The Implementation of the Limited Liability Partnership in Malaysia


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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.

Table 2 summarises several key differences among the 3 business vehicles.

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.

For some FAQs on the limited liability partnership, please visit the Companies Commission of Malaysia’s website: http://www.ssm.com.my.

To revisit the other business vehicles available to business owners, please see Choice of Business Structures for the Business Owner.

About Richard

Richard Oon Hock Chye has more than 25 years of experience in taxation and business advice, with particular expertise in Malaysian property law. He began his taxation career with Deloitte Touche Tohmatsu, a ‛Big Four’ accounting firm, before starting his own practice, ConsulNet Tax Services Sdn. Bhd., in 1996. He is currently the National Tax Director of TY Teoh International, one of the leading consulting service providers in Malaysia. It is a member of the MSI Global Alliance, a global network of more than 250 independent legal and accounting firms, in over 100 countries. Richard sits on the board of two companies listed on the Main Board of Bursa Malaysia, as an independent non-executive director. He is also a regular contributor to several magazines and publications, and has shared his tax expertise on numerous occasions with organisations and property developers. As well as being a member of the Malaysian Institute of Accountants (MIA), Richard is a fellow member of both the Association of Chartered Certified Accountants (ACCA) and the Chartered Tax Institute of Malaysia (CTIM). He is a Certified Financial Planner (CFP) and holds a tax agent licence issued by the Ministry of Finance. Richard is also the author of the book, ‘Every Property Investor’s Guide To How To Pay Less Tax Legally’.

4 thoughts on “The Implementation of the Limited Liability Partnership in Malaysia

  1. Hi Sir,
    good post.I have a question , what is the role of compliance officer?
    then..if buying property, what to replace BOD resolution?

    • The statutory duties of a compliance officer are to:

      • Register any changes in registered particulars of the LLP;
      • Keep and maintain registers and records of the LLP;
      • Ensuring publication of names of the LLP.

      Failure to observe the statutory duties conferred will render the compliance officer personally liable for the contravention of the statutory duties unless the court is satisfied that he is not so liable

      The minutes of meeting among the partners or a circular resolution of the partners to approve the purchase of a property, would suffice.

  2. What about the spending/expense/expenditure/deductible such as mileage, vehicle maintenance, entertainment, etc for LLP compare to Partnership and Company? Unable to find any article with respect to that?

    Also the 26% tax on salary of the LLP partner, what if the partners are actually Company (Sdn Bhd) from joint venture?

    Thanks very much first.

    • The basic ‘wholly and exclusively’ law applies to the claiming of expense against the income of a LLP. Essentially, as a LLP is a separate legal entity similar to a company, assuming both the LLP and company are doing the same kind of business and incurring the same kind of expenses, a LLP will be entitled to claim the expenses similar to a company.

      The company will have to designate a director/person to act in the capacity of the legal representative of the company in the LLP. The tax on the salary of the person designated by the company drawn from the LLP, will be taxed in that person’s personal capacity.

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