Continuation from Introducing the Limited Liability Partnership
The Limited Liability Partnerships (LLP)s have been practiced in many countries such as the United Kingdom, United States, Singapore, China, Japan and even India, so naturally many wondered when the LLP laws will come to our Malaysian shores.
That day arrived when the Limited Liability Partnerships Act 2012 (“LLPA 2012″) became law when it was gazetted on 9 February 2012. Though the LLP had arrived in Malaysia then, it essentially had not set foot on our shores yet as the LLPA 2012 has yet to be implemented while waiting for the tax laws governing the taxability of a LLP to be in place.
The recent Budget 2013 addressed that issue and proposed amendments to the income tax laws to treat the tax status of a LLP similar to that of a company under the Companies Act, 1965. With the tax laws now in place, it is anticipated that the LLPA 2012 will be implemented beginning of next year.
So this means that effective 2013, business owners will have a choice of 3 different business vehicles to organize their business from, ie. a sole-proprietorship or partnership (“Enterprise”), a company or a LLP.
Similar to a company, as a LLP is a separate legal entity, it offers various tax planning opportunities to the small business owner. The partners of the LLP will be taxed on the salary that they draw based on the individual scaled-rates from 0% to 26% while the remaining profits in the LLP is taxed at 20% for the first RM500,000 of chargeable income (where capital contribution of the LLP does not exceed RM2.5 million). The partners can now also choose to contribute to the Employees’ Provident Fund (EPF) and enjoy tax deductions for both the employer and employee contributions. This benefit is not available for the sole-proprietorship or conventional partnership.
The business community awaits the implementation of the LLP with much anticipation as it provides an alternative business vehicle for the business owners that complement the available traditional choices of business vehicles. The LLP lowers the costs of running a business and at the same time, offers greater protection against personal liability for the partners.
With the introduction of the LLP, the business framework in Malaysia will provide greater flexibility and freedom to business owners to select the business model that best suits the needs and requirements of their businesses.
Click here to download the Limited Liability Partnerships Act 2012.
To revisit the other business vehicles available to business owners, please see Choice of Business Structures for the Business Owner.