TAXATION MATTERS ON LLP

Submission of Estimate of Tax Payable and Tax Payment

LLP is required to provide estimate of tax payable and payment by instalments as provided in section 107C ITA. This mean LLP need to submit Estimate of Tax Payable vide Form CP204 for a Year of Assessment not later than 30 days before the beginning of the basis period. However, when a LLP commences operations (i.e. during the first basis period), the estimate of tax payable must be submitted to the Inland Revenue Board (IRB) within 3 months from the date of commencement of its business and thereafter no later than 30 days before the beginning of the basis period.

Tax is generally payable by 12 equal monthly instalments, each monthly tax instalment is due and payable to the IRB by the 15th of the following month.

An LLP that is converted from a company or a partnership is not exempted from estimate of tax payable and payment by instalments under subsection 107C (4A) ITA as the business of the LLP is deemed to be a continuous business of the company or the partnership.

Filling of Tax Returns (Form PT)

All LLP must file the tax returns (Form PT) within 7 months from the date of closing of its basis period (i.e. accounting period).

Restrictions on Partner’s Salary Deduction

Remunerations or similar payments to partners of LLP are not allowable for deduction if not specified or provided for in the LLP agreement. Remuneration refers to basic salary and fixed allowances but does not include employer’s contributions to the Employees Provident Fund (EPF), Social Security Organisation (SOCSO) or insurance.

Remunerations to be paid to the partners should be documented in the LLP agreement. Thus, if there is a change of partners in the LLP, where new partners will be paid remuneration, the LLP must prepare a supplementary agreement or any document to record the change.

Incorporation Expenses

LLP which has capital contribution not exceeding RM2.5 million shall be allowed a deduction in respect of incorporation expenditure for the basis period for a year of assessment, as provided in the Income Tax (Deduction for Incorporation Expenses) Rules 2003 [P.U.(A) 475/2003] and the income Tax (Deduction for Incorporation Expenses) (Amendment) Rules 2005 [P.U.(A) 472/2005].

Distribution of profits to partners

LLP can distribute profits to its partners. The profits paid, credited or distributed to partners in the LLP are exempt from tax. There is no withholding tax on profits paid, credited or distributed to the partners.

Tax Treatment of Partners of A LLP

Partners are not liable to tax on their share of income from LLP (whether distributed or not). Nevertheless, they will be taxed on remunerations, perquisites and benefits-in-kind received from the LLP. The payment (non-distribution of income) is subject to income tax and is charged on the person concerned.

Responsibilities of Compliance Officer for Income Tax Purposes

Responsibilities of the compliance officer or partner for income tax purposes amongst others are that he is required to:

• keep complete accounting records of the business of the LLP.
• complete and submit the income tax return form (ITRF) in accordance with section 77A ITA and amendment of ITRF if any, in accordance with section 77B ITA within the prescribed period.
• provide estimates of tax payable and make instalment payments in accordance with section 107C ITA.
• inform the Director General of Inland Revenue (DGIR) on the changes of accounting period by submitting Form CP204B within the prescribed period (PR No. 7/2011 titled ‘Notification of Change of Accounting Period of a Company/Trust Body/Co-operative Society’).
• ensure payment of tax by the LLP.
• undertake any other responsibilities under the ITA.