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Applying Tax Codes for Purchases

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Applying Tax Codes for Purchases

Post by joseph on Tue Nov 25, 2014 11:19 am



Note

  1. Incidental Exempt Supply refers to financial services (please refer GST (Exempt Supply) Order 2014) provided by a business other than financial institutions.
  2. Non-incidental Exempt Supply refers to exempt supply other than Incidental Exempt Supply.
  3. For a property developer, sale of commercial properties is Taxable Supply, sale of residential units is Exempt Supply, while provision of loans to a related company is Incidental Exempt Supply.
  4. For a commercial bank, provision of loans is Exempt Supply, fee-based services such as loan processing is Taxable Supply. It has no Incidental Exempt Supply as provision of financial services is its core activity.
  5. Transactions under Tax Code EP refers to exempt supply from third parties, e.g. loan interest payable to banks or purchase of residential properties from a property developer.
  6. Importation of Services - no Tax Invoice, account for Output Tax using reverse charge mechanism. Same amount can be claimed back as Input Tax if attributable to Taxable Supply and not blocked. If
    attributable to both Taxable & Exempt Supply, do apportionment of the residual Input Tax.
  7. No GST will be levied if goods imported are exempted or zero-rated.
  8. GST on imported goods will be collected together with import duty and excise duty. GST on imported services is payable when the supply is paid by the recipient - account for it in GST-03 Form in the month payment is made.
  9. Tax codes for transactions in Debit/Credit Notes - to follow original Tax Codes in Tax Invoices.
  10. Supplier invoices not paid after 6 months - pay back Input Tax (previously claimed) as Output Tax. On subsequent payment to supplier, claim as Input Tax Credit.


Last edited by joseph on Fri Apr 03, 2015 5:20 pm; edited 1 time in total

joseph

Posts : 277
Join date : 2014-09-25

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Re: Applying Tax Codes for Purchases

Post by joseph on Tue Feb 10, 2015 10:23 am


Clarifications to the flowchart:

A) Tax Code for Standard-Rated Purchases/Acquisitions

1) Tax code for purchases attributable to making of own taxable supply is TX.
2) Tax code for purchases attributable to making of own incidental exempt supply is TX-E43.
3) Tax code for purchases attributable to making of own non-incidental exempt supply is TX-N43.
4) Tax code for purchases not directly attributable to either taxable or exempt supplies is TX-RE (for the recoverable portion).
5) Tax code for purchases relating to exempt supply from third parties is EP.

Note
a) Customs’ explanatory notes of the above tax codes are ambiguous. Singapore Tax Code explanation is much clearer (copies attached here).
b) Customs Malaysia copied the recommended tax codes used by IRAS (Inland Revenue Authority of Singapore).
c) Singapore’s equivalent tax codes for TX, TX-E43 and TX-N43 are TX7, TX-E33 and TX-N33 respectively.

B) Exempt supply: incidental & non-incidental

1) The only incidental exempt supply under our Malaysia GST regime is the incidental exempt financial supply, which is the provision of financial services by a non-financial institution – please refer to Regulations 40 & 41 of the GST Regulations 2014 (a copy attached here).
2) Exempt supply which is not incidental exempt supply is non-incidental exempt supply.
Note: We don’t normally call exempt supply as non-incidental exempt supply. We use this term here for tax code explanation purpose only (to differentiate it from incidental exempt supply).
3) For a full listing of exempt supply, please refer to GST (Exempt Supply) Order 2014 (a copy attached here).

C) Tax Code for Supplies

1) Tax code for standard-rated taxable supply is SR.
2) Tax code for incidental exempt supply (financial services provided by non-financial institution) is ES43.
3) Tax code for non-incidental exempt supply is ES.
4) Tax code for financial services provided by financial institution is ES, not ES43 because the provision of financial services is its core business activity.

D) Take a property developer who is a mixed supplier as an example

1) Sale of commercial properties is a standard-rated taxable supply
- Tax code for this supply (sale) is SR
- Purchases attributable to making this supply (sale) is TX
e.g. of purchases/expenses: architect’s fee on certifying the completion status of the commercial properties

2) Sale of residential properties is an exempt supply (non-incidental exempt supply, to use the term here)
- Tax code for this supply is ES
- Purchases attributable to making this supply is TX-N43
e.g. of purchases/expenses: legal fees in drawing up the S&P agreement on the sale of the residential properties

3) If the developer make a loan to a related company or its staff, the provision of the loan is an incidental exempt supply (financial services provided by a non-financial institution)
- No tax code is required for the loan made to the related company or its staff
- Tax code for loan interest income receivable from the related company or its staff is ES43
- Tax code for purchases attributable to making this supply is TX-E43
e.g. of purchases/expenses: legal fees in drawing up the loan agreement

Note
a) The core business of a property developer is to build and sell properties.
b) The provision of inter-company loan or loan to its staff is incidental, not its main business activity.
c) The developer may decide to give out the inter-company loan or deposit it in a bank to earn interest because it has excess funds.

4) If the developer received a loan from a bank/related company
- No tax code is required for the loan obtained from the bank/related company
- Tax code for loan interest payable to the bank/related company is EP

5) If the developer rented a house for its staff for their accommodation
- Tax code for rental payable for the staff quarter is EP
(note: sale/rental of residential property is an exempt supply)

6) The developer will incur expenses/overheads which are not directly attributable to either the taxable supply or exempt supply, e.g. office rental and utilities.
The input tax incurred for these expenses is called Residual Input Tax.
Only the proportion of residual input tax that is attributable to taxable supply is recoverable (claimable) by the developer.
The standard method for computing the proportion of the residual input tax claim is the turnover method.
- Tax code for recoverable (claimable) portion of this residual input tax is TX-RE

_________________


DISCLAIMER:
Any opinion expressed is strictly my personal view based on my understanding and interpretation of the GST Act 2014, Regulations, Orders, DG's Panel Decisions and Customs' Guides. You should seek advice from experts and/or the Customs Dept if the subject matter is significant to your business.

joseph

Posts : 277
Join date : 2014-09-25

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Re: Applying Tax Codes for Purchases

Post by joseph on Fri Feb 13, 2015 10:33 pm


_________________


DISCLAIMER:
Any opinion expressed is strictly my personal view based on my understanding and interpretation of the GST Act 2014, Regulations, Orders, DG's Panel Decisions and Customs' Guides. You should seek advice from experts and/or the Customs Dept if the subject matter is significant to your business.

joseph

Posts : 277
Join date : 2014-09-25

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Double entry for Import of good / service

Post by dannyng on Tue Apr 28, 2015 12:26 pm

Appreciate if anyone can advise on the double entry for importation of goods, ie upon receiving oversea vendor's invoice, upon receive K1 form from Custom or forwarder.
Also on the entry for service provide by oversea vendors.

Thank you.

dannyng

Posts : 1
Join date : 2015-04-28

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Re: Applying Tax Codes for Purchases

Post by justin.yeo1791 on Fri May 22, 2015 9:21 am

How do i do correction on accounting entry if i have selected wrong tax code? and posted to GL. issue cn/dn or use jv?? this will affect the GAF file.

justin.yeo1791

Posts : 1
Join date : 2015-05-22

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Re: Applying Tax Codes for Purchases

Post by joseph on Fri May 22, 2015 11:57 am

Check with your accounting software vendor.

_________________


DISCLAIMER:
Any opinion expressed is strictly my personal view based on my understanding and interpretation of the GST Act 2014, Regulations, Orders, DG's Panel Decisions and Customs' Guides. You should seek advice from experts and/or the Customs Dept if the subject matter is significant to your business.

joseph

Posts : 277
Join date : 2014-09-25

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Re: Applying Tax Codes for Purchases

Post by hw on Tue Jun 02, 2015 1:51 pm

Based on your explanation above, rental of residential properties for staff accommodation from registered supplier is EP.

What if the rented premises is a shoplot for staff accommodation? Shoplot is commercial, can we claim input tax on this? May I know the tax code for this.

If the properties is not from registered supplier, can I reconfirm the tax code; is it NR?

Thanks and regards

hw

Posts : 2
Join date : 2015-06-01

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Re: Applying Tax Codes for Purchases

Post by joseph on Tue Jun 02, 2015 2:15 pm

Yes, you can claim.
Yes, NR.


_________________


DISCLAIMER:
Any opinion expressed is strictly my personal view based on my understanding and interpretation of the GST Act 2014, Regulations, Orders, DG's Panel Decisions and Customs' Guides. You should seek advice from experts and/or the Customs Dept if the subject matter is significant to your business.

joseph

Posts : 277
Join date : 2014-09-25

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Re: Applying Tax Codes for Purchases

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