The year 2016 saw the revamp of the business practice of medical profession. There are news spreading that the Inland Revenue Board of Malaysia (IRB) has issued a letter to the Malaysian Medical Association (MMA) sometime this month giving directions to advise medical doctors to file their taxes under sole proprietorship.

This article attempts to clarify and provide guidance for the medical doctors to be aware of the various income tax and Goods and Services Tax (GST) implications.

With the letter from the IRB, it would mean that medical doctors have to adhere to the direction starting year of assessment (YA) 2016.

The existing Sdn Bhd companies have to cease to file their business income with immediate effect. This would effectively mean that a sole proprietor business needs to be registered with the Companies Commission Malaysia (CCM), a bank account needs to be opened and invoices billed using the new sole proprietorship.

For medical doctors in private practice who are providing consultancy to the private hospitals, this is a taxable supply and requires the sole proprietorship business to register for GST purposes as a GST registrant (if their consultancy income exceeds RM500,000).

The Sdn Bhd must cease business with immediate effect. The Sdn Bhd need to inform the Royal Malaysian Customs Department (RMC) on the cessation of Sdn Bhd and change to sole proprietor businesses. The accounts of the Sdn Bhd need to be prepared up to date of cessation, followed up with the commencement business of the sole proprietor. It is suggested that the date of cessation be July 31 for a smooth transition.

The business income of the YA 2016, would be as follows

Jan 1, 2016 to July 31, 2016 - Sdn Bhd

Aug 1, 2016 to Dec 31, 2016 - sole proprietorship

What happened to YA 2015?

The YA 2015 carryied out using Sdn Bhd should be reported under the Sdn Bhd regime. The medical practitioners must have adequate business object together with the relevant facts and circumstances to justify the deduction of expenses, the involvement and contribution of the doctors in the Sdn Bhd in generating medical business income from the private hospital.

This requires the support of a tax specialists to set up the factual matrix of the case to explain to the IRB when needed.

In conclusion, whether a medical practitioner can use Sdn Bhd to carry out medical business with the private hospital is a question of fact depending on the circumstances and situation. It is the activity, the agreement, the contribution and involvement of the doctors in such a Sdn Bhd set up by him or her. Likewise the deduction of expenses are very much influenced by the business objective test as stated in Section 33 of the Income Tax Act 1967.

IRB, being the government agency responsible for income tax matters, going through the many tax audits on medical practitioners, would have exercised its discretion to come to a conclusion that medical doctors indeed should report under sole proprietorship business. This direction would apply progressively with effect from YA 2016 but not before.

CHOONG HUI YAN is a tax specialist.