Limited Liability Partnership. Business Trust. MIA Professional Standards and Practices

Transcription

1 tax MIA Professioal Stadards ad Practices Limited Liability Partership ad Busiess Trust The busiess ladscape i Malaysia is set to be irrevocably chaged by two ew modes of busiess structures, amely Limited Liability Parterships ad Busiess Trusts. Limited Liability Partership The much-awaited Budget 2013 aouced by our Prime Miister cum Miister of Fiace o 28 September 2012 clued the atio i o the muchdisputed ad aticipated appropriate tax treatmet for Limited Liability Partership (LLP) which was itroduced as a alterative busiess vehicle. What is a Limited Liability Partership? A Limited Liability Partership (LLP) may be formed by ay two or more idividuals ad/or bodies corporate for ay lawful busiess with a profit motive, registered uder the LLP Act 2012 (Act 743) gazetted o 9 February 2012 which is expected to roll out by the ed of this year. It may also be formed for purposes of carryig o a professioal practice such as that of the chartered accoutat, advocate ad solicitor or compay secretary, of which it must cosist of atural persos of the same professio ad have i force professioal idemity isurace approved by the Registrar of the Compaies Commissio of Malaysia as prescribed i the First Schedule of the LLP Act. There is o limit o the umber of parters that a LLP may have compared to the covetioal partership. The LLP is a hybrid betwee a compay ad a covetioal partership which gives the beefits of limited liability to its parters ad simultaeously, allows its members the flexibility of orgaisig iteral structure as i a traditioal partership. It is a body corporate that has a separate legal persoality where it ca sue, be sued ad ow property i its ow ame. The LLP is liable for its ow debts ad the parters ad maagers of the LLP caot be made liable for such debts. Every parter of the LLP is regarded as a aget of the LLP. However, the LLP is ot boud by the acts of a parter who is ot authorised, where either this fact is kow to the perso dealig with the parter or the perso does ot kow or believe the parter to be a parter i the LLP. For more iformatio pertaiig to LLP, members are advised to access the Istitute s website ad the publicatio o Uderstadig Limited Liability Partership ad Its Tax Facets at uder the headig Professioal Stadards ad Practices - Research & Publicatios. Busiess Trust Aother key developmet set to chage the busiess ladscape is the itroductio of the busiess trust as a ew busiess vehicle uder the Capital Markets ad Services (Amedmet) Act 2012 (Act A1437) CMSA 2012 gazetted o 12 July The busiess trust adopts the uit-trust structure as its basis for the busiess, ad this represets aother milestoe i restorig ad promotig Malaysia as a vibrat ad competitive capital market. What is a Busiess Trust? A trust may be described as a arragemet where a perso (called the trustee ) holds property for the beefit of others (called beeficiaries ) where it may ivolve a versatile vehicle that ivests i a wide rage of sectors ad assets. The CMSA 2012 defies a busiess trust as a uit trust scheme where the operatio or maagemet of the scheme ad the scheme s property or asset is maaged by a trustee-maager. I simpler terms, a busiess trust is a hybrid structure combiig elemets of a compay ad a uit trust i.e. a trust that operates ad rus a busiess eterprise. The busiess trust has bee widely accepted i jurisdictios such as Hog Kog ad Sigapore. It is appropriate for busiesses which ivolve itesive capital outlay with stable operatios ad strog cash flows such as ifrastructure, vessel/shippig, maufacturig, healthcare, power plats ad property developmet. Beefits of Busiess Trusts A listed busiess trust would have access both to debt ad equity 44 accoutats today NOVEMBER / DECEMBER 2012

2 Limited Liability Partership ad Busiess Trust fiace which could be used to fud further asset acquisitio: Its structure has bee desiged to provide ivestors direct exposure to cash flow geeratig assets through the purchase of its uits which are tradable o the stock exchage It provides greater flexibility i its ability to declare distributios out of operatig cash flows so log as it fulfills the solvecy test 1 (ulike a compay which oly declares divideds out of accoutig profits) ad has a steady stream of returs Has o legal or regulatory restrictio o gearig 2 A busiess trust ca be structured to be Shariah-compliat which works well for the coutry as we strive towards becomig a leadig global Islamic fiacial hub The goverace of busiess trust is specified uder Sectio 256A to 256ZP of the CMSA Sectio 256B states that applicatio of a busiess trust is to be grated for authorisatio or recogitio if the busiess trust fulfils certai criteria specified i the CMSA Sectio 256D further states that the Commissio 3 may refuse to grat a authorisatio or recogitio if: The applicatio is ot made i accordace with the requiremet specified i CMSA 2012; The applicat fails to comply with ay requiremet of the CMSA 2012 or ay guidelies issued; False or misleadig iformatio is provided i the applicatio or where there is a material omissio; The Commissio has the reaso to believe that the authorisatio or recogitio would be detrimetal to the ivestors or cotrary to public iterest. Similarly, the Commissio may withdraw the authorisatio or recogitio if the applicat or ay of its officers fail to comply or has breached the requiremets specified i the CMSA 2012 or vice versa. The other saliet poits are outlied below: Creatio of Busiess Trusts Sectio 256H Busiess Trusts are usually created uder a documet called a trust deed which: provides for the goverace of its affairs ad the coduct of its busiess ad icludes ay istrumet amedig or affectig the deed; the duties of the trustee-maager who: i. holds property or assets o trust for uitholders of the busiess trust; ad ii. maages ad operates such property or asset. A director for this purpose icludes a perso who is a chief executive officer. Registered Busiess Trusts Sectio 256O states that a registered busiess trust shall be maaged ad operated oly by the trustee-maager whose role is to safeguard the iterests of beeficiaries or the uitholders of the trust. The trustee-maager must be a Malaysia registered compay which is ot a exempt private compay, whose sole busiess is the maagemet ad operatio of the trust. Subject to the deed ad approval of the Commissio, a trustee-maager may sub-cotract a aget to carry out or perform ay fuctio i coectio with the maagemet ad operatio of the trust who bears the similar duties ad resposibilities specified i the CMSA The duties ad resposibilities of the trustee-maager or its officer or agets 4 are set out uder Sectio 256P ad 256Q of the CMSA Uitholders i registered busiess trusts are also give certai rights which iclude: limited liability the right to remove ad replace the trustee-maager; the right to fair treatmet: i. to atted ay geeral meetig ad to speak ad vote o ay resolutio at the meetig; ii. to apply to the Court for a order o the grouds that the affairs of the busiess trusts are beig coducted i the maer oppressive to the uitholders or holders of debetures; or the act of the trustee-maager is threateig or a resolutio passed has bee ufairly discrimiated agaist or is otherwise prejudicial to oe or more of the uit holder(s) or holders of debetures of the busiess trust. 1. Solvecy test basically refers to the ability to pay debts whe they fall due or the total value of assets is more tha liabilities. 2. A fudametal aalysis ratio of a compay s level of log-term debt compared to its equity capital. Gearig is expressed i percetage form ad is also kow as fiacial leverage. Compaies with high gearig i.e. more log-term liabilities tha shareholder equity are cosidered speculative. I simpler terms, gearig explais how a compay fiaces its operatios - either through outside leders or through shareholders. 3. Commissio meas the Securities Commissio established uder the Securities Commissio Act Aget meas a baker, a advocate ad solicitor or a auditor of the trustee-maager or ay such perso specified i the CMSA accoutats today NOVEMBER / DECEMBER 2012

3 LimITed LIAbILITY ParTNerSHIP AND business TrUST TERMINATION OR WINDING-UP OF the BusINEss TRUst Uder Sectio 256ZG, geerally, a busiess trust may be woud up pursuat to the provisios i the trust deed. Notwithstadig the provisios of the trust deed, however, the uitholders of registered busiess trusts ca direct the trust s trustee-maager to wid up the trust by passig a special resolutio to that effect. I additio, the CMSA 2012 allows the trust to be woud up by the Court o the petitio of the trustee-maager, a uit holder or a creditor of the busiess trust or o the applicatio of the Commissio whe the Commissio deregisters the busiess trust. LODGING OF RETURNs Uder Sectio 256ZO, a trustee-maager shall lodge with the Commissio the aual report of the busiess trust withi two moths after the ed of each fiacial year of the busiess trust; ad the aual report of the trustee-maager withi six moths after the ed of each fiacial year ad ay other documets which may be required by the Commissio ad shall be siged by ot less tha two of the directors of the trustee-maager. All the fiacial statemets required to be lodged shall comply with the approved accoutig stadards. Tax TREATMENT ACCORDED similar TO ThAT OF a CORPORATE ENTITy OR COMPANy As aouced i Budget 2013, both LLP ad Busiess Trust are taxable persos for the purposes of the Icome Tax Act 1967 (ITA 1967). This simply implies that ay tax treatmets accorded for a LLP or Busiess Trust are similar (maybe to a certai extet) to that of a compay, trust body or co-operative society i the followig maer: a. the ability to determie its ow basis period (Sectio 21A of the Act); b. the due date for filig of its tax retur ad paymet of balace of tax payable; c. furishig of estimate of tax payable ad paymet of tax istalmet; d. tax rate icludig preferetial tax rate o the first RM500,000 of the chargeable icome; e. Profits paid, credited or distributed by a LLP to its parters are exempted from tax; ad f. Cotrolled trasfer provisios. NOVEMBER / DECEMBER 2012 accoutats today 47

4 Limited Liability Partership ad Busiess Trust The table below highlights the relevat tax treatmet applicable to the two vehicles: Defiitio ad tax as a perso (Sectio 2 of ITA 1967) Residece Status (Sectio 8 of ITA 1967) Perso resposible (Sectio 75B of ITA 1967) Limited Liability Parterships Defiitio of Perso to iclude a compay, a body of perso 5, a Limited Liability Partership (LLP) ad a sole corporatio. Determied based o the maagemet ad cotrol of its busiess or affairs by its parters which are exercised i Malaysia. The compliace officer who is appoited amogst the parters of the LLP or ay perso qualified to act as a secretary uder the Compaies Act 1965, shall be resposible for all acts ad thigs required uder the Act. Busiess Trusts Defiitio of Compay to mea a body corporate ad icludes ay body of persos established with a separate legal idetity by or uder the laws of a territory outside Malaysia ad a busiess trust (BT). Determied based o the residece status of the trustee-maager: - the trustee maager carries o the busiess i Malaysia; ad - the maagemet ad cotrol of its busiess is exercised i Malaysia. The resposibility for doig all acts ad thigs required to be doe or o behalf of the BT shall lie joitly ad severally with the trusteemaager. Due date for filig of tax retur (Sectio 77A of ITA 1967) ad paymet of balace of tax payable (Sectio 103 of ITA 1967) Furishig of estimates of tax payable ad paymet of istalmets (Sectio 107C of ITA 1967) Covetioal partership or private compay that coverts to LLP Preferetial tax rate o chargeable icome (Paragraph 2D Schedule 1 of ITA 1967) Profit distributio Where o compliace officer is appoited, all parters of the LLP will be joitly ad severally liable. Last day of the 7th moth from the close of the accoutig period that costitutes the basis period for the year of assessmet. LLP is required to furish the estimate of tax payable 6 ad paymet of tax istalmet. LLP is also allowed to revise its estimate of tax payable i the sixth ad/or ith moth of the basis period. All the uabsorbed capital allowaces ad busiess losses are allowed to be carried forward ad utilised agaist future icome of LLP. 25% tax rate. However, LLP will be eligible to ejoy preferetial tax rate o the first RM500,000 of the chargeable icome 7, subject to fulfillmet of certai coditios. Profits paid, credited or distributed by a LLP to its parters are exempted from tax. A BT is excluded from the followig preferetial tax treatmets accorded to a Small ad Medium Eterprise: exemptio from filig estimated tax payable or makig istalmet paymets i the first two years of assessmet of operatios. NA. 25% tax rate. Ca pay distributio out of operatig cash flows subject to solvecy test. As BT is accorded similar tax treatmet to a compay, the ecoomic purpose, structure ad operatio of a BT will be similar to those of a compay. This implies that ay distributio paid should also be tax exempted (sigle tier system cocept). Sectio 2(11) has bee iserted that ay referece to share or ordiary share capital, shareholders ad divided will also iclude referece to uits or derivatives of uits, uitholders ad distributios i relatio to a BT. 48 accoutats today NOVEMBER / DECEMBER 2012

5 Limited Liability Partership ad Busiess Trust Disposal subject to cotrolled trasfer provisios Others Limited Liability Parterships Cotrol here refers to a parter who has more tha 50% of capital cotributio (cash or i kid). Parter remueratio is ot eligible for deductio uless it is expressly provided i the LLP agreemet. Busiess Trusts Similar tax treatmet accorded to existig compay. Cotrol for the purposes of a BT costitutes the right to ot less tha 50% of: residual profits of the BT available for distributio, or residual assets of the BT available for distributio o a widig up. No-applicability of RM10,000 limit o special allowaces for small value assets (for cost ot exceedig RM1,000 each). Tax Icetives Pedig tax directives. At the early stage of the establishmet of a BT: Stamp duty exemptio o istrumets of trasfer of busiesses, assets or real properties acquired; ad Real property gais tax exemptio o disposal of real properties or shares i a real property compay to BT. A Sapshot: Sigapore Busiess Trust Let s look at some of the tax beefits ad icetives grated by Sigapore which is curretly the oly coutry i Asia (at this jucture) that has a regulatory framework for Busiess Trust uder the Busiess Trusts Act A busiess trust does ot have a separate legal idetity ad is operated though a trusteemaager who holds the assets of the busiess trust for the beefit of all of the uitholders. The uitholders have a ecoomic iterest i the assets of the busiess trust, but have o rights i respect of those assets themselves. Compaies that have bee listed o the Sigapore Stock Exchage as busiess trusts iclude Ascedas Idia Trust (i 2007), Hutchiso Port Holdigs Trust (2011) ad oe other tha Berjaya Sports Toto Bhd. 5. body of persos meas a uicorporated body of persos (ot beig a compay), icludig a Hidu Joit Family but excludig a partership. 6. The LLP is ot required to furish the estimate of tax payable whe the LLP first commeces operatios i a YA ad the basis period for that year is less tha six (6) moths. 7. This refers to LLP with capital cotributio of RM2.5millio ad less at the begiig of the basis period for a year of assessmet (YA). However, this will ot apply if 50% of the capital cotributio of the LLP is directly or idirectly cotributed by a compay or 50% of the paid-up ordiary shares of the compay is directly or idirectly owed by the LLP or 50% of the capital cotributio of the LLP ad 50% of the paid-up ordiary shares of the compay is directly or idirectly owed by aother compay. The compay here shall have paid-up ordiary shares of more tha RM2.5millio at the begiig of the basis period for a YA. NOVEMBER / DECEMBER 2012 accoutats today 49

6 Limited Liability Partership ad Busiess Trust SHIPPING SECTOR Focus sectors INFRASTRUCTURE SECTOR Shippig sector The Maritime Fiace Icetives (MFI) scheme is to ecourage compaies to use Sigapore as their capital ad fudig base to fiace both their maritime vessels ad sea cotaiers. If the BT is approved as a Approved Ship Ivestmet Vehicle (ASIV) uder the MFI: BT will ejoy tax cocessios up to 5 or 10 years o their qualifyig leasig icome i.e. charter/lease icome, either structured as operatig or fiace leases; If the BT fuds the acquisitio of the vessels through bak ledig, withholdig tax o iterest paymet to the bak is tax exempted if approval is grated by the Maritime ad Port Authority of Sigapore; The trustee-maager (TM) who is the Approved Ship Ivestmet Maager of the asset-owig etity will be awarded a cocessioary tax rate of 10% o its qualifyig maagemet icome; ad Divideds distributed by the ship ivestmet vehicle to both corporate ad idividual ivestors will be tax exempt. Eligible compaies are compaies with a strog track record, demostrable busiess pla ad a commitmet to expadig shippig ad cotaier fiacig operatios i Sigapore. (Both BT ad the TM eed to be icorporated ad have a presece i Sigapore, such as exercisig the cotrol ad maagemet of the busiess i Sigapore, ad likewise, the TM would eed to have employees ad premises i Sigapore) Goods ad Cocessio Services Tax Group Relief Utilisatio of uabsorbed losses Ifrastructure sector A approved TM of a qualifyig registered BT will ejoy a cocessioary tax rate of 10% for up to 10 years o icome derived from specified services i respect of ifrastructure assets outside Sigapore. Similar cocessios apply to approved fud maagemet compaies i respect of icome derived from maagig qualifyig compaies i respect of prescribed offshore ifrastructure assets or projects. Certai sources of icome that may also be tax exempt are: * Qualifyig icome from qualifyig project debt securities; * Foreig source divideds received from subsidiaries egaged i ifrastructure activities; * Foreig source iterest icome of qualifyig etities listed o the stock exchage that ivests i offshore qualifyig ifrastructure projects/assets. Gais o disposals which are of a capital ature will be tax exempt. Cocessios have bee allowed to Sigapore-listed registered busiess trusts carryig o qualifyig busiesses (ifrastructure, aircraft leasig ad ship leasig) to claim GST o busiess expeses regardless of whether or ot they are eligible for GST registratio. A Sigapore compay belogig to a group of compaies may trasfer its curret year uabsorbed capital allowaces, tradig losses ad doatios to aother compay belogig to the same group provided the ordiary shares of oe compay are at least 75% owed by the other or if the ordiary shares of each of the two compaies are at least 75% owed by aother Sigapore icorporated compay. BT is eligible for group relief similar to the coditios applied to a compay except: i. ordiary shares of a compay will be replaced by uits of the BT; ad ii. BT must be established i Sigapore with the trust deed executed i Sigapore ad govered by Sigapore law. Similar to a compay, a BT ca claim deductios for brought forward uabsorbed tax assets i the form of capital allowaces, idustrial buildig allowaces, trade losses ad doatios. As such, the cocept of cotiuity of owership will also apply to the use of brought forward tax assets for BTs 50 accoutats today NOVEMBER / DECEMBER 2012

7 LimITed LIAbILITY ParTNerSHIP AND business TrUST CONCLUsION The iceptio of LLP is cosistet with the Govermet s iitiatives to improve service delivery ad simplify procedures i.e. reduce the admiistrative ad compliace burde i order to foster a friedly busiess eviromet i Malaysia, while the busiess trust provides more optios i terms of ivestmet products ad asset classes i the Malaysia capital market. While Malaysia works to promote the attractiveess of the two busiess vehicles, at the same time we have to ivest cocerted effort i the formulatio of suitable tax policies which are supportive of the two ew vehicles. It is hoped that the upcomig guidelies or legislatio to be issued by the authorities cocered will offer due cosideratio ad clarificatios for the followig uresolved issues which may ot be exhaustive: i. What would be the tax implicatio after coversio to a LLP? Ad is it beeficial ultimately for such coversio to take place after takig ito accout the tax cosideratio? ii. Is the stamp duty icurred arisig from the trasfer of existig assets ad real properties from a covetioal partership or private compay to LLP waived or tax exempted ad what are the coditios that warrat waiver of stamp duties or otherwise? iii. What would be the tax treatmet o the trasfer of the balace sheet items such as stock-i-trade, debtors, creditors, etc.? iv. Is the cost of coversio from covetioal partership or private compay to LLP tax deductible ad what are the examples of the costs to be icurred that are eligible for deductios? v. Does the LLP or BT ejoy group relief which is available for a private compay sice both are taxed as a compay? Ad what are the mechaisms of such relief? vi. What are the tax icetives available to complemet the attractiveess of the busiess vehicles i fosterig a coducive ad ivestorfriedly ivestmet climate?