C4: TAXATION ON

AIR & SEA

TRANSPORTS
UNDERTAKING
SPECIALIZED TAXATION
GROUP 8 | GROUP C A221
 GROUP
MEMBERS
Nurnatasha Athira binti Mohd Sharipudin 272975

Muhammad Haikal Bin Mohd Pisshol 273073

Sarah Amirah binti Norizad 273287

Ku Fatrah Hanis binti Kuzaharani 277902

Nur Nasrin Irdina binti Ghazali

279986

Lecturer: Submission Date:

PROF. MADYA DR. SALIZA BINTI ABDUL AZIZ 30 OCTOBER 2022 | 5.00 P.M.
 TABLE OF CONTENTS

CONCEPT & AIR & SEA

01 DEFINITION 02 TRANSPORT
BUSINESS

TAX TREATMENT TAX

03 & SCOPE OF 04 INCENTIVE
CHARGE AVAILABLE
01
CONCEPT &
DEFINITION
 Malaysia Tax System
● Malaysia adopts a territorial system of income taxation
● A company, whether resident or not, is assessable on income accrued in
derived from Malaysia
● Income derived from sources outside Malaysia and remitted by a resident
company is exempted from tax, except for those carrying on business of
the banking, insurance, air and sea transport undertakings, which is
assessable on the world income scope
Definition of Terms
❖ Malaysian Ship, under subsection 54A(6) of the ITA 1967

1) Registered as a Malaysian Ship under the MSO 1952

2) Asea-goingship,and
3) Not a ferry, barge, tug-boat, supply vessel, crew boat, lighter, dredger,
fishing boat or other similar vessel.

All the 3 conditions must be fulfilled.

If any one of them is not fulfilled, the
vessel will not be a Malaysian Ship.
Under Section 11 of the MSO 1952,
A ship would only be registered as a Malaysian Ship if it is owned by a Malaysian
citizen or a corporation which meets the following conditions:
(a) the principal place of business of the corporation is in Malaysia;
(b) the majority shareholding (at least 50%) including the voting share of the
corporation is held by Malaysian citizens free from any trust or obligation in favour
of non-Malaysian;
(c) at least three-fifth of the total number of directors in the corporation are Malaysian;
(d) Bumiputra participation comprises at least 30% throughout, such as paid-up
capital, directorship and employees.
Definition of Terms
Transshipment
Sea going ship Goods or passengers which are:
(a) brought into Malaysia whether by the
• Public ruling No. 10/2012
operator or otherwise, solely for the purpose of
• Not defined in the ITA 1967.
transfer or transshipment:
• In line with the MSO 1952, any ship going
i. from one ship or aircraft to another
beyond port limits.
ii. from a ship to an aircraft
Port limits vary in accordance
iii. from an aircraft to a ship; or
with the by-laws of each port.
(b) embarked or loaded into such a ship or
• A vessel used exclusively for navigation
aircraft if the call of that ship or aircraft at a
on the lakes, canals, rivers or coastal waters
port, aerodrome or airport in Malaysia for that
is not a
embarkation or loading is known as a casual
sea-going ship.
call.
• A vessel that is not a sea-going
does not qualify for Malaysian Ship status
under the ITA 1967.
Casual Call
Under the provision of Section 54(6) of the ITA 1967, a call at a port, aerodrome or
airport in Malaysia (Malaysian Call) by a ship or aircraft owned or chartered by the
operator which is:
a) apart from that particular Malaysian call, there were no other Malaysian
calls at Malaysian ports by that or any other relevant craft belonging to the
owner or charterer in the 24 consecutive months immediately
preceding that particular Malaysian call; and
b) the Director General is satisfied that the intention of the operator is that
for the period of 24 months immediately following that particular
Malaysian call, that the relevant craft will not be making another Malaysian
call and no other craft or crafts of the owner or charterer will be making a
call at a Malaysian port.
Time & Voyage Charter
Time charter Voyage charter
● is chartering of a ship based on a
● refers to chartering of a ship based on a particular
specific period of time for the use of
the ship. voyage from one port or place to another.
● The word ‘Voyage’ refers to the whole time and
whole distance between the ship’s port of place of
departure and her final port or place of arrival.

Similarities
● The ship owners normally and of equipping, bunkering and maintaining the ship,
● Of the ship remain in the hands of the ship owners, and
● The word charter refers to the and not part of the ship.
Example 1:
A ship or aircraft which is not scheduled to land in Malaysia but due to the bad weather or
emergency repair is required, lands in Malaysia, the ship or aircraft loads on cargo or
passengers upon leaving Malaysia. Such income is deemed derived from Malaysia.

However, if the owner opts to term the call as ‘casual call’ by satisfying the ‘24 months
before and after’ requirement, the income made from the freight or fares received would not
be taxed. To be a ‘casual call’, it must be isolated and no continuity exists between calls.
● Time charter – the chartering of a ship based on a specific period of
time for the use of the ship.
● Voyage charter – the chartering of a ship based on a particular voyage
from one port or place to another.

For both time and voyage charters:

(a) the ship owners normally supply the crew and provide the services of
equipping, bunkering and maintaining the ship,
(b) possession and control of the ship remain in the hands of the ship
owners, and
(c) the word charter refers to the chartering of the whole ship and not part of
the ship.
02
AIR & SEA TRANSPORT
BUSINESS
 AIR & SEA TRANSPORT
BUSINESSES

AIR SEA
TRANSPORTS TRANSPORTS
The business in which their income
Any transportation of goods
is derived from carrying by aircraft
or passengers using seagoing
of persons, property, cargo, and mail
vessels on voyages that are
by an air carrier or air transportation
undertaken wholly at sea. company.
PUBLIC
RULING NO. A qualifying business and
Malaysian Ship is important to
10/2012
(1)(a) The transport activities of transporting
be eligible for tax exemption
under subsection 54A(1) of the
passengers or cargo by sea or air shall be deemed to ITA 1967.
constitute one business and source of that person.
Other activities shall be deemed to constitute a
separate and distinct business and source of that
person.
 CRITERIA FOR CLASSIFICATION AS
AIR & SEA TRANSPORT BUSINESS
PR 10/2012 - SECTION 54(A)(1)
(a) The business must be conducted by a
resident person. ●Transporting passengers or cargo on a Malaysian ship by sea or
(b) Qualifying business is the business of: by air.

●Letting out on charter a Malaysian ship that owned by the person on a voyage charter or time charter
basis. The statutory income are exempted from tax.

EXAMPLE

Non-Malaysian Ferry, Cruise, Ferry, barge, tugboat, fishing Boat, dredger, etc.
Ship

Non-Qualifying Cruise tour business, etc.

Business

Malaysian Ship* Ocean liners, petroleum/oil tankers, LNG Carriers, container ships, chemical tankers, etc.

*These ships have to be sea-going ships and registered under the MSO 1952 in order to qualify for Malaysian Ship status under
subsection 54A(6) of the ITA 1967
EXAMPLE 1

Omega Sdn Bhd is the owner of a barge that has been registered as a Malaysian ship
in accordance with MSO 1952, Section 11. Due to advancements in the shipping
industry, the barge is not merely a support vessel but also has a huge and powerful
engine that allows it to operate in the deep sea. Cargo from Malaysia is transported
using the barge to as far as Korea and other Asian nations. Therefore, Omega Sdn
Bhd claims the barge as a Malaysian Ship for the purposes of income
tax.

Despite being capable of being operated in the deep sea, a barge is explicitly excluded
from the definition of a Malaysian Ship under paragraph 54A(6), hence Omega Sdn
Bhd’s barge does not qualify as a Malaysian Ship classification for income tax
purpose.
 EXAMPLE
2
Orion Maritime Sdn Bhd has two vessels registered as Malaysian Ships under MSO
1952. According to the Certificate of Malaysian Registry, the first vessel is a
maintenance support vessel with a 500-ton cargo capacity and 270 sleeping
accommodations. The second vessel is a landing craft that is used to carry
necessities for the purposes of oil platform operation and capable of transporting
cargo between the ports.

Both vessels are similar in category and functions to the supply

vessels specifically excluded from the definition of Malaysian Ship.
Consequently, both are not Malaysian Ships within the context of
subsection 54A(6) of the ITA 1967.
03
TAX TREATMENT
& SCOPE OF
CHARGE
RESIDENT SEA & AIR OPERATORS

Only business of transporting

S54(2)(a) of ITA 1967 passengers or cargo by sea or
The gross income, adjusted income or air is assessed using ‘World
adjusted loss of a resident person for Income Scope’.
the basis period for that YA from the
business of transporting passengers or i) Income received and
cargo by sea or air shall be receivable in Malaysia, and
ascertained by reference to his income ii) Income received and
from wherever derived or accrued. receivable outside Malaysia,
irrespective of whether it is
remitted to Malaysia
 Exemption of statutory income
S54A(1) of the ITA 1967
To be qualified for tax exemption on 70% of
statutory income, taxpayers need to satisfy
conditions of:

a Resident person

Carrying business of transporting passengers or cargo

b by sea on a Malaysian ship;
Letting out on charter a Malaysian ship owned by him
c on a voyage or time charter basis
SEPARATE BUSINESS SOURCE
S54A(2) of the ITA 1967
Income derived from each Malaysian ship shall be treated as
separate and distinct business source. Any adjustment loss can
only be used to:

a b
Reduce exempt Carry forward to next YA, to
income of other be deducted from exempt
Malaysian ships in income of the same Malaysian
YA; ship.
CAPITAL Capital allowance can only be

ALLOWANCE made against exempt income of the

same ship. Any unabsorbed capital
allowance from one ship is not
Capital allowance claimed in respect of any available to set off against another.
Malaysian ship shall be done on a “ship by
ship basis”.
ADJUSTED LOSS OF MALAYSIAN
SHIPS
S54(2)(b) of the ITA 1967
-Adjusted loss incurred by the person in respect -The statutory income of Malaysian ship would be
of source consisting of a Malaysian ship for any reduced by the current year business loss of any
year shall only be deducted against exempt Malaysian ship before it can be credited into
income of the Malaysian ships. exempt income account.

- Any unabsorbed loss from Malaysian ship shall

not be available as deduction against other income
and will be c/f to the following YA.
EXAMPLE 1
Pulau Indah Sdn Bhd is a resident company in Malaysia and owns two container ships which are Alpha and Beta. The
ships are used in transporting cargo by sea between Klang Port and Thailand, which is one of the company’s business
activity. Both ships are registered as a Malaysian Ship under the MSO 1952. Below are the information for the Pulau
Indah Sdn Bhd’s income and expenditure for the year ended 31.12.2020:

Additional information:
Indirect cost of RM3,000,000 is allocated on gross income basis and accepted by the DGIR.
Alpha : RM3,000,000 x 26,700,000 / 56,400,000 = RM1,420,213
Beta : RM3,000,000 x 29,700,000 / 56,400,000 = RM1,579,787
Capital allowances allowed for the year of assessment 2020 are as follows:

Calculate the amount credited on exempt account

ANSWER

Capital allowance of RM 375,000 claimed in respect of Beta is not deductible against the income from Alpha.
EXAMPLE 2
Pulau Indah Sdn Bhd is a resident company in Malaysia and owns
ANSWER
Tax Computation for the Year of Assessment 2019
two container ships which are Alpha and Beta. The ships are used
in transporting cargo by sea between Klang Port and Thailand,
which is one of the company’s business activity. Both ships are
registered as a Malaysian Ship under the MSO 1952. Below are
the information for the Pulau Indah Sdn Bhd’s income and
expenditure for the year ended 31.12.2020:

Prepared the tax computation for YA 2019 to 2021

Tax Computation for the Year of Assessment 2020 Tax Computation for the Year of Assessment 2021
 NON-RESIDENT SEA & AIR
OPERATORS

S54(2)(b)
The gross income of non-resident i) 5 percent method
person carrying a business of (S54(3))
transporting passenger and cargo
by sea or air that is derived from ii) Acceptable ratio
Malaysia for the basis period for certificate method
that years of assessment will be (S54(4))
assessable to Malaysian tax.
 5 PERCENT
●
METHOD
The statutory income of the operator from the business for the relevant year shall be
deemed to be five per cent of the gross income derived from Malaysia for the
relevant period.
● The total of all sums first receivable by the operator in the relevant period in respect
of transporting by sea or air passengers or cargo embarked or loaded in Malaysia
into ships or aircraft owned or chartered by the operator, except sums so receivable
in respect of passengers or cargo.

COMPUTATION
FORMAT
ACCEPTED RATIO
CERTIFICATE
METHOD
For this method to be applicable:
1. The certificate is issued by a foreign authority
2. It is submitted to the Malaysian tax authority
3. It must be within 3 years after the commencement of the relevant year

• If it is applicable, there are few conditions to apply the certificate:

1. The certificate must be issued by the revenue authority of the country of residence of operator.
2. The revenue authority must compute and assess the full profits of the Non-Resident operators from their shipping
and airline business.
3. The basis to compute and assess is made by the foreign revenue authority should not be substantially different from
the basis adopted by IRB.
4. The certificate has stated the gross world freight earning, adjusted profit/loss as computed for income tax purposes
(before adjustment in respect of CA) and depreciation allowances for tax purposes.

Depreciation allowance is not capital allowance. It is used as If there is any net statutory loss, it will be carried forward
a factor to calculate the deemed statutory income or the net and to be set off against the deemed statutory income
statutory loss from their business. arrived at by this method.
PAST YEAR QUESTION
TAX PLANNING

ANSWERS: ANSWERS:
DEPRECIATION ALLOWANCE

Used as a factor in
calculating the
deemed statutory
Net statutory loss can
income
be carried forward to
be set off against the
deemed statutory
income
 TAX ADMINISTRATION
The tax authorities will appoint an
agent for the NR shipping or airline
operator to account for the tax of
the operators in order to prevent
the loss of revenue from the
Malaysian Government.

S68(1): The director general, may by

notice in writing appoint any person
for all or any purposes of this act S68(2): Any appointment made under
and any person appointed shall be previous s68(1), may be revoked at
assessable and chargeable to tax any time by the Director General.
on behalf of the other person if he is
fit for it.
04
TAX
INCENTIVE
AVAILABLE
 TAX INCENTIVES AVAILABLE
Exemption of Shipping Profit
Qualifying Person
A person is resident in Qualifying Business Exempt Income
Malaysia for the basis 70% of statutory
year for a year of i) Transporting passengers or income for the year of
assessment cargo by sea on a Malaysian assessment
ship
OR
ii) Letting out on charter a
Malaysian Ship owned by that
person on a voyage or time
charter basis
 EXAMPLE
CASE
E Sdn Bhd is the owner of a ship registered under the MSO 1952. It
possesses the Domestic Shipping Licence which permits its ship to call at any
port in Malaysia to carry on its business. Its business activities involve the
transferring of cargo at the port from the supply vessels into its ship and
from its ship to other ships. Its operation now focuses on the Johor Port
region. E Sdn Bhd applies for exemption in respect of its income derived
from its business activities.

The activities of transferring cargo between the ships at the port are more
inclined to supporting services provided by using feeder vessels. The services
rendered by E Sdn Bhd do not fall within the ambit of the qualifying
business under paragraph 54A(1)(a) of the ITA 1967. As such, no exemption
is granted.
 Exemption from Withholding Tax
“Exempted from withholding tax of 10%”

Pooling Arrangement Income received from ship Non-resident derived lease

rental rental from ISO containers

Income of a non-resident ● Rental payment on A non-resident person who

ships under voyage
derived consist of payment receives income derived
charter, time charter
made under an agreement from the rental of ISO
or bare boat charter
or arrangement for ● To a non- resident containers by a Malaysian
participant in a pool by a ● By a Malaysian shipping company is
company resident in resident shipping exempted from
Malaysia that engaged in company withholding tax from
the business of 20.10.2001 under the
transportation passengers Income Tax
or cargo by sea.
 Provision of Chartering Services of
Luxury Yacht
Promotion of Boat/ yacht maintenance
Exemption
activities in Langkawi
Resident company in Malaysia will be
exempted on statutory income derived Companies that carry out repair and
from providing chartering services of a maintenance activities for luxury
luxury yacht departing from and ending yachts in Langkawi.
at any port in Malaysia.
Tax exemption: Full exemption
Tax exemption: Full exemption
Period: 5 years
Period: 5 years
Application should be submitted to the
Claim should be submitted to IRB Ministry of Finance.
 Exemption for Employees
Example case:
With effect from YA 2007, the Captain Moktar is the Master of a liquefied natural gas
exemption on employment income (LNG) carrier, Bintang Terang used in transporting LNG
is available to any individual from Bintulu, Malaysia to various ports in Japan and
exercised an employment on China. Bintang Terang is operated by Bintang Shipping
board of a ship used in: Sdn Bhd, a company resident in Malaysia. It is also the
registered owner of the LNG carrier under the MSO.
a) A business operated by a For the year 2015, Captain Moktar was on board Bintang
person who is the registered Terang for 10 months carrying out his duty. He was paid
owner of a ship under Merchant USD80,000 for the voyages that he was assigned to.
Shipping Ordinance 1952; and
Captain Moktar is eligible for exemption on his
b) such person is resident in employment income as the LNG carrier is a sea-going ship
Malaysia. for the transportation of cargo, and it is operated by a
person resident in Malaysia who is the registered owner of
the ship
 Double Deduction on Ship Freight Charges

Ship freight charges are revenue expenses incurred ‘wholly and

exclusively’ in the production of a business income. It is tax deductible.

The manufacturers for the shipment of their manufactured goods from

Sabah and Sarawak to any port in Peninsular Malaysia is eligible for an
additional tax deduction on ship freight charges.
 THANK
YOU!
Do you have any questions?

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