PDA

View Full Version : Sole Proprietor & Income Tax



Han2
10th October 2008, 10:49 PM
Could someone out there perhaps shed some light if a Sole Propritorship company needs to pay tax on its income or is the liability on the shoulder of the proprietor himself as an individual tax payer? Or both the registered sole proprietorship and the proprietor have to pay their respective income taxes?

pywong
10th October 2008, 11:28 PM
Han2

Not so sure but I have the impression that the sole-proprietor's income is lumped with the individual's income and considered under Form B. You can download from the IRD website. See attached sample 2006 version (not up to date)

Han2
13th October 2008, 01:23 AM
Okay... but what about expenses? Where can I find some guidelines (perhaps in a simple booklet) or in some website on how to calculate income tax under Form B and also what expenses are deductable ( ;D ) ?

pywong
13th October 2008, 09:48 AM
Han2,

See me when you come down to KL. I will show you the documents. Even with a degree in Engineering and having my own business, it took me 2 weeks to work out the supporting documents. What more those who are not so experienced. These bureaucrats really know how to waste our time.

Every year, come income tax time, it is a nightmare.

Han2
13th October 2008, 01:34 PM
Thanks buddy... to be honest with you I have not been paying income taxes from 2000-2006 because I was working as an expat and semi-expat overseas. Then, in the last one-and-a-half-year, my local HR Manager helped me file my returns.... now I am into a totally new world with my own little sole proprietorship lah ;D

racheljansz
13th October 2008, 04:16 PM
Thanks buddy... to be honest with you I have not been paying income taxes from 2000-2006 because I was working as an expat and semi-expat overseas. Then, in the last one-and-a-half-year, my local HR Manager helped me file my returns.... now I am into a totally new world with my own little sole proprietorship lah ;D
err...if I am not mistaken better to set up a company.
I don't know if your business income is able to take advantage of the annual secretarial fees.
It may cost more initially plus lot more paper work but in long run there are more benefits and tax deductions....hint...hint.

pywong
13th October 2008, 04:21 PM
Just my personal experience. Setting up a Sdn Bhd is a real pain in the neck. You end up paying Secretarial Fees and Audit Fees for nothing. And they hold you to ransom billing you with ridiculous charges. I have sworn - no more companies.

bmw9700
15th October 2008, 10:32 PM
Han2,

See me when you come down to KL. I will show you the documents. Even with a degree in Engineering and having my own business, it took me 2 weeks to work out the supporting documents. What more those who are not so experienced. These bureaucrats really know how to waste our time.

Every year, come income tax time, it is a nightmare.



off topic sorry,

good to know another fellow engineer..cheers

pywong
15th October 2008, 10:40 PM
good to know another fellow engineer..cheers


Yeah. And out of date too. Jobless for many years already. :D

cypaq
28th October 2008, 03:03 PM
Could someone out there perhaps shed some light if a Sole Propritorship company needs to pay tax on its income or is the liability on the shoulder of the proprietor himself as an individual tax payer? Or both the registered sole proprietorship and the proprietor have to pay their respective income taxes?


All income from sole proprietorship will be the business income of the individual tax payer. The business doesn't pay the taxes. Only the owners.

cypaq
28th October 2008, 03:06 PM
Okay... but what about expenses? Where can I find some guidelines (perhaps in a simple booklet) or in some website on how to calculate income tax under Form B and also what expenses are deductable ( ;D ) ?


It's best to get an accountant or tax consultant to advise you on what is deductable and non-deductable. You do need somebody to help you calculate the capital allowances, approved donations, etc etc of your business before even thinking about filling up Form B.

cypaq
28th October 2008, 03:18 PM
err...if I am not mistaken better to set up a company.
I don't know if your business income is able to take advantage of the annual secretarial fees.
It may cost more initially plus lot more paper work but in long run there are more benefits and tax deductions....hint...hint.


Whether its better to set up a sole propreitor/partnership or a company (Sdn Bhd) depends largely on the type of business you are running and the risks you are exposed to.

A sole propreitor/partnership doesn't incur annual secretarial fees, while a company (Sdn Bhd) do. Anyway, according to a not so recent Public Ruling, secretarial and tax agent fees are not tax deductable expenses.

As for the hint.. hint... pray that you don't get a tax audit. ;)

pywong
28th October 2008, 03:29 PM
It's best to get an accountant or tax consultant to advise you on what is deductable and non-deductable. You do need somebody to help you calculate the capital allowances, approved donations, etc etc of your business before even thinking about filling up Form B.

It's all in the IRD guide book. A bit tedious to run through but not all that tough. The IRD designed it for individuals to fill in by themselves, not for tax consultants to be involved. If you get a consultant involved, your tax could be lower than their fees.

It is always wise to plan ahead to minimise your tax exposure.

Form B for businesses: http://www.hasil.org.my/english/pdf/FormB07.pdf
They even have it in Chinese and Tamil. No racial discrimination when it comes to collecting your money. ;D

Guidelines:
http://www.hasil.org.my/cP/upload/Form/Nyata/GB2007.pdf
http://www.hasil.org.my/english/pdf/ENB07.pdf
http://www.hasil.org.my/english/pdf/Corrigendum%20B%202007%20E.Notes.pdf

The only thing to watch out for is:
How to compute depreciation allowances?
Keep your receipts for 7 years in case of audit by IRD.
Company dividends: Claim the payment of company dividend against your tax payable (I heard that this window has been closed. Not so sure about that). If you don't claim, you lose the refund due to you. Enclose original dividend voucher as backup. Make copy for yourself.
Donate to approved charities - better you give the money than to rely on UMNO spending it for you. ;D

cypaq
28th October 2008, 05:24 PM
PY,
Thanks for starting this website. Liked the effort you put in and also your Rat Race articles. :)

The IRB has made an effort to help taxpayer filing up the various forms. If you are an employee there's not much of a problem. But if you are a business owner, calculating taxable income from a business source needs more knowledge and IRB don't provide the methodology to do so. If you know the difference between accounting profit, gross income, adjusted income, statutory income, aggregate income and taxable income, and know how to calculate them; I salute you. Tabik Spring! ;)

In regards to the dividends, the single tier dividends will be fully implemented in 2013. You can still claims back your tax via S110, if the dividends you receive is not the single tier dividends (this will end by 2013 of course).

BTW, donations to approved organisations are limited to 10% of your aggregate income for YA 2009.

pywong
28th October 2008, 06:31 PM
PY,
Thanks for starting this website. Liked the effort you put in and also your Rat Race articles. :)

The IRB has made an effort to help taxpayer filing up the various forms. If you are an employee there's not much of a problem. But if you are a business owner, calculating taxable income from a business source needs more knowledge and IRB don't provide the methodology to do so. If you know the difference between accounting profit, gross income, adjusted income, statutory income, aggregate income and taxable income, and know how to calculate them; I salute you. Tabik Spring! ;)

In regards to the dividends, the single tier dividends will be fully implemented in 2013. You can still claims back your tax via S110, if the dividends you receive is not the single tier dividends (this will end by 2013 of course).

BTW, donations to approved organisations are limited to 10% of your aggregate income for YA 2009.

Hi Cypaq, Welcome to Tindak Malaysia and thank you for your kind words.

Businesses under Form B: To my mind, these will be simple businesses like network marketing, consultant training, unit trust sales, insurance sales. If it gets more complicated than that, I would imagine the person concerned will go for a sendirian berhad. That is when he will need an auditor and a company secretary. And then all those terms you mentioned above (which is beyond me. ;D) comes in.

What is this single tier dividend?

If the IRD makes it too complicated, I move my investments offshore. We can choose to be Global Rats rather than Local Rats. Once we do, we are out of UMNO's clutches. ;D

racheljansz
28th October 2008, 07:00 PM
Whether its better to set up a sole propreitor/partnership or a company (Sdn Bhd) depends largely on the type of business you are running and the risks you are exposed to.

A sole propreitor/partnership doesn't incur annual secretarial fees, while a company (Sdn Bhd) do. Anyway, according to a not so recent Public Ruling, secretarial and tax agent fees are not tax deductable expenses.

As for the hint.. hint... pray that you don't get a tax audit. ;)
Welcome cypaq, glad to see you here and contributing.

As for me getting audited, no worries all are filed and in order.
As for those who I help with their submission, I would think it should be no problem as their records and paper trail are also in order.
With IRB most important is the paper trail, correct me if I am wrong.

cypaq
28th October 2008, 08:26 PM
Hi Cypaq, Welcome to Tindak Malaysia and thank you for your kind words.

Businesses under Form B: To my mind, these will be simple businesses like network marketing, consultant training, unit trust sales, insurance sales. If it gets more complicated than that, I would imagine the person concerned will go for a sendirian berhad. That is when he will need an auditor and a company secretary. And then all those terms you mentioned above (which is beyond me. ;D) comes in.

What is this single tier dividend?

If the IRD makes it too complicated, I move my investments offshore. We can choose to be Global Rats rather than Local Rats. Once we do, we are out of UMNO's clutches. ;D[/size]


Thanks for the welcome PY. :)

Just a quick one before I rush out for a business meeting.

Borang B are for those who runs a busines in the form of an enterprise like, but not limited to, architects, lawyers, GPs, accountants, traders, real estate agents etc etc on top of your multi-level marketeers, trainers, unit trust or insurance agents.

I have come across multi-million dollars businesses and employing nearly a 100 employees running as an enterprise. Thus size doesn't necessary means that you are an enterprise or a Sdn Bhd.

As for single tier dividends, I feel that this is an ill conceived law by the current regime that is only designed to enrich certain parties and make middle class Malaysian poorer. Eg, those who have retired and are earning only from the dividends, for now, can claim back from IRB the tax that was deducted from the dividends. Under single tier dividends, they can't. In a nut shell, they have potentially become poorer by 28%.

And if you think that if you are only an employee and don't buy shares and thus not affected, think again. KWSP gets dividends and they are not spared either.

Maybe I will continue about this in more details in another time. Need to go for my meeting.

cypaq
3rd November 2008, 03:28 PM
Sorry for not replying earlier. Been extremely busy.

In regards to dividend income and the taxation thereof in Malaysia.

Under the current system of reporting of dividends, individuals who received dividends will declare the gross amount in his/her Form B/BE. Say the company you have invested in declare a dividend of RM100 (gross); you will only receive RM74, which is net of tax.
When you fill up your Form B/BE, you will put in RM100 as your dividend received and tax already paid RM26. If you fall under the non-taxable category, you will get a refund of RM26 from IRB.

Thus you will receive from your investment RM74 in net dividend + a RM26 cheque from IRB.

Under the single tier tax system; you will also receive RM74 from your investment. BUT, you are not required to declare your dividend income in your Form B/BE.

SO what is the problem you may ask.

Here is the killer bit: you cannot get a refund from IRB under this new law.
Thus if you entire year of income is just the RM100, you have effectively paid RM26 as income tax to IRB.

In the previous system, if your income is only RM100 for the year, you will receive back whatever taxes you have paid (directly or indirectly). You get back your RM26.

Under the single tier tax system, you can't claim it back. You have lost RM26 or 26% of your dividend income.

How do you like this so far?

Fuming mad? Good.

Wait there's more. KWSP a tax exempt organisation and a heavy investor in the KLSE, will also get the short end of the stick in this new system. They will also not get a tax refund. They will have less income to declare to EPF contributors.

Like you wrote PY, the financial class are making sure the rats stay as rats. Thank God, I am financially free.

pywong
3rd November 2008, 04:59 PM
Thank God, I am financially free.

Good for you, cypaq. Shall we start a Dare To Be Free Club ;D

Too many people are too comfortable being Rats.

cypaq
3rd November 2008, 06:26 PM
Good for you, cypaq. Shall we start a Dare To Be Free Club ;D

Too many people are too comfortable being Rats.[/size]


A club? Sure why not. I have shared with many of my friends about living a debt-free life. But I am surprised that though many of them hears, they don't listen. Guess some of them can't do without their RM10 gourmet coffee fix. :D

pywong
3rd November 2008, 06:37 PM
A club? Sure why not. I have shared with many of my friends about living a debt-free life. But I am surprised that though many of them hears, they don't listen. Guess some of them can't do without their RM10 gourmet coffee fix. :D

Good. I wrote the Rat Race with that in mind. Let's meet up 3rd week Nov when I return. Loading more gold and silver. ;D

cypaq
3rd November 2008, 09:07 PM
keep me updated on the exact date. it's also happens to be the week my sister is getting married. will be outstation on the weekends.

aivee
26th February 2013, 12:19 PM
Good. I wrote the Rat Race with that in mind. Let's meet up 3rd week Nov when I return. Loading more gold and silver. ;D

Darn!!!! I am too late for the Dare To Be Free Club !!
This thread was in 2008 :(
found many treasures in this post though. learnt a few things. Thanks !