Income Tax Exemption for Non-Profit Organisation under Subsection 44(6) of the Income Tax Act 1967
Updated: Jun 12, 2022
Any organisation or institution which is approved under subsection 44(6) will automatically be granted tax exemption on its income (except dividend income) under paragraph 13, Schedule 6, Income Tax Act 1967.
TYPES OF INSTITUTIONS OR ORGANISATIONS ELIGIBLE TO APPLY FOR APPROVAL UNDER SUBSECTION 44(6) OF THE ITA 1967
An institution or organisation which is eligible to apply must be established in Malaysia and registered as:-
i. a company limited by guarantee under the Companies Act 2016 (Companies Commission of Malaysia);
ii. an organisation under the Societies Act 1966 (Registrar of Societies of Malaysia);
iii. A body corporate under the Trustees (Incorporation) Act 1952 (Legal Affairs Division, Prime Minister's Department); or
iv. any other recognised registrar bodies.
Institution means an institution in Malaysia that is not managed or operated for profit seeking purpose such as:-
i. a hospital;
ii. a public or charitable institution;
iii. a university (established under the University and University Act 1971) or other education institution (established under a Ministry);
iv. public authority or association conducting research and activities related to finding the case, prevention or treatment of human disease;
v. a Government supported institution that conducts socioeconomic research; or
vi. a technical or vocational training institute.
Organisation means an organisation in Malaysia that is not operated or conducted for profit seeking purpose such as:-
i. an organisation established and maintained solely for administering and increase a public or private fund for:-
a. construction, expansion, or improvement of an educational institute in Malaysia, not including sport complexes, recreational place/space, parking lots, and others; or
b. granting a scholarship or gift to an individual for study or research work in an institute in Malaysia;
ii an organisation established and maintained solely:-
a. to administer and increase public funds/funds to ease the hardships among Malaysian citizens;
b. to assist in maintenance of a zoo, museum, art gallery or similar venture, or engaged in something related to the promotion of culture and art;
iii. an organisation set up specifically to provide sanctuary and protection for animals;
iv. an organisation assisted by the Government through grants and expertise for:-
a. industrial/commercial development, and promoting/improving the relationship between public and private sectors;
b. administering and increasing funds to promote national unity;
v. an organisation set up specifically for the maintenance and protection of the environment;
vi. an international organisation as defined under the International Organisation (Privileges and Immunities) Act 1992 which carries out charitable activities as determined by the Minister of Finance; or
vii. an organistion set up specifically to carry out community projects aimed to culturise information and communication technology (ICT) approved by the Minster of Finance.
THE ELGIBILITY CRITERIA OF AN INSTITUTION OR ORGANISATION TO APPLY FOR APPROVAL UNDER SUBSECTION 44(6) OF THE ITA 1967
1. Objective of the Establishment of the Institution or Organisation
The institution or organisation must be established in Malaysia and is not established primarily for profit.
2 Services or Benefits Provided by an Institution or Oranisation under Subsection 44(6) of the ITA 1967
i. Services or benefits are provided to Malaysians irrespective of race, religion or descendant.
ii. Services or benefits are not limited to a target group based on race, religious affiliation, political affiliation or specific area.
iii. Services or benefits are not enjoyed by the founders, Board of Trustees, Board of Directors, committee members or any other party in charge of handling the institution or organisation.
iv. Services or benefits are not enjoyed by family members or any parties related/connected with the founders/Board of Trustees/Board of Directors/committee members/any other party in charge of handling the institution or organisation.
v. The founders/Board of Trustees/Board of Directors/committee members/any other party in charge of handling the institution or organisation may not exercise their power and position for a particular purpose through the approved organisation.
Institution's or Organisation's Board of Trustees/Board of Directors/Committee Members Terms
i. More than 50% of the members of the Board of Trustees/Board of Directors/committee members must consist of outsiders who is not related to the institution or organisation and founder. For this purpose, being related includes but not limited to:
a. parents, children, siblings, including other close family ties;
b. employer and employee relationship; or
c. a director or employee within the same company or group of companies.
The conditions of appointment only applies to institutions/organisations that are registered with the Companies Commission of Malaysia (SSM) and the Legal Affairs Division of the Prime Minister's Department (BHEUU).
For the institutions/organisation that are registered with The Registry of Societies Malaysia, the conditions of appointment of the Board of Trustees/Board of Directors/committee members should apply to registered members and have the power to vote.
ii. The founder/member of the Board of Trustees/members of the Board of Directors/committee members shall not receive benefits or remuneration from the institution or organisation including fixed emoluments. However, applications for approval for the acceptance of benefits can be considered in the following circumstances:
a. the application of disable person and people with disability due to injury or illnesses. The application must be supported by confirmation document from Social Welfare Department or Government medical officer.
b. the application for reimbursement of expenses relating to the institution or organisaction's official duties are allowed with the support of relevant documents.
Operational period for institutional or organisation to be eligible to apply
To be eligible to apply, an institution or organisation must be in operation for at least 2 years (24 months). This is to ensure that:-
i. the objectives of institution or organisation planned are carried out; and
ii. the institution or organisation are registered with the relevant registration bodies in Malaysia.
THE PROCEDURE OF APPLICATION FOR APPROVAL UNDER SUBSECTION 44(6) OF THE ITA 1967
A person who is eligible to submit the application on behalf of the institution or organisation is as follows:-
i. President, Chairman, Director, Secretary of an institution or an organisation; or
ii. A certified representative legally appointed by an institution or an organisation.
The application is to be submitted through a letter of application that bears the official letterhead stating clearly the address, email and telephone number and attached with the documents as stated.
The checklist of required documents for each application is as follows:-
i. Application for Company Limited by Guarantee incorporated under the Companies Act 2016
ii. Application for Associations incorporated under the Societies Act 1966
iii. Trust Deed for Institutions or Organisations incorporated through a Trust Deed
iv. For institutions or organisations that provide care centers to cater to senior citizens, orphans and other institution alike, the following additional documents are required as follows:-
a certificate of registration from the Department of Social Welfare;
b. list of occupants, welfare staffs or heirs;
c. background of the care centre; and
d. a list of daily/annual activities carried out by the care center.
Upon the application, the checklist will need to fill out, confirm and verify by submitting of documents. No application will be processed if fails to do so.
CONDITIONS FOR APPROVAL UNDER SUBSECTION 44(6) OF THE ITA 1967
During the approved period, the institution or organisation shall comply with the following conditions:-
i. The institution or organisation shall continue to be established not primarily for profit.
ii. The institution or organisation shall continuously provide services or benefits in accordance with the following conditions:-
a. services or benefits are provided to Malaysians irrespective of race, descendant or religion;
b. services or benefits is not limited to a target group based on race, religious affiliation, political affiliation or specific area;
c. services or benefits shall not be enjoyed by the founders/board of trustees/board of directors/committee members/any other party in charge of handling the institution or organisation;
d. services or benefits shall not be enjoyed by family members or any parties concerned with the founders/board of trustees/board of directors/committee members/any other party responsible of handling the institution or organisation; and
e. the founders/board of trustees/board of directors/committee members/any other party in charge of handling the institution or organisation may not exercise their power and poistion for a particular interest through the approved institution or organisation.
iii. The institution's or organisation's board of trustees/board of directors/committee members shall continuously comply with the conditions of these guidelines.
PROHIBITION FOR THE INSTITUTION OR ORGANISATION APPROVED UNDER SUBSECTION 44(6) OF THE ITA 1967
An approved institution or organisation is prohibited from:
i. investing in subsidiaries with shares holding not exceeding 49%;
ii. accepting donations from subsidiaries of which the institution or organisation held more than 49% of the paid up capital;
iii. using the official logo of LHDNM or performing any form of IRBM modifications of logo in all documents and media; and
iv. engaging in any political activity or trade union movements or allowing the finance, members/staff and premises/properties to be used for such purposes.
v. purchasing of additional asset or property which is not in line with the objectives of an institution or organisation.
RESPONSIBILITIES OF AN INSTITUTION OR AN ORGANISATION AFTER OBTAINING AN APPROVAL UNDER SUBSECTION 44(6) OF THE ITA 1967
The responsibilities of institution or organisation after obtaining an approval under subsection 44(6) of the ITA 1967 is as follows:-
a. All donations received in the form of cash or via internet banking, cheque/money order/postal order/bank draft must be issued an official receipt,
b. The official receipt must include the following information:
- Name and address of institution or the organisation;
- Printed serial number on official receipt (preprinted);
- Date of the receipt;
- Name of the donor with the donor's identity card number, passport number and business registration number;
- Donor's mailing address;
- Collector's designation, such as President or Secretary; and
- The following note:
"Potongan Di Bawah Subseksyen 44(6) Akta Cukai Pendapatan 1967:
Tarikh Kuatikuasa: 1 Mei 2019 hingga 31 Jun 2024"
[Deduction Under Subsection 44 (6) of the Income Tax Act 1967:
Reference: LHDN.01 / 35/42/51 / 179-6.XXXX
Effective Date: 1 May 2019 to 31 June 2024]
c. Receipts should not be issued to donors who fail to provide complete personal information. The complete information with the following details are to be provided:-
For individual donors:
- Donor's name;
- Identity card number, passport number; and
- Complete address
For donors other than individual donors:
- Donor's name;
- Registration number; and
- Complete address
Early notification in writing should be made to the Inland Revenue Board of Malaysia for the following:
a. before ownership of additional assets and properties;
b. before disposal of assets and properties;
c. before change in the membership of Board of Directors/Board of Trustees/committee/members of institution or organisation; or
d. before amendments to the constitution or trust deed of the institution or organisation.
If you would like to know more, please contact Bestar.