended30 in terms of the procedure for intestate distribution. The amendment to the Distribution Act 1958, among others, recognised equality between genders (i.e., husband and wife) and also improved the rights of parents of an intestate deceased.31

iii Cross-border developments

Although Malaysia is part of the Association of Southeast Asian Nations (ASEAN), there has been a lack of movement to introduce cross-border law of succession between Member States similar to that done by the European Union in 2015.32

The closest resemblance to cross-border law of succession can be seen among Commonwealth Member States, of which Malaysia is a member. In cases where grants of representation are issued in the courts of competent jurisdiction in a Commonwealth Member State, the same can be resealed in courts of equal level at other Commonwealth member states or vice versa.33

As it stands, of the 10 Member States of ASEAN, only three (i.e., Malaysia, Singapore and Brunei Darussalam) are members of the Commonwealth. There is no legislation to allow the re-sealing of a Malaysian grant of representation in non-Commonwealth Member States such as Thailand, Indonesia and the Philippines. In an era of globalisation, the time has come for ASEAN countries to look into harmonising laws of succession.

IV WEALTH STRUCTURING and REGULATION

i Common vehicles for wealth structuring

It was commonly perceived that only the wealthy would plan their wealth and finance. However, as time passed, and through education and awareness, many now realise the importance of planning their wealth and finance in advance.

The common vehicles or 'instruments' used in wealth, financial and estate planning are wills, codicils, trusts, foundations and charitable remainder trusts. In particular, wills and trusts are instruments that have proven effective in succession planning. High net worth individuals commonly use the combined package of trusts, foundation and charities in managing their wealth, with the goal of having their wealth to last over a few generations.

Legal treatment

Over the years, Malaysian courts have revamped and expedited the process of obtaining a grant of representation. Malaysian courts generally dispose uncontested applications for a grant of representation in under three months from the date of filing.34

There are several advantages in making a will. The main advantages are that it only takes effect after the death of the testator, hence, leaving the testator in total and complete control of his or her personal assets during his or her lifetime, and the person has control over the manner in which his or her estate is distributed after death.35 In this regard, a valid will must comply with the requirements under the Wills Act 1959. For example, a will must be in writing and signed by the testator in front of two witnesses.36 There can only be one will at any given time and the latest will revokes all former wills, codicils and testamentary documents. A will is also an effective tool to ensure that beneficiaries are sufficiently protected. For example, against trustees who may have the intention to delay distribution of assets.37

Trust instruments,38 on the other hand, bypass the need for court processes (i.e., a grant of representation) but the effect of a trust is that the settlor will have to part with his or her assets from the time of formation of the trust, thus effectively putting him or her out of control of his or her own assets during his or her lifetime. Trust instruments also cater for very specific subject matters and may not be a viable replacement for a will in terms of testamentary disposition of assets. A trust instrument is a good supplement to a will.

Charities and foundations, while getting more popular by the day in countries such as the United States, have yet to gain any real form of traction in Malaysia. In particular, the benefits of setting up a foundation – a hybrid of a trust and a company – that is able to tap into both the benefits of trusts and the advantages of being a corporate body, have not attracted the attention of individuals in Malaysia, with the exception of those high net worth individuals as a form of asset protection and wealth management.

Though Malaysia has the necessary foundation law39 to offer private foundations as a vehicle for the protection of assets and estate planning, many have not seized this opportunity, perhaps because of a lack of awareness or high set-up costs. Just like wills and trusts, the public need to be educated and introduced to these two vehicles and when costs of setting up are reduced, perhaps we will see more resorting to foundations and charities for asset protection and estate planning.

Wills are, by far, the most basic instrument to fall back on for estate planning and wealth management after death.

Tax treatment

The principles of English trust law are instrumental in moulding the Malaysian law of trusts. Today, it is primarily governed by the Trustees Act 1949 and the Civil Law Act 1956,40 which still allow for the applicability of the common law of England, rules of equity and statutes of general application, subject to qualifications.

From a taxation perspective, Section 61(2) of the MITA provides that the income of the trust body of a trust shall be assessed and taxed separately from the income of a beneficiary from any source in relation to the trust.41 In other words, this necessitates that income tax can only be charged once, either in the hands of the trustee or the beneficiary when it is paid out to the latter.

For a trust body, any source forming part of the property of the trust, any source of a trustee of the trust, being a source of his or hers by virtue of specific provisions of the MITA and any income from any such source, save that gains arising from the realisation of investments from unit trusts, shall be treated as income of the trust body of the trust.42

For a beneficiary to a trust, subject to qualifications, he or she will be subject to tax on his or her share of income. It is noted, however, that in relation to sources of income of a beneficiary to said trust, it may comprise the following:

  1. ordinary source from the trust;43 and
  2. further sources,44 defined under the relevant provisions as the amount of excess from the difference between statutory income from the beneficiary's ordinary source in relation to the trust and the total income from all sums received in Malaysia from the trust body in the basis year, together with all sums received from outside Malaysia in any year and remitted to Malaysia in the basis year.

On top of that, a trust body is regarded as resident for the basis year for a year of assessment if any trustee member of that body is resident for that basis year. In certain circumstances, the trust body in question shall not be regarded as resident in Malaysia for that basis year if:45

  1. the trust was created outside Malaysia by a person or persons who were not citizens;
  2. the income of the trust body for that basis year is wholly derived from outside Malaysia;
  3. the trust is administered for the whole of the basis year outside Malaysia; or
  4. at least half of the number of the member trustees are not resident in Malaysia for the basis year.

For a beneficiary, residency status is regulated by Sections 7 and 8 of the MITA.

The residence status of a trust is pertinent for the following reasons:

  1. a further source of a non-resident individual derived from sources outside Malaysia is exempt from income tax when remitted into Malaysia;46 and
  2. if the trust body is resident for the basis year in question:47
    • the amount payable in respect of any annuity for the basis year shall be deemed to be derived from Malaysia whether or not the trust body has any total income for that year of assessment; and
    • in ascertaining the total income of the trust body for that year of assessment that amount shall be deducted in a specific manner stipulated by the relevant provisions.

In terms of tax rates, the applicable tax rate in respect of a trust body is fixed at a rate of 25 per cent for the year of assessment 2014, and 24 per cent for subsequent years. This can be contrasted with the applicable tax rate for resident individuals, which stretches across a range of zero per cent to 28 per cent, depending on the income bracket, or that of a non-resident individual, which is fixed at 28 per cent.48 With the comparative tax rates in mind, the setting up of trusts in Malaysia may be a viable option for private clients.

In line with Malaysia's efforts to brand itself as an Islamic investment hub, from the year of assessment 2007 to year of assessment 2020, exemptions are accorded to resident companies in Malaysia in respect of payment of income tax for statutory income derived from a business of providing fund management services to foreign investors49 or to local investors50 in Malaysia in respect of funds managed in accordance with sharia or Islamic principles.

In Malaysia, the law governing charities is not entrenched in any specific act and instead comprises an array of Malaysian legislation, including the Companies Act 1965 and the Societies Act 1966, and case law.

The terms 'charity' or 'charitable institution' are not expressly defined in the MITA. Rather, Section 44(6) of the MITA accords deductions at specific rates for gifts of money made to an organisation or institution51 approved by the relevant authorities. This deduction is read in line with Paragraph 13, Schedule 6 of the MITA, which accords tax exemption to institutions, organisations or fund approved for the purposes of Section 44(6) or religious institutions, organisations or funds that are not operated or conducted primarily for profit and that are established in Malaysia exclusively for the purposes of religious worship or the advancement of religion. In short, an organisation, institution or fund that obtained approval from the relevant authorities under Section 44(6)52 will automatically53 be eligible for tax exemption.

On the other hand, with effect from the year of assessment 2017 and subsequent years of assessment, 'fund' is now defined under the MITA to mean 'a fund administered and augmented by an institution or organisation in Malaysia for the sole purpose of carrying out the objectives for which the fund is established or held and that fund is not established or held primarily for profit'.54

Further, it is noted that an approved organisation, institution or fund may also carry out businesses whereby the business is carried on in the course of the actual carrying out of the primary purpose of the institution, organisation or fund, or the work in connection with the business is mainly carried on by persons for whose benefit the institution, organisation or fund was established.55

The MITA allows such an approved organisation, institution or fund to apply no more than 25 per cent of its accumulated funds as at the beginning of the basis period for the year of assessment for the carrying on of or participation in a business, provided that its profits shall be used solely for charitable purposes or for the primary purpose for which the institution, organisation or fund was established, or to carry out charitable activities outside Malaysia with the prior consent of the Minister.56

It is also noted that with effect from the year of assessment 2017, a registered religious institution or organisation established in Malaysia exclusively for the purpose of religious worship or the advancement of religion and is not operated or conducted primarily for profit is exempt from payment of tax in respect of its gross income derived from all sources and is exempted from furnishing a return under Section 77 of the MITA.57

While internal guidelines and rulings by the Malaysian Inland Revenue Board have no legal effect,58 it is worth noting that the Malaysian Inland Revenue Board issued a guideline in which it stipulated that at least 50 per cent of the income and donation received must be spent yearly in carrying out the objectives of the institution, organisation or fund, and failure to meet this condition will result in withdrawal of the exempt status.59

From the wording of the legislation as well as the position adopted by the Malaysian Inland Revenue Board in its Public Ruling, it appears that these businesses60 would not jeopardise the tax exemption enjoyed under Paragraph 13, Schedule 6 unless the approved organisation, institution or fund applies more than 25 per cent of its funds for the business in question,61 does not use the profits or income derived solely for charitable purposes or for the primary purpose for which the institution, organisation or fund was established, or carries out charitable activities outside Malaysia without prior consent of the Minister.62

Therefore, the requirement for approval, as well as limitations in terms of the nature of business and the utilisation of profits derived, should very well be taken into consideration when weighing the merits of a charitable institution or organisation or fund as a wealth-structuring vehicle.

In Malaysia, the establishment of a limited liability partnership (LLP)63 is governed by the Limited Liability Partnerships Act 2012. Unlike conventional partnerships under the Partnership Act 1961, under which individual partners are subject to income tax, an LLP is treated as a separate taxable person for the purposes of the MITA. Its residence status is accorded for under Section 8(1A) of the MITA and the MITA stipulates that for an LLP64 the responsibility for carrying out all acts required to be done by or on behalf of a LLP lies jointly and severally with either the compliance officer appointed among the partners or if no such person is appointed, any one or all of the partners.

With effect from year of assessment 2017, for an LLP resident in Malaysia with a total contribution of capital (whether in cash or in kind), the chargeable income for the first 500,000 ringgit would be 18 per cent and for every ringgit exceeding 500,000, the tax rate would be 25 per cent for year of assessment 2015, and 24 per cent for subsequent years.65 It is noted that this provision does not apply if 50 per cent of the capital contribution (cash or in kind) is directly or indirectly contributed by a company, 50 per cent of the paid up capital of the ordinary shares of the company is indirectly owned by the LLP, or 50 per cent of the capital contribution and 50 per cent of the paid up capital is directly or indirectly owned by another company.

Further, subject to restrictions, a registered LLP66 is exempted from payment of income tax in respect of the amount of chargeable income derived from the carrying on of a business in the basis period for a year of assessment in respect of years of assessment 2007 and 2008.67

It is also pertinent to note that, where a partnership or company converts to an LLP, for the year of assessment in which the conversion occurs, every partner shall continue to be personally assessable and chargeable to tax for that year of assessment and for any previous year of assessment before the conversion in like manner and to the like amount, as the company would have been taxed prior to the conversion.68

The Labuan perspective

The Federal Territory of Labuan, a federal territory of Malaysia best known as an offshore financial centre, offers attractive alternatives in its bid to attract investors. With a sound and robust regulatory framework in place, some of its key highlights are as follows.

The existence and constituents of a Labuan trust is governed by the Labuan Trusts Act 1996. Under the Act, income derived from trust property in respect of a Labuan trust is subject to the Labuan Business Activity Tax Act 1990,69 which imposes tax at a lower rate of 3 per cent for Labuan trading activity,70 or non-chargeable for non-trading activity.71 Alternatively, taxpayers may elect to be charged to tax 20,000 ringgit72 or to be charged to tax in accordance with the MITA.73

It is noted, however, that the rate of 3 per cent will only be applicable to trust property that does not include Malaysian property, and generally, trust property excludes Malaysian property,74 unless prior consent of the authorities is obtained or the trust in question is for charitable purposes. Where the trust property in question includes Malaysian property, income from the trust property is subject to the MITA.75

Further, affairs pertaining to a Labuan trust enjoy legislative protection in terms of higher levels of secrecy with strict disclosure laws, and leave from the court is necessary if any details in any court proceedings are to be divulged.76 Further, the accession of the CRS has also brought about recent CRS regulations enacted specifically for Labuan reporting financial institutions.77

Where a Labuan trust is validly created, the courts do not vary or set it aside. In addition, the courts do not recognise the validity of any claim against the trust property in question pursuant to the laws of a foreign jurisdiction unless in specific circumstances,78 or if it is proven that the trust is fraudulent.79 The unenforceability of claims of a foreign jurisdiction may be a factor to be taken into account in considering the viability of a Labuan trust.

The accession of the Labuan Financial Services and Securities Act 2010 further establishes a more comprehensive framework in relation to private funds management in Labuan. The Act governs the requirements on an establishment of a private fund in Labuan, including the requirement for notice for private funds,80 as well as the appointment, duties and other aspects pertaining to private trust companies in Labuan to increase its appeal, with regard to the provision of wealth management facilities, and attract more private investors.

A recent development of Labuan legislation brings in place the Labuan Foundations Act 2010, which allows for the establishment of a Labuan foundation. The founder and beneficiary of a Labuan foundation may be resident or non-resident.81 For Labuan foundations, not unlike the Labuan Trusts Act 1996, the income derived from any property which is not Malaysian property is subject to the Labuan Business Activity Tax Act 1990.82 Again, there are restrictions in place in relation to the property of a Labuan foundation that governs the applicable tax laws83 and secrecy and confidentiality provisions in place.84

In addition, not unlike the Limited Liability Partnerships Act 2012, a Labuan LLP under the Labuan Limited Partnerships and Labuan Limited Liability Partnerships Act 2010 accords a separate legal personality in respect of Labuan LLPs,85 which is a taxable Labuan entity for tax purposes, and precludes members from personal liability save to the extent of their own investments.86

ii Regulation

There may be people who abuse these vehicles, meant for genuine asset protection and estate planning, as means of laundering monies gained from illegal activities or worse, to finance acts of terrorism both locally and globally. This is more so with the ever-increasing global threat of terrorism from terrorist organisations using their ill-gotten gains to perform acts of terrorism on a global front.87

It is apt that, in line with the various recommendations by the Financial Action Task Force,88 Malaysia has the necessary legislation in place to counter these illegal activities. Malaysia's primary anti-money laundering regulation is the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLATFA).

The AMLATFA came into operation on 15 January 2002 as a legislation to, inter alia, provide for the offence of money laundering, the measures to be taken for the prevention of money laundering and to provide for the forfeiture of property involved in or derived from money laundering, proceeds of an unlawful activity and instrumentalities of an offence, and incidental matters.

This is further supplemented by Section 114 of the MITA, which provides for the criminal offence of tax evasion – a 'serious offence' as defined under AMLATFA. Although AMLATFA came into operation in early 2002, it is pertinent to note that the Act is applicable to any serious offence, foreign serious offence or unlawful activity whether committed before or after the commencement date and applies to any property situated in or outside Malaysia.89 In other words, the Acts covers a wide range of activities90 and have far-reaching implications that may transcend time or territorial limitations.

Other anti-money laundering regulations include the Malaysian Anti-Corruption Commission Act 2009 (MACCA 2009), which established the Malaysian Anti-Corruption Commission, an independent and accountable anti-corruption body tasked with, among others, detecting and investigating any suspected offences under the MACCA 2009. With these regulations in force, Malaysia is well placed to ensure that vehicles meant for genuine asset protection, estate planning and wealth management are not used for the wrong reasons.91

V OUTLOOK and conclusions

The people of Malaysia look on hopefully as the new Malaysian government continues to juggle the unenviable task of fulfilling its manifesto promises, increasing transparency to weed out corruption, revamping the economy and restoring investors' confidence. Nonetheless, the overall outlook on wealth population growth in Asia remains highly optimistic, with Malaysia's forecast wealth population growth being one of the world's highest.92,93 In the meantime, the number of high net worth individuals in Malaysia continues to grow at a promising rate, with an 11 per cent increase in the number of ultra-wealthy Malaysians and a projected growth of 65 per cent from 2017 to 2022.94


Footnotes

1 DP Naban is a senior partner, SM Shanmugam is a partner, Ashley Lee Si Han is a senior associate, and Heng Jia and Christine Lay Kei Een are associates at Lee Hishammuddin Allen & Gledhill.

2 See the Pakatan Harapan manifesto launched on 8 March 2018, especially its pledge to fulfil 10 promises in 100 days: https://pages.malaysiakini.com/100days/en/iframe.php?link=https://pages.malaysiakini.com/100days/Manifesto-PH-EN.pdf.

3 See 'Dr M: Pakatan needs more than 100 days to fulfil manifesto pledges', New Straits Times (https://www.nst.com.my/news/nation/2018/06/375608/dr-m-pakatan-needs-more-100-days-fulfil-manifesto-pledges).

4 While the swift change of the GST rate from 6 per cent to zero per cent on 1 June 2018 was greeted by Malaysians with joy, the new government is tasked with introducing alternative fiscal measures to make up the shortfall from GST. In May 2018, the Ministry of Finance announced that the sales and services tax (SST), which preceded GST, will be reintroduced on 1 September 2018.

6 Section 3 of the Income Tax Act 1967.

7 Section 7 and Schedule 1 of the Income Tax Act 1967.

8 See the 2016 Budget Speech (www.bnm.gov.my/files/Budget_Speech_2016.pdf).

9 Section 4 of the Income Tax Act 1967.

10 See the Radcliff Commission final report in 1954, United Kingdom.

11 CIR v. Maxse [(CA) 12 TC 41].

12 Section 2 of the Income Tax Act 1967.

13 McMillan v. Guest (24 TC 190).

14 Murray v. Goodhews [1978] STC 207.

15 Section 2 of the Real Property Gains Tax Act 1976.

16 See Section 2 of the Real Property Gains Tax Act 1976, on definition on 'permanent resident'.

17 Schedule 5 of the Real Property Gains Tax Act 1976.

18 Section 132(1) of the Income Tax Act 1967.

19 See Paragraph 16 of Schedule 7 of the Income Tax Act 1967. Bilateral credit means credit in respect of foreign tax which, by virtue of any arrangements having effect under Section 132, is to be allowed as a credit against Malaysian tax.

20 Section 133 of the Income Tax Act 1967.

21 Jayapalan Kasipillai, A Comprehensive Guide to Malaysian Taxation, Third Edition (2007) McGraw-Hill.

22 See Lembaga Hasil Dalam Negeri Malaysia v. Alam Maritim (M) Sdn Bhd (2013) MSTC 30-068 and Re Geoffrey Robertson [2001] 4 CLJ 317.

23 See Director General of Inland Revenue v. Euromedical Industries Ltd (1981) 2 MLJ 208 and SGSS Singapore (Pte) Ltd v. Ketua Pengarah Hasil Dalam Negeri (2000) MSTC 3814.

24 Sections 132A and 132B of the Income Tax Act 1967.

26 See the implementation timeline set out by the Malaysian tax authorities (http://www.hasil.gov.my/bt_goindex.php?bt_kump=6&bt_skum=2&bt_posi=1&bt_unit=2&bt_sequ=1).

27 Income Tax (Automatic Exchange of Financial Account Information) Rules 2016 (PU(A) 355/2016) defines a 'High Value Account' as a 'Preexisting Individual Account with an aggregate balance or value that exceeds USD 1,000,000.00 as 30 June 2017, 31 December 2017 or 31 December of any subsequent year'.

28 See Sections 113A and 119B of the Income Tax Act 1967.

29 Section 3 of the Civil Law Act 1956 (Revised 1972).

30 See the Distribution (Amendment) Act 1997.

31 Section 6 of the Distribution (Amendment) Act 1997.

32 See: EU Law 650/2012 (Brussels IV Regulation).

33 Section 52 of the Probate and Administration Act 1959 (Revised 1972).

34 See Speech by the Right Honourable Tun Arifin Bin Zakaria, Chief Justice of Malaysia at the opening of the legal year 2016 at Paragraph 50.

35 As per the effect of Section 18 of the Wills Act 1959 (Revised 1988).

36 Section 5 of the Wills Act 1959 (Revised 1988) and Chenna Gounder Kandasamy v. Angamah Sunappan [2016] 7 CLJ 914.

37 See Liong Seow Keng & Ors v. Ho Soon Cheng [2016] 6 CLJ 761.

38 As defined in Parameshiri Devi & Anor v. Pure Life Society [1971] 1 MLJ 142.

39 See the Labuan Foundations Act 2010.

40 Section 3 of the Civil Law Act 1956.

41 Section 61(2) of the Income Tax Act 1967.

42 Section 61(1)(b) of the Income Tax Act 1967.

43 Section 61(1)(c) of the Income Tax Act 1967.

44 Section 61(5) of the Income Tax Act 1967.

45 Section 61(3) of the Income Tax Act 1967.

46 Paragraph 28, Schedule 6 of the Income Tax Act 1967.

47 Section 63(3) of the Income Tax Act 1967.

48 Schedule 1 of the Income Tax Act 1967.

49 Income Tax (Exemption) (No. 15) Order 2007 (PU (A) 199/2007).

50 Income Tax (Exemption) (No. 6) Order 2008 (PU (A) 255/2008).

51 Section 44(7) of the Income Tax Act 1967, which defines 'institution' and 'organisation' respectively.

52 Section 44(6) of the Income Tax Act 1967.

53 See: Public Ruling of the Malaysian Inland Revenue Board (Public Ruling No. 1/2015).

54 See Finance Act 2017.

55 Section 44(7B) of the Income Tax Act 1967.

56 Section 44(7A) of the Income Tax Act 1967.

57 See Income Tax (Exemption) Order 2017 (PU (A) 52/2017).

58 See the decisions of the Malaysian courts in Metacorp Development Sdn Bhd v. Ketua Pengarah Hasil Dalam Negeri [2011] 5 MLJ 447 and KPHDN v. Success Electronics (2012) MSTC, Paragraph 30-039.

59 See the IRB's Guidelines for Application of Approval under Subsection 44(6) of the Income Tax Act 1967.

60 Section 44(7A) of the Income Tax Act 1967.

61 See qualification at Section 44(7B) of the Income Tax Act 1967.

62 Ibid.

63 See definition under Section 3 of the Limited Liability Partnerships Act 2012.

64 Section 75B(1) of the Income Tax Act 1967.

65 Paragraphs 2D, 2E and 3 of Part I, Schedule 1 of the Income Tax Act 1967.

66 Under the Limited Liability Partnership Act 2012.

67 See Income Tax (Exemption) (No. 2) Order 2017 (PU (A) 117/2017).

68 Subsections 75B(3) and (4) of the Income Tax Act 1967.

69 Section 7(6) of the Labuan Trusts Act 1996.

70 Section 4 of the Labuan Business Activity Tax Act 1990 defines 'Labuan trading activity' and 'Labuan non-trading activity'.

71 Section 9 of the Labuan Business Activity Tax Act 1990.

72 Section 7 of the Labuan Business Activity Tax Act 1990.

73 Section 3A of the Labuan Business Activity Tax Act 1990.

74 Section 7 of the Labuan Trusts Act 1996.

75 Section 7 of the Labuan Trusts Act 1996.

76 Section 8A of the Labuan Trusts Act 1996.

77 Labuan Business Activity Tax (Automatic Exchange of Financial Account Information) Regulations 2018.

78 Section 10 of the Labuan Trusts Act 1996.

79 Section 11 of the Labuan Trusts Act 1996.

80 Section 28 of the Labuan Financial Services and Securities Act 2010.

81 Sections 5 and 6 of the Labuan Foundations Act 2010.

82 Section 6(3) of the Labuan Foundations Act 2010.

83 Sections 5(2) and 6(2) of the Labuan Foundations Act 2010.

84 Sections 62 to 64, 71 and 73 of the Labuan Foundations Act 2010.

85 Section 55 of the Labuan Limited Partnerships and Labuan Limited Liability Partnerships Act 2010.

86 Sections 55 and 56 of the Labuan Limited Partnerships and Labuan Limited Liability Partnerships Act 2010.

87 See: FATF (2015), Financing of the terrorist organisation Islamic State in Iraq and the Levant (ISIL), FATF, (www.fatf-gafi.org/topics/methodsandtrends/documents/financing-of-terrorist-organisation-isil.html).

88 See: Among others, FATF 2001 recommendations, FATF 2012 recommendations, FATF 40 recommendations.

89 Section 2(1) and (2) of the AMLATFA.

90 Section 4(1) of the AMLATFA.

91 'Minister says Malaysia has adopted comprehensive framework that criminalises terrorism financing' (http://www.themalaymailonline.com/malaysia/article/minister-says-malaysia-has-adopted-comprehensive-­framework-that-criminalise#sthash.3hjr0aaL.dpuf).

92 'The World's Super Rich Populations are Growing but Where Is Growth Strongest?', Knight Frank (http://www.knightfrank.com/wealthreport/2018/global- wealth/new-order).

93 'Malaysia's Super Rich Own the Most Homes in Asia Pacific', The Edge (http://www.theedgemarkets.com/article/malaysias-super-rich-own-most-homes-asia-pacific).