Tax

Kuala Lumpur

MEMBER FIRM OF BAKER & MCKENZIE INTERNATIONAL

Client Alert
January 2013

Malaysian Employee Share Scheme Benefit

Public Rulings
Introduction
In 2004, the Malaysian Inland Revenue Board ("IRB") have issued the
Employee Share Option Scheme Benefit Public Ruling No. 4/2004 ("2004
Public Ruling") to provide guidance on the tax treatment and reporting
obligations arising from the employee share schemes.
At the end of 2012, the IRB issued an updated guidance, now known as the
Employee Share Scheme Benefit Public Ruling No. 11/2012 ("2012 Public
Ruling") which is effective from 13th December 2012. As such, the 2004
Public Ruling is no longer relevant.

Employee Share Scheme Benefit Public Ruling No.

11/2012
The 2012 Public Ruling explains the tax treatment in respect of a benefit
arising from an employee share scheme, and the corresponding obligations
on both the employee and employer. Set out below are the main elements of
the 2012 Public Ruling and a brief comparison of its contents against the 2004
Public Ruling.

1. Market Value of Shares

The new Public Ruling extends the definition of "shares" to include
treasury shares in the company itself, a holding company or its
subsidiaries. Under the 2012 Public Ruling, the market value of the
shares of a listed company and unlisted company are clarified in
greater detail.

2. Tax Treatment on Benefit Arising from a Share Scheme

The 2012 Public ruling also clarifies the tax treatment of taxable
benefits arising from a share scheme and the method of calculating
the taxable benefit. It also makes clear the tax treatment that is to be
accorded to cash payments in lieu of the right to acquire shares.

3. No Deductions Allowed For Expenses Related to Newly

Issued Shares
The 2012 Public Ruling has clarified that no deductions are allowed
for expenses incurred in relation to the issuance of new shares. This
is because such expenses are not wholly and exclusively incurred in
the production of income for the company.

Client Alert

4. Employee's and Employer's Obligations

There are significant changes introduced in respect of employee and
employer obligations for the notification of benefits received under a
share scheme. The employee is now subject to more stringent
reporting requirements. On the other hand, notwithstanding the
liberalization in the amount of documents required to be submitted by
an employer, the employer is now subject to more stringent retention
requirements for possible audits.

Share Schemes Benefit For Cross Border Employees

Public Ruling No. 12/2012
www.wongpartners.com

For further information please

contact
Adeline Wong
Partner
+603 2298 7880
adeline.wong@wongpartners.com
Chong Mun Yew
Senior Associate
+603 2298 7936
munyew.chong@wongpartners.com
Krystal Ng
Associate
+603 2298 7937
krystal.ng@wongpartners.com

Separately, the IRB has also issued another public ruling to discuss
obligations in respect of share scheme benefits for cross border employees.
This ruling is relevant to employees in Malaysia who are seconded to work
overseas, and foreign national employees who are seconded to Malaysia.
According to this ruling, benefits arising from employee share schemes will be
subject to Malaysian tax in proportion to the number of days that the
employee has worked in Malaysia.

Effect of the Public Rulings

In summation, while the 2012 Public Ruling has provided more clarification
and information in respect of filing obligations and has to a certain extent
reduced some of the filing obligations, the onus still remains on the employer
to maintain a meticulous and accurate records for possible audits. In recent
years, the IRB have taken an aggressive approach to conducting audits and
therefore it is crucial for the necessary steps to be taken for employers to be
audit prepared.

Istee Cheah
Associate
+603 2298 7864
istee.cheah@wongpartners.com
Level 21,
The Gardens South Tower,
Mid Valley City,
Lingkaran Syed Putra,
59200 Kuala Lumpur

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Employee Share Scheme Benefit Public Ruling No. 11 & 12 /2012 January 2013