Tax Exemption in Malaysia – Service that you should know
Tax exemption application here refers to the application of tax exemption under subsection 44 (6) of the Income Tax Act 1967 given to charitable organizations approved by the Malaysian Inland Revenue Board (IRB).
In order a charitable organization to be approved by the IRB, they must first meet the general and special conditions laid down by them. Here are the general conditions of the IRB for organizations wishing to apply for this approval:
- Objectives: Established in Malaysia solely for the purposes of charity / charities
- Benefits: To all Malaysians, regardless of race, religion and ethnicity. Not to be limited to certain groups only.
- 50% Fund Expenses: Must spend at least 50% of the total funds for activities to achieve the objectives of the establishment.
- Board of Trustees: 50% is made up of outsiders who have no connection with the organization or founder.
- Prohibition: To engage in any political activity or the trade union movement
- Financial statements : Must be audited by a qualified auditor and submitted annually to the IRB
- Business: Allowed to engage with the terms involving not more than 20% of the funds collected and the revenue should be put back into the organization’s fund to achieve its objectives.
Limit Use of Funds Collected Not Applicable If the business carried on is the effort to implement the main purpose of charitable organization or business that most of the work carried out by the beneficiary organizations.
- Amendments And Changes Deed of Trust / M & A: Must get the written permission of IRB before it took effect.
- Dissolution: If dissolved, all debts and liabilities of the society need to be explained and if there is any remaining assets and money should be donated to the Government or other organizations that have been approved by the IRB as well as the need to be well informed to them.
- Activities Abroad: Can be run provided the consent of the Minister of Finance in advance.
- Other Requirements:
- Official receipts must be issued and noted clearly:
- Organization’s name
- Official receipt number
- Reference of approval
- The approval period
- Gazettes reference number
- Audited financial statements annually dispatched within 6 months after the account is closed to the IRB
- Any amendment to the M & A must first obtain written approval from the IRB before it can be enforced
Apart from the general conditions outlined above, there are again some special conditions laid down by the IRB to be met by the charitable organizations that wish to apply for this approval. Special conditions are vary depending to the type of organizations that apply. Applicants can choose whether to do their own application or getting someone else who providing services and experience in registering this approval.
When all the conditions laid down are met and once satisfied, the IRB will issue a certificate of approval for certain period and must be renewed once expired. This approval will be given together with the approval of the tax deduction to individuals and companies that donate to organizations approved it.
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