Income Tax

Definition :

Annual charge levied on both earned income (wages, salaries, commission) and unearned income (dividends, interest, rents). If there is no income, there is no income tax. In Malaysia, income tax is imposed, assessed and collected under the Income Tax Act (ITA) 1967.

Two Basic Types :

• Personal income tax, levied on incomes of individuals, households, partnerships and sole proprietorship.
• Corporation income tax, levied on profits (net earnings) of incorporated firms.

Basis Period & Year of Assessment :

• Usually income tax is assessed upon one-year period.

Computing Chargeable Income

Appeal Against Tax Assessment

Taxation In Malaysia

All the citizens in Malaysia should not be ignorance about what's going on within the country. Good tax payers will asked and inquiry where did their money financed to. The definition of tax is 'a sum of money paid by the citizens to the government on the income or value of purchases of certain specific goods and services'. In Malaysia, the citizens paid their tax to the In-Land Revenue Board (IRD).

The purpose of the government collecting tax from the citizens is to funding the development projects within the country such as upgrading and maintaining the public facilities, highway and transportation facilities and to control some of the product such as imposed a higher tax on cigarettes and foreign cars.

Tax is the biggest source of income for Federal Government's Revenue, where they contributed to almost 70% of country's total revenue. The federal government revenue in 2008 is expected to register a strong growth of 15.5% to 16,558 million ringgit or 22.6% of GDP in 2008.To boost participation of investors in Malaysia, government is loosening taxes on some products.

There are two types of taxes applicable in Malaysia :

• Direct taxes : must pay individually and directly to the authority or administration (ie : petroleum income tax, stamp duties and real property gains tax)
• Indirect taxes : government's collect taxes indirectly through imposition of tax on certain items and services (ie : import duties, export duties, sales tax and service tax (foods in restaurant, hotel rooms service, airfare, foreign cars))
  

Taxation in Malaysia (the articles below is taken from here)

Income of any person including a company, accruing in or derived from Malaysia or received in Malaysia from outside Malaysia is subject to income tax.

However, with effect from the year of assessment 2004, income received in Malaysia by any person other than a resident company carrying on business of banking, insurance or sea or air transport for a year of assessment derived from sources outside Malaysia is exempted from tax.

To modernize and streamline the tax administration system, the assessment of income tax was changed to a current year basis of assessment from the year 2000. The self-assessment system was implemented for companies in the year of assessment 2001 and for sole proprietors, partnerships, cooperatives and salaried groups, in the year of assessment 2004.

To learn more about the Malaysia tax structure, click here.

Insurance

Types of insurances :

• Accident insurance
• Education insurance
• Marine insurance
• Aviation insurance
• Life insurance
• Fire insurance

Definition :

• A contract of insurance is a contract whereby the insurer agrees to indemnify the insured against a loss which may arise upon the occurrence of some event or to pay a certain definite sum of money on the occurrence of the particular event.
• The loss which is being insured against is called the risk.
• The policy means the insurer and the insured enter into a contract of insurance, and the document containing the terms of the contract.
• A premium - consideration paid by the insured either in the form of lump sum or periodical amount.

Differences between Ordinary Contract and Insurance Contract :

Ordinary Contract

• the doctrine of utmost good faith is not applicable.
• insurable interest is not needed.

Insurance Contract

• doctrine of utmost good faith is very important.
• the insured must have insurable interest in the subject matter.

Contracts of Indemnity
In a case of a loss against which the policy has been made, the insured is entitled to be indemnified which means to be compensated for his loss, but he cannot recover more tahn the actual loss.

Insurable Interest :

• means an interest (financial or otherwise) in the subject matter of a contract of insurance, which provides the insured with the right to enforce the contract.
  
• said to have an insurable interest if he will suffer loss in the event of property being destroyed.

Doctrine of Utmost Good Faith

• Insurance contract require the contracting parties to disclose to each other all information which would influence either party's decision to enter into the contract, regardless of whether such information was requested or not.
• Failure to disclose material information gives the other party the right to avoid the contract
  

Judicial Veil Lifting

As we observed with the Salomon, Lee and Macaura cases, the consequences of treating the company as a separate legal entity or not can be extreme. Over time the judiciary have swung from strictly applying the Salomon principle in these difficult situations to taking a more interventionist approach to try to achieve justice in a particular situation. The following cases should give some flavour of the types of situations that have arisen and the approach taken by the judiciary at the time.

In Gilford Motor Company Ltd v Horne [1933] Ch 935 a former employee who was bound by a covenant not to solicit customers from his former employers set up a company to do so.
He argued that while he was bound by the covenant the company was not. The court found
that the company was merely a front for Mr Horne and issued an injunction against him.

In Jones v Lipman [1962] 1 WLR 832 Mr Lipman had entered into a contract with Mr Jones for the sale of land. Mr Lipman then changed his mind and did not want to complete the sale.
He formed a company in order to avoid the transaction and conveyed the land to it instead.
He then claimed he no longer owned the land and could not comply with the contract. The
judge found the company was but a façade or front for Mr Lipman and granted an order for
specific performance.

In Lee Willian Leitch Bros. Ltd. the directors of the company carried on business even after the insolvency and purchased dome goods on credit. During the transactions the creditors knew that they would not be able to pay. The company was carrying on business with intent to defraud the creditors. Thus, the directors of the company would be personally liable for the debts.

Further reading click here.

Classifications of Company

UNLIMITED & LIMITED CO.

Unlimited

• the liability of the members or shareholders is not limited - that is, they are liable to contribute whatever sums are required to pay the outstanding debts (if any) of the company should it ever go into formal liquidation and its assets are insufficient to pay its debts and liabilities and the expenses of liquidation.
  
• The members or shareholders are liable for the shortfall.

Limited

• company limited by shares or by guarantee
  
• members or shareholders have no direct liability to the creditors of an unlimited company.
• Limited by shares - liability is limited by shares in the memorandum; member cannot be asked to pay more than the amount unpaid on his shares when the company is wound up; If he has paid in full for his shares, he cannot be asked for further contribution.
• Limited by guarantee - member needs only to contribute the amount he agreed to guarantee.

PUBLIC & PRIVATE CO.

Public

• has permission to offer its registered securities (stocks, bonds, etc) for sale to the general public, typically through a stock exchange, or occasionally a company whose stock is traded over the counter (OTC) via market makers who use non-exchange quotation services.
• raise capital by selling shares
• Run by a board of directors elected by shareholders.
• show status using the abbreviation "Bhd." or the word "Berhad" after their company name.
  

Private

• Business company owned either by non-governmental organizations or by a relatively small number of holders who do not trade the stock publicly on the stock market. Less ambiguous terms for a privately held company are unquoted company and unlisted company.
• The name of private limited company ends with the word "Sendirian Berhad" or abbreviation "Sdn. Bhd".

Relative Advantages of Different Form of Business

SOLE PROPRIETORSHIP

• Lower taxes since taxed on individual basis.
• Impossible to transfer ownership.
• Unlimited liability.
• Appropriate for small or family business.

PARTNERSHIP

• Lower taxes since taxed on individual basis.
• Difficult to transfer ownership.
• Liability - some will be limited, others unlimited.
• Appropriate for professionals.

COMPANY

• Flat tax rate.
• Easier to transfer ownership.
• Limited liability.
• Appropriate for larger business.
  

The Differences of Business Entity

SOLE PROPRIETORSHIP

• Owned by a single individual.
  
• Business is dissolved when owner dies. No transfer of ownership is possible.
• Does not need to submit any financial reports.
• Unlimited liability - owner is obliged to pay for all business debts from his personal assets if need to.
• All profits and losses are borne by owner unlimited

PARTNERSHIP

• An association of two or more individuals.
• Ownership can be transferred through transfer of shares by either sale or inheritance.
• Submit financial reports to the Companies Commission of Malaysia (CCM)
• Risk and profit share is determined by partnership agreement.
• Profits are divided according to the partnership agreement.

COMPANY

• It is a legal entity and is owned through ownership of shares.
• Ownership can be transferred through transfer of sales by either sale or inheritance.
• Must submit financial reports to the CCM and if listed Securities Commission (SC)
• All shares are limited liability - risk is limited to amount of money invested in the shares.
• Owner profits from dividends or sale of shares
  

Nemo Dat Quod Non Habet

The above phrase means where goods are sold by a person who is not the owner and without the consent of the original owner, the buyer acquires no better title than the seller had. However, there are exceptions to the rules.

• Estoppel - A rule of law that when person A, by act or words, gives person B reason to believe a certain set of facts upon which person B takes action, person A cannot later, to his (or her) benefit, deny those facts or say that his (or her) earlier act was improper.
• Sale by mercantile agent in the ordinary course of business, the buyer will obtain good title.
• Sale by joint owner.
• Sale under a voidable title - the buyer will obtain good title if he buys in good faith and without notice of seller's defect of the title.
• Sale by seller in possession after sale.
• Sale by buyer in possession.