Rules for Special Deduction for Reduction of Rent Gazetted

The Malaysian Government gazetted the following rules on 8 September 2021: 
 
  1. Income Tax (Special Deduction for Reduction of Rental to a Small and Medium Enterprise) Rules 2021 [P.U.(A) 353/2021] (“P.U.(A) 353/2021”); and 

  2. Income Tax (Special Deduction for Reduction of Rental to a Tenant Other Than a Small and Medium Enterprise) Rules 2021 [P.U.(A) 354/2021] (“P.U.(A) 354/2021”). 
P.U.(A) 353/2021
 
P.U.(A) 353/2021 applies where the tenant of a business premise is a small and medium enterprise (“SME”) and is deemed to have come into effect from the year of assessment 2020.
 
For the purpose of ascertaining the adjusted income of a landlord from its rental income under paragraph 4(a) or 4(d) of the Income Tax Act 1967 in a basis period for a year of assessment, P.U.(A) 353/2021 allows a landlord to deduct an amount equal to the total reduction of rental of not less than 30% of the rate of the monthly rental under an existing tenancy for a business premise for each qualifying month.
 
For the purposes of P.U.(A) 353/2021:
 
“business premises” means premises used by a SME only for the purposes of its business and includes a bazaar lot, stall, vehicle park, storage warehouse or any place used only for the purposes of business;
 
“landlord” means any person who rents out a business premises to a SME; and
 
“qualifying month” means the month of April 2020 until the month of December 2021.
 
To qualify for the deduction under P.U.(A) 353/2021, the landlord is required to satisfy the conditions set out below.
 
P.U.(A) 354/2021
 
P.U.(A) 354/2021 applies where the tenant of a business premise is not a small and medium enterprise and is deemed to have come into effect from the year of assessment 2021.
 
For the purpose of ascertaining the adjusted income of a landlord from its rental income under paragraph 4(a) or 4(d) of the Income Tax Act 1967 in a basis period for a year of assessment, P.U.(A) 354/2021 allows a landlord to deduct an amount equal to the total reduction of rental of not less than 30% of the rate of the monthly rental under an existing tenancy for a business premise for each qualifying month.
 
For the purposes of P.U.(A) 354/2021:
 
“business premises” means premises used by a tenant only for the purposes of its business and includes a bazaar lot, stall, vehicle park, storage warehouse or any place used only for the purposes of business;
 
“landlord” means any person who rents out a business premises to a tenant;
 
“qualifying month” means the month of January 2021 until the month of December 2021; and
 
“tenant” means a person resident in Malaysia and carries on business at a business premises.
 
To avoid double deduction, P.U.(A) 354/2021 shall not apply to a landlord who has claimed deduction for reduction of rental under P.U. (A) 353/2021.
 
To qualify for the deduction under P.U.(A) 354/2021, the landlord is required to satisfy the conditions set out below.
 
Conditions
 
To qualify for the deduction under P.U.(A) 353/2021 or P.U.(A) 354/2021, as applicable, the landlord is required to keep the following documents: 

  1. a tenancy agreement which is stamped under the Stamp Act 1949; 

  2. a separate statement of income for rental income for the qualifying months in the basis period for a year of assessment; and 

  3. a confirmation by the landlord stating the amount of reduction of rental given and the tenant stating the receipt of reduction of rental.  
In the case of P.U.(A) 353/2021, the landlord must also keep a certificate by the Small and Medium Enterprises Corporation Malaysia established under the Small and Medium Industries Development Corporation Act 1995 confirming the tenant’s status as a SME.

Advance rental
 
Where rent for the qualifying months is paid in advance, the landlord is eligible for the deduction under P.U.(A) 353/2021 or P.U.(A) 354/2021, as applicable, provided that the landlord keeps the supporting documents stating the reduction of rental given by way of refund or by any other means agreed between the landlord and the tenant. The documentation requirements set out in the above conditions apply to any claim for deduction in relation to reduction of advance rental paid.
 
Comments
 
The wide definition of “business premises” is most welcome given the wide variety of methods by which businesses are being carried out nowadays.
 
The deductions under P.U.(A) 353/2021 and P.U.(A) 354/2021 are measures introduced by the Government to encourage landlords to grant a minimum of 30% reduction in rental to alleviate the financial hardship faced by tenants of business premises as a result of the economic downturn caused by the outbreak of the Covid-19 pandemic in Malaysia.
 
Alert prepared by Desmond Liew (Senior Associate) of the Tax Practice and Faith Chan (Associate) of the Corporate Practice of Skrine

This alert contains general information only. It does not constitute legal advice nor an expression of legal opinion and should not be relied upon as such.