FAQ on Special Tax Treatment to Financial Institutions & Latest Update on the IRB's FAQ on Tax Matters during MCO and CMCO Period

To Our Valued Clients

The Inland Revenue Board ["IRB"] has recently issued the Frequently Asked Questions ["FAQ"] on Special Tax Treatment to Financial Institutions in Relation to Moratorium Granted to Customer. The FAQ was issued to provide guidance to the financial institutions on the special tax treatment of interest income / profit accrued from loans between 1st April 2020 to 30th September 2020 ["the Moratorium Period"] during which repayment / payment is deferred.

Some of the pertinent points provided in the FAQ are as summarised below:-

i. Eligible Financial Institutions
 
All licensed banks, licensed investment banks, licensed Islamic banks and prescribed development financial institutions regulated by Bank Negara Malaysia are eligible for the special tax treatment.
ii. Special Tax Treatment
 
The special tax treatment granted to the financial institutions is in respect of the amount of interest income / profit accrued but the repayment / payment is deferred during the Moratorium Period whereby the income shall not be treated as the gross income of the financial institutions for that basis period for that year of assessment.
The interest income / profit accrued after the Moratorium Period shall be treated as the gross income for the basis period for that year of assessment. Any accrued interest income / profit received during the Moratorium Period will also be treated as the gross income for the basis period for that year of assessment.
iii. Type of Loan / Financing that Qualify for the Special Tax Treatment
 
All loans / financings (except for credit card facilities) granted to individuals, Small and Medium Enterprises ["SME"] and corporate borrowers / customers qualify for the special tax treatment, provided that the loans and financings are:-
 
in Malaysian Ringgit denomination;
not in arrears exceeding 90 days as at 1st April 2020; and
granted moratorium from 1st April 2020 to 30th September 2020.
The meaning of "SME" is as defined by the SME Corporation Malaysia Secretariat. Kindly refer to our email of 23rd April 2020 on Updates on Special Deduction for Reduction of Rental which provides for such definition of "SME".
iv. Reporting of Income
 
Financial institutions must report the accrued interest income / profit from the moratorium portfolio separately from the non-moratorium portfolio according to the customer’s records and ensure that the income is reported and recorded accordingly in the event of a tax audit.
v. Impairment Provision for Loan / Financing Involved
 
Any impairment provision for loan / financing involved in the moratorium programme is not allowed as a tax deduction during the Moratorium Period. The current tax treatment is applicable to the impairment provision for loan / financing before and after the Moratorium Period.

In addition, the IRB has also on 20th May 2020, updated the FAQ on Tax Matters During the Movement Control Order ["MCO"] and the Conditional Movement Control Order ["CMCO"] Period (18th March 2020 to 12th May 2020) to provide clarification on the applicability period of the said FAQ as follows:-

    Period
a. MCO 18th March 2020 to 3rd May 2020
b. CMCO 4th May 2020 to 12th May 2020

In this respect, we wish to highlight that no extension of time will be given for payments of withholding tax where the due date falls after 12th May 2020 even though the CMCO period ends on 9th June 2020, if not further extended by the Government.

For your easy reference, a summary of some of the extended deadlines for submission of the return forms and payment of tax during the MCO / CMCO period is reproduced in the Appendix attached.

For further information, kindly refer to the following:-

i. FAQ on Special Tax Treatment to Financial Institutions in Relation to Moratorium Granted to Customer;
ii. FAQ on Tax Matters during the MCO and the CMCO Period (18th March 2020 to 12th May 2020) - Updated on 20th May 2020;
iii. Our email of 30th March 2020 on Prihatin Rakyat Economic Stimulus Package; and
iv. Our email of 23rd April 2020 on Updates on Special Deduction for Reduction of Rental.

Please do not hesitate to contact us if you need any clarification on the foregoing.