The Tax Development For The Limited Liability Partnership (LLP)

Even though, Limited Liability Partnership (LLP) is well received by Malaysian Small and Medium Enterprise, However, not much article has been published pertaining the recent update of such business entity. Therefore, we shall highlight the development of the latest budget that affected the taxation of the LLP.

First of all, what is a Limited Liability Partnership? The LLP business structure is designed for all lawful business purposes with a view to make profit. LLP may also be formed by professionals such as Lawyers, Chartered Accountants and Company Secretaries for the purpose of carrying on their professional practice. The LLP concept will also support start ups, small and medium enterprises (SMEs) to grow their businesses without having to worry too much on their personal liabilities, personal assets and strict compliance requirements.

Budget 2014

1) The Capital Allowance

The company and conventional partnership may convert into the LLP. The definition of the conversion would be a transfer of the properties, interest, rights, privileges, liabilities, obligation and the undertaking of the conventional partnership or company to the newly form LLP. What happens to the asset of the former entity if the conversion taken place? Pursuant to the Budget 2014, the former entity may control transfer all the asset to the newly formed LLP. If the former entity has been claimed the capital allowance (CA) for such an asset, then the newly formed entity is not entitled to claim. This is to avoid the same asset being claiming the capital allowance twice.

2) The Basis Period

With effect from YA 2014, if the LLP commences an operation on a day in a basis year for a first year of assessment (YA), then the following scenario may apply.

No.

Description

Example

(a)

A period less than 12 months ending on a day in the basis year, that basis period shall constitute the basis period for the first YA.

Commence operation : 1/3/2013

Accounting year end : 30/09/2013

The basis period : 1/3/2013 – 30/09/2013

(b)

Any period ending on a day in the second basis year, the basis period shall constitute the period immediately the second YA. (No basis period for the first YA).

Commence operation : 1/3/2013

Accounting year end : 30/06/2014 (Thereafter to 30 June each year)

The basis period : 1/3/2013 – 30/04/2014

(c)

If a period more than 12 months ending on a day in the basis year immediately following the second basis year, the basis period shall constitute the basis period for the YA immediately the third YA. (No basis period for the second YA).

Commence operation : 1/12/2013

Accounting year end : 31/03/2015 (More than 12 months and thereafter to 31 March each year)

The basis period : 1/12/2013 – 31/03/2015

Budget 2015

3) The Tax Treatment

The conversion on 30/09/2013, prior the conversion the following scenario will be applied.

No.

Description

The details

(a)

Individual partner submits a Form B

Conventional Partnership submits a Form P

Every partner of a conventional partnership shall personally assess and continue to tax on his chargeable income for the YA in which the conversion occurred and any previous YA before the conversion.

(b)

·The company submits a Form PT

The LLP shall be assessed tax on the chargeable income of the converting company, in which the conversion occurred and any previous YA before the conversion.

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