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INLAND REVENUE BOARD OF MALAYSIATAXATION OFLIMITED LIABILITY PARTNERSHIPPUBLIC RULING NO. 3/2014Translation from the original Bahasa Malaysia textDATE OF PUBLICATION: 9 MAY 2014

TAXATION OFLIMITED LIABILITY PARTNERSHIPINLAND REVENUE BOARD OF MALAYSIAPublished byInland Revenue Board of MalaysiaPublished on 9 May 2014First edition on 9 May 2014 Inland Revenue Board of MalaysiaAll rights reserved on this Public Ruling.One print or electronic copy may be madefor personal use. Professional firms andassociations are permitted to use thePublic Ruling for training purposes only.Systemicormultiplereproduction,distribution to multiple location viaelectronic or other means, duplication ofany material in this Public Ruling for a feeor commercial purposes, or modificationof the content of the Public Ruling areprohibited.Public Ruling No. 3/2014Date of Publication: 9 May 2014

TAXATION OFLIMITED LIABILITY PARTNERSHIPINLAND REVENUE BOARD OF MALAYSIAPublic Ruling No. 3/2014Date of Publication: 9 May 2014CONTENTSPAGE1.Objective12.Relevant Provisions Of The Law13.Interpretation14.Limited Liability Partnership15.Partners’ Contribution Of Capital46.Distinction Between A Limited Liability Partnership, A PartnershipAnd A Company.57.Compliance Officer Of A Limited Liability Partnership68.Conversion Of A Conventional Partnership Or A Company To ALimited Liability Partnership69.Change Of Partners In A Limited Liability Partnership710Tax Treatment Of A Limited Liability Partnership711. Tax Treatment Of Partners Of A Limited Liability Partnership1712. Bilateral Credit And Unilateral Credit17DIRECTOR GENERAL'S PUBLIC RULINGSection 138A of the Income Tax Act 1967 [ITA] provides that the Director Generalis empowered to make a public ruling in relation to the application of any provisionsof the ITA.A public ruling is published as a guide for the public and officers of the InlandRevenue Board of Malaysia. It sets out the interpretation of the Director General ofInland Revenue in respect of the particular tax law and the policy as well as theprocedure applicable to it.The Director General may withdraw either wholly or in part, by notice of withdrawalor by publication of a new ruling.Director General of Inland Revenue,Inland Revenue Board of Malaysia.

TAXATION OFLIMITED LIABILITY PARTNERSHIPINLAND REVENUE BOARD OF MALAYSIA1.Public Ruling No. 3/2014Date of Publication: 9 May 2014ObjectiveThe objective of this Public Ruling (PR) is to explain the tax treatment of a LimitedLiability Partnership.2.3.Relevant Provisions Of The Law2.1This PR takes into account laws which are in force as at the date this PR ispublished.2.2The provisions of the Income Tax Act 1967 (ITA) related to this PR aresection 2, paragraphs 8(1A)(a) and (b), section 21A, paragraph 39(1)(n),subsection 44(5E), sections 75B and 77A, paragraph 103(12)(a), section107C, paragraphs 2(f), 2D, 2E, 2F of Part 1 Schedule 1, paragraphs 38B,75AA and 76A of Schedule 3, and paragraph 12C of Schedule 6.InterpretationThe words used in this PR have the following meaning:4.3.1“Body of person” means an unincorporated body of persons (not being acompany) including a co-operative society, association, trust and Hindu JointFamily but excluding a partnership.3.2“Limited Liability Partnership” (LLP) means a limited liability partnershipregistered under the Limited Liability Partnerships Act (LLPA) 2012.3.3“Partnership” means an association of any kind (including joint adventures,syndicates and cases where a party to the association is itself a partnership)between parties who have agreed to combine any of their rights, powers,property, labour or skill for the purpose of carrying on a business and sharingthe profits therefrom, but excludes a Hindu Joint Family although such afamily may be a partner in a partnership, a limited liability partnership and anyassociations which is established pursuant to a scheme of financing inaccordance with the principles of Syariah.3.4“Person” includes a company, a body of persons, a limited liability partnershipand a corporation sole.Limited Liability Partnership4.1Formation of an LLP(a)An LLP is a body corporate under the LLPA 2012 and has been definedunder section 2 of the ITA. An LLP is an alternative business form thatis introduced by the Companies Commission of Malaysia (CCM) toprovide options to businesses and entreprenuers to carry out theirbusiness operations to be more competitive. An LLP has hybrid featuresPage 1 of 18

TAXATION OFLIMITED LIABILITY PARTNERSHIPINLAND REVENUE BOARD OF MALAYSIAPublic Ruling No. 3/2014Date of Publication: 9 May 2014of a company and a partnership that provides limited liability to itspartners.(b)4.2An LLP or a foreign LLP that is registered under the LLPA 2012 witheffect from 26 December 2012 should end with the abbreviation ‘PLT’after the partnership’s name. An LLP is governed by a different set oflaws and is a separate legal entity capable of :(i)suing or being sued;(ii)acquiring, owning, holding and developing or disposing ofproperties; and(iii)doing and responsible for such other acts as a body corporate maylawfully do.LLP Agreement(a)The mutual rights and duties of the partners of an LLP, and the mutualrights and duties of the LLP and its partners are governed by the LLPagreement as set out in section 9 of the LLPA 2012.(b)An LLP agreement shall consist of the following particulars:(i)the name of the LLP;(ii)the nature of business of the LLP;(iii)the partners of the conventional partnership have agreed tobecome partners of the LLP;(iv) the amount of capital contribution by each partner; and(v)4.3remuneration or similar payment to each partner.Number of PartnersAn LLP has a minimum of two partners and may have unlimited number ofpartners within any period of time. An LLP may carry on business with fewerthan two partners for a period not exceeding six months or a longer period asmay be determined by the Registrar.4.4Preparation of financial statement(a)An LLP is not required to prepare audited financial statement by anauditor but needs to keep proper and sufficient accounting and otherrecords to indicate the true financial position.Page 2 of 18

TAXATION OFLIMITED LIABILITY PARTNERSHIPINLAND REVENUE BOARD OF MALAYSIA(b)Public Ruling No. 3/2014Date of Publication: 9 May 2014For income tax purposes, an LLP is required to prepare completeaccounting records containing the profit and loss account, balancesheet and explanatory notes to the accounts. However, if the accountingrecords are not prepared according to normal accounting format, theLLP shall keep the following records:(i)information on income(ii)information on expenditure(iii)list of debtors and creditors/ liabilities(iv) list of all assets (current and fixed)(v)percentage of capital contribution by each partner(vi) explanatory notes to items (i) to (v)(vii) other supporting documents to prove the business transactions.4.5Determining the residence status of an LLPAn LLP is required to meet certain criteria in order to be deemed as residentin Malaysia. Subsection 8(1A) ITA is the provision for determining theresidence status of an LLP.(a)An LLP that carries on a businessAn LLP carrying on a business under paragraph 8(1A)(a) ITA isresident in Malaysia for the basis year for a year of assessment (YA) ifat any time during that basis year the management and control of itsbusiness or any one of its businesses are exercised in Malaysia.(b)Other LLPsIn accordance with paragraph 8(1A)(b) ITA, any other LLP is resident inMalaysia for the basis year for a year of assessment if at any timeduring that basis year the management and control of its affairs areexercised in Malaysia by its partners.(c)Residence status of a foreign LLP in MalaysiaA foreign LLP that expands its business activities to Malaysia mustregister with the CCM under the LLPA 2012. The residence status of aforeign LLP is determined by paragraph 8(1A)(a) and 8(1A)(b) ITA.(d)Management and control(i)Management and control are the key factors used to determine theresidence status of an LLP in Malaysia. Management and controlPage 3 of 18

TAXATION OFLIMITED LIABILITY PARTNERSHIPINLAND REVENUE BOARD OF MALAYSIAPublic Ruling No. 3/2014Date of Publication: 9 May 2014refer to the authority in deciding policies to be followed by an LLP.Management and control are considered exercised in the placewhere the partners met to discuss management of the business oraffair of the LLP.If at any time in the basis year for a year of assessment, at leastone partners’ meeting is held in Malaysia in relation to themanagement and control of the LLP, the LLP is deemed residentin Malaysia for the basis year (even though all the other meetingsare held outside Malaysia).Pursuant to subsection 46(1) LLPA 2012, a foreign LLP is requiredto appoint at least one compliance officer from amongst thepartners or any partner qualified to act as a secretary under theCompanies Act 1965. The person has to be a citizen or apermanent resident in Malaysia and usually resides in Malaysia.(ii)(iii)5.The location of trading activity or physical operations is notnecessary the place of management and control. An LLP thatcarries on trading activity in Malaysia is not resident in Malaysia if itis found that: commercial activities such as manufacturing or production andsales are controlled from overseas; and partners’ meetings, during which all important businessdecisions are made, are also held overseas.The appointment of local compliance officers in Malaysia does notdetermine the residence status of an LLP. If the authority ofcontrol is exercised by a compliance officer who is at theheadquarters abroad, the LLP is not resident in Malaysia.Partners’ Contribution Of Capital5.1Capital contributions by the partners can be in cash and in kind (such asassets, etc.) but do not include partner’s loans to the LLP.5.2In the case of a partner’s capital contribution to be made by instalments tothe LLP, only the actual amount contributed as capital is taken into accountas part of the capital. Total amount agreed but not yet contributed cannot beconsidered as part of the capital.5.3In the case of capital contribution made in kind, the amount of contribution isthe market value of the asset.5.4The amount and method of capital contribution of each partner must bedocumented in the LLP agreement.Page 4 of 18

TAXATION OFLIMITED LIABILITY PARTNERSHIPINLAND REVENUE BOARD OF MALAYSIA6.Public Ruling No. 3/2014Date of Publication: 9 May 2014Distinction Between A Limited Liability Partnership, A Partnership And ACompanyIn general, the differences between a LLP, a partnership and a company are asfollows:FeaturesLLPPartnershipCompanyLimited liabilityYesNo (Partnersjointly andseverally liable)YesLegal entityYesNoYesPerpetual successionYesNoYesAccording to theagreementAccording to theagreementSubscriptionto shares222Capital erofofPrivateLimited - 50No limit20All members participatein managementAccording to theagreementAccording to theagreementStandard set of internalmanagement rulesAccording to theagreementAccording to the Provided byagreementtheCompaniesAct and / orMemorandumof AssociationLimited - NolimitBoard ofDirectorsAccess to financePartners’investment andborrowingsPartners’investment andborrowingsShareholdersand access tocapitalmarketsReturnsShare of profitsShare of profitsDividendsYesYesDissolution by court orderYesPage 5 of 18