Single Tier Company Income Tax System
1.0 Introduction
Singapore already start adopting a one-tier corporate tax system effect from 1 January 2003. In Malaysia, it is referred as the ‘single tier’ system. The government allowed a six-year transitional period to enable companies with unutilized dividend franking credits to pay franked dividends. From 1 January 2008, all resident companies in Singapore will come under the one-tier system. Meanwhile, other countries including Hong Kong, Ireland and also Malaysia are adopting the one-tier system effective from 1 January 2014.
Generally, the Malaysian dividend system has undergone a complete overhaul in 2008 with the objective of providing companies, shareholders and the government with a simple, transparent, efficient and equitable system. With effect from Year Assessment (YA) 2008, a single tier dividend system replaces the tax imputation system on dividend payments to shareholders. All the changes from changing of dividend system have arisen as a result of legislative amendments introduced by Finance Act 2007 (Act 683) gazette by the government on 28 December 2007.
The new corporate tax system is called the single tier system because profits earned by companies are only taxed once and the profits distributed are no longer taxable on shareholders of the company. In this regard, the principal Income Tax Act 1967 is amended by substituting sec 108 with the following:
108. where a dividend is paid or credited by a company to any of its shareholders in the basis period for a year of assessment, the company shall not be entitled to deduct tax from such dividend paid or credited.
1.1 Chart: The Single Tier Company Income Tax System
The company
Company shareholders
Income from the Income
Profits
business operations from
Singapore already start adopting a one-tier corporate tax system effect from 1 January 2003. In Malaysia, it is referred as the ‘single tier’ system. The government allowed a six-year transitional period to enable companies with unutilized dividend franking credits to pay franked dividends. From 1 January 2008, all resident companies in Singapore will come under the one-tier system. Meanwhile, other countries including Hong Kong, Ireland and also Malaysia are adopting the one-tier system effective from 1 January 2014.
Generally, the Malaysian dividend system has undergone a complete overhaul in 2008 with the objective of providing companies, shareholders and the government with a simple, transparent, efficient and equitable system. With effect from Year Assessment (YA) 2008, a single tier dividend system replaces the tax imputation system on dividend payments to shareholders. All the changes from changing of dividend system have arisen as a result of legislative amendments introduced by Finance Act 2007 (Act 683) gazette by the government on 28 December 2007.
The new corporate tax system is called the single tier system because profits earned by companies are only taxed once and the profits distributed are no longer taxable on shareholders of the company. In this regard, the principal Income Tax Act 1967 is amended by substituting sec 108 with the following:
108. where a dividend is paid or credited by a company to any of its shareholders in the basis period for a year of assessment, the company shall not be entitled to deduct tax from such dividend paid or credited.
1.1 Chart: The Single Tier Company Income Tax System
The company
Company shareholders
Income from the Income
Profits
business operations from
References: 1. Choong.K..F. (2009). Malaysian Taxation Principles and Practice. (15th ed.) Malaysia: InfoWorld. 2. Kasipillai.J. (2009). A Comprehensive Guide to Malaysian Taxation. (4th ed.) Malaysia:McGraw-Hill.