Tax exemption for Malaysian shipping business extended with new conditions

The exemption from income tax on statutory income derived by a person from a business of a Malaysian ship1 has been extended for a further period of three years from year of assessment 2021 to year of assessment 2023 under the Income Tax (Exemption) (No. 7) Order 2022 [P.U.(A) 312/2022] (‘the Exemption Order’).
The Exemption Order extends the tax exemption granted for years of assessment 2014 to 2020 under the Income Tax (Exemption) Order 2018 [P.U.(A) 38/2018] and Income Tax (Exemption) (No. 2) Order 2018 [P.U.(A) 48/2018] (‘Previous Exemption Orders’) but imposes additional conditions that have to be fulfilled in order to qualify for exemption under the Exemption Order. 
To qualify for tax exemption under the Exemption Order and the Previous Exemption Orders, the  person must be a resident in Malaysia who carries on the business of (a) transporting passengers or cargo by sea on a Malaysian ship, or (b) letting out on charter a Malaysian ship owned by him on a voyage or time charter basis.
The new conditions introduced under the Exemption Order are the requirement for the person to obtain annual certification from the Ministry of Transport Malaysia that: 
  1. an annual operating expenditure of at least RM250,000 has been incurred for each Malaysian ship; and 

  2. each Malaysian ship has the following number of full-time employees in Malaysia: 
  • the majority of on-shore employees, including the chief executive officer, an administrative and finance officer, an operating officer and an officer in charge of health, protection, safety and environmental affairs, are Malaysian citizens; and   

  • the employees who are ship personnel as provided under Part III of the Merchant Shipping Ordinance 1952, shall be subject to the minimum requirement as specified in the Safe-Manning Certificate issued by the Marine Department Malaysia. 
Alert by Siva Kumar Kanagasabai (Partner and Head) and Dhanyaa Shreeya Sukumar (Associate) of the Maritime and Shipping Practice of Skrine  

1 A “Malaysian ship” is defined in section 54A(6) of the Income Tax Act 1967 as a sea-going ship registered as such under the Merchant Shipping Ordinance 1952, other than a ferry, barge, tug-boat, supply vessel, crew boat, lighter, dredger, fishing boat or other similar vessel. Therefore, a sea-going ship (save for the exceptions mentioned in section 54A(6) of the Income Tax Act 1967) registered under Part IIA (Malaysia Shipping Registry) and Part IIC (Malaysian International Shipping Registry) of the Merchant Shipping Ordinance 1952 will qualify as a Malaysian ship for the purposes of the Exemption Order.

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