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As digital platforms progress and mature, individuals can monetise almost anything they set their mind on e.g. blogging, vlogging, online tutorials, personal shopping, driving, moving, virtual consulting, and so on. Having an offline or online business is suddenly the dream of many millennials, especially due to its glamour, perceived freedom, and ‘unlimited salary increments’.
Having side gigs, or making it big in business may generate a lucrative income for you regardless if it is your main income source, or just one of many side incomes you have; but always remember that all gains or profits generated through employment, business, trade, vocation or profession are liable to tax.
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Why Register a Sole Proprietorship or Partnership?
You have decided to set up a business on your own or with partners to generate the following sources of business income:
The easiest way to start your business is to set up a sole proprietorship (if you are on your own) or a partnership (if you have one or more partners joining you). Registering your business is important for the following reasons:
| 1. | Set up a business profile which customers can access via the Companies Commission of Malaysia (CCM, a.k.a. SSM) website |
| 2. | Instil customer/client confidence in your business |
| 3. | Allow business losses and expenses to be deducted against business income |
| 4. | Reduce chargeable income and tax payable |
| 5. | For partnerships, income is distributed to partners for individual tax computation |
Sole Proprietorship / Partnership vs. Company
While registered companies are subject to corporate tax, other types of businesses such as sole proprietorships and partnerships are also liable to income tax.
Sole proprietorships and partnerships are the easiest forms of business to be registered, hence the most popular forms of business. However, the sole proprietor or partner will be personally liable for their business income and losses, and their tax filings are computed into their individual income tax.
| Sole Proprietorship | Partnership | Company | |
| Tax Form | Form B | Form P | Form C |
| Tax Treatment | Individual Business Income | Individual Business Income | Corporate Tax |
| Tax Deduction / Exemption | Individual Tax Relief and Business Expenses | Individual Tax Relief and Business Expenses | Business Expenses |
| Deadline | 30 June | 30 June | Within 7 months after financial year end |
If you own a registered company and are interested to learn in detail about corporate tax, please click here to access an earlier article we have published on corporate tax.
What if you do not have a registered business, but you do freelancing to generate multiple side income? What happens to the income you generate from being a part-time Grab driver? You might think to yourself… This income has nothing to do with my employment or a business, so do I still need to pay tax? The answer is… yes, and we have also discussed about it in this article.
Income Tax Filing for Sole Proprietors
Income tax filing for sole proprietors is straightforward. Instead of filing Form BE, which is filed by individuals under employment or having non-business income, sole proprietors file Form B before 30 June on a yearly basis.
In the process of filing Form B, a sole proprietor needs to prepare various information to determine the chargeable income and tax payable i.e.
| 1. | Statutory income from all businesses and partnerships |
| 2. | Business losses brought forward |
| 3. | Statutory income from employment |
| 4. | Statutory income from rents |
| 5. | Statutory income from interest, discounts, royalties, premiums, pensions, annuities, other periodical payments, other gains or profits |
| 6. | Aggregate income (Statutory income from all businesses and partnerships – business loss brought forward + Statutory income from employment, rents, interest, discounts etc.) |
| 7. | Current year business loss |
| 8. | Allowable expenses |
| 9. | Approved donations |
| 10. | Total relief |
| 11. | Capital allowances of business and partnership carried forward |
| 11. | Trading, profit and loss account |
| 12. | Balance sheet |
Approved Donations
| Gift of money to the Government / State Government / local authority | |
| Gift of money to approved institutions / organisations / funds | Restricted to 7% of aggregate income |
| Gift of money for any sports activity approved by Minister of Finance | |
| Gift of money or cost of contribution in kind for any project of national interest approved by the Minister of Finance | |
| Gift of artefacts, manuscripts or paintings | Value to be determined by the Department of Museums Malaysia or National Archives |
| Gift of money for the provision of library facilities or to libraries | Restricted to RM20,000 |
| Gift of money or contribution in kind for the provision of facilities in public places for the benefit of disabled persons | |
| Gift of money or medical equipment to any healthcare facility approved by the Ministry of Health | Restricted to RM20,000 |
| Gift of paintings to the National Art Gallery or any state art gallery | Value to be determined by the National Art Gallery or state art gallery |
Allowable Expenses
| Loan interest |
| Salaries and wages |
| Rental / lease |
| Contracts and subcontracts |
| Commissions |
| Bad debts |
| Travelling and transport |
| Repairs and maintenance |
| Promotion and advertisement |
| Other expenses (E.g. Fire insurance, burglary insurance) |
Personal Reliefs
A sole proprietor or a partner in a partnership are also entitled to personal reliefs same as employed individuals. However, business-related deductions and personal reliefs must be separated and must be claimed in its rightful category e.g. mobile phone purchased for own use to be claimed under personal lifestyle (restricted to RM2,500) and not under business expense.
After deducting all business losses, allowable expenses, approved donations and personal reliefs, a chargeable income is obtained. Based on the chargeable income, tax rate of 0% to 28% is applied.
| CATEGORY | RANGE OF CHARGEABLE INCOME(RM) | COMPUTATION (RM) | RATE (%) | TAX (RM) |
| A | 0 – 5,000 | First 5,000 | 0 | 0 |
| B | 5001 – 20,000 | First 5,000 Next 15,000 | 1 | 0 150 |
| C | 20,001 – 35,000 | First 20,000 Next 15,000 | 3 | 150 450 |
| D | 35,001 – 50,000 | First 35,000 Next 15,000 | 8 | 600 1,200 |
| E | 50,001 – 70,000 | First 50,000 Next 20,000 | 14 | 1,800 2,800 |
| F | 70,001 – 100,000 | First 70,000 Next 30,000 | 21 | 4,600 6,300 |
| G | 100,001 – 250,000 | First 100,000 Next 150,000 | 24 | 10,900 36,000 |
| H | 250,001 – 400,000 | First 250,000 Next 150,000 | 24.5 | 46,900 36,750 |
| I | 400,001 – 600,000 | First 400,000 Next 200,00 | 25 | 83,650 50,000 |
| J | 600,001 – 1,000,000 | First 600,000 Next 400,000 | 26 | 133,650 104,000 |
| K | Exceeding 1,000,000 | First 1,000,000 For every next ringgit | 28 | 237,650 ………… |
Source: LHDN
All business records, expenses, receipts for personal reliefs will have to be kept for audit purposes for a period of 7 years.
Income Tax Filing for Partnerships
If you are part of a partnership business, your partnership income will be stated on Form CP30 which is issued by the precedent partner to all partners. Before Form CP30 can be issued, Form P will have to be filed by the precedent partner.
The precedent partner is the first partner named in a partnership agreement, or in the absence of a precedent partner, one that is appointed by other partners as the precedent.
The precedent partner is responsible to file Form P to declare all income, losses, expenses, profit, loss, and assets, based on the profit and loss account, and balance sheet of the partnership business. As is normal practice, all business records must be kept for a period of 7 years for audit purposes. After Form P is completed, Form CP30 is issued which indicates the apportionment of partnership income or loss to each partner.
Once a partner receives Form CP30, they will declare the partnership income and loss that is stated on their Form CP30 onto their Form B.
Importance of Business Accounting
Now that we have gone through the process of tax filing for sole proprietorship and partnerships, you will acknowledge that business accounting is important to allow each business owner to declare all financial particulars of their business correctly. This is the reason why accounts assistants are hired.
Since the profit and loss account and balance sheet are also required to be kept for 7 years, it becomes doubly important for accounts to be well-prepared, reflect actual business record, and properly stored for easy access. If you are a business owner with accounting knowledge, all these problems can be easily solved on your own at the expense of your time. But what if you have just started out, have no accounting knowledge, and would like to ensure tax compliance but keep business expenses to a minimum?
If hiring a junior accounts assistant costs at least RM1,500 a month on top of ongoing expenses, you will be wondering if there is any possibility to save on salary expenses, but still able to properly maintain business bookkeeping. The good news is, Biztory has the perfect solution for you!
Biztory Cloud Accounting Software
Biztory is a seamless and user-friendly cloud accounting software that is designed for business owners who are not tech-savvy and have no accounting knowledge. It is a smart accounting system that can assist every business owner with the following tasks:
| Billing and invoicing |
| Cashflow management |
| Purchasing and Inventory management |
| Business performance monitoring |
| Real-time data analytics |
| Report generation (includes financial statements, trial balance, profit & loss account, balance sheet etc.) |
| Records keeping |
Not only can Biztory assist you with the above tasks, it also allows you ease of access and cloud data storage all within an app. Having accounting knowledge is no longer necessary as you allow Biztory to automate all accounting-related tasks and generate important reports for your monitoring. There is no need to spend on an additional headcount, and cost is significantly reduced as Biztory also has different subscription plans to cater to different business sizes.
Even if you have accounting knowledge, and can easily take over the bookkeeping needs of your business, why waste your time on bookkeeping when you can use your precious time to think up better ways to improve your business and generate more profits?
Investing in Biztory will be one of the best decisions you can make for you and your business. Don’t believe us? Give us a try with our 30-day free trial and we guarantee you will never go back to traditional accounting again.
Disclaimer: While Biztory is a cloud accounting software provider, we are not certified tax advisors and we strongly encourage you to seek advice from a certified accountant or tax agent if you have queries on in-depth tax-related matters. Biztory collaborates with RW William for our accounting-related queries and have also incorporated their services into our software for the benefit of our clients.