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Industry Guide:

Fund Management

 
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FREQUENTLY ASKED QUESTIONS


Fund Management

1. I manage client’s funds to invest in fixed income portfolios. I charge an annual management fee to my clients for the investment of securities. Should I charge GST on the annual management fees?

Yes, annual management fees are subject to GST at a standard rate.


2. For the investment of securities with a high return as agreed in the investment management agreement with the clients, a performance fee is paid to the fund manager. Is performance fee subject to GST?

Performance fee is subject to GST at a standard rate.

3. I did not provide custodian services for the funds managed. Instead, I outsource the custodian services. However, the outsourced custodian services are charged to the client. Do I have to charge GST on the outsourced custodian fees?

Outsourced custodian services charged to your client is subject to GST at a standard rate but you can claim GST incurred on the outsourced custodian fee.

4. For managing portfolio investments I have to pay brokerage commissions to the brokers I trade with. What is the GST treatment on brokerage commissions?

Brokerage commissions are services supplied to your clients and are subject to GST at a standard rate. You can collect from your clients the brokerage commissions and the GST incurred as reimbursements.

5. Other than investment management services, I provide advisory and consultancy services to clients with regards to the formation of trust, pension, education and retirement funds. Are consultancy and advisory services subject to GST?

Advisory and consultancy services are subject to GST at a standard rate. 

6. I am a licensed fund manager and appoint a foreign fund manager to manage a fund’s foreign investment portfolio. What is the GST treatment on foreign fund managers?

Foreign investment portfolio performed by foreign fund managers appointed by local fund managers is an out of scope supply and therefore it is not subject to GST. 

7. I am a fund manager working in a unit trust management company. I perform investment portfolio functions for the unit trust fund. Do I have to be registered under GST?

Since you are a fund manager working in a unit trust management company you and the unit trust management company are considered as one entity and therefore you are not required to be registered. However, your company is required to be be registered under GST if its annual taxable turnover has exceeded the prescribed threshold. If the unit trust management company appoints an external fund manager, then the company and external fund manager have to be registered subject to the registration threshold.


Income Distribution

8. A Fund’s income distribution to unit holders comprises of dividends that the fund earns from its investment holdings, interest/profit income (Islamic Funds) it receives from its money market and bond investments, and capital gains realized from the sale of its investment holdings. Capital gains are realized whenever the fund sells securities for higher prices than it had paid to them. These dividends, interest income and capital gains are distributed to unit holders as income distribution. What is the GST treatment on income distribution? 

Income distribution is not subject to GST.

9. REITs income distribution to unit holders comprise of dividends or distribution and capital gains generated from the rental income plus any capital appreciation that comes from holding the real estate assets over the period. Are dividends, interest income and capital gains subject to GST?  

Dividends, interest income and capital gains are not subject to GST.

10. In managing the funds in Malaysia I earned interest and dividend on behalf of my clients. What is the treatment of interest and dividend income for GST purposes?  

Interest and dividend income is not subject to GST.

11. Income distribution can be distributed in the form of unit splits and reinvestment of distribution to the unit holders. What is the GST treatment on unit splits and reinvestment of distribution?

Unit splits and reinvestment of distribution are considered exempt supplies and therefore are not subject to GST.

12. Is foreign sourced income such as dividend and interest gains arising from realization of investment outside Malaysia by a foreign fund manager subject to
GST?  

Foreign sourced income such as dividend and interest gains arising from realization of investment outside Malaysia are considered as out of scope supplies and is not subject to GST.


Distribution of units  

13. Sale and purchase of units in a unit trust can be made through tied agents, institutional unit trust agents (IUTA) or brokers for Exchange Traded Funds (ETF). What is the GST implication when you sell units in the unit trust?

GST is not chargeable when you sell units in the unit trust since it is an exempt supply.

14. A service or sales charge is a front-end fee charged by the manager when an investor purchases units of a fund. Is service or sales charge subject to GST?

Service or sales charge is subject to GST at a standard rate.

Example 1:

                                                                                                       RM
NAV per 1,000 units at the end of the business day            838.90

Add: Service or sales charge (6% x RM838.90)                       50.33

Add: GST (6% x RM50.33)                                                      3.02

Selling price per unit                                                                 892.25 

15. Only participating dealers are allowed to request the manager to create and/or redeem units in the ETF. Participating Dealers will incur processing and administration fees charged by the manager and/or trustee for the creation and redemption of units. What is the GST treatment on the processing and administration fees charged by the manager?

The processing fee charged by the manager and the administration fee charged by the trustee for the creation or redemption of ETF units is subject to GST at a standard rate. Besides processing and administration fees, there are also fees charged by Bursa Depository on each account allotted with new units and each account debited with redeemed units. This fee charged by Bursa Depository is also subject to GST at a standard rate. 


Selling and Buying of Units 

16. ETF units are traded on Bursa Malaysia and investors are charged with brokerage, stamp duty and clearing fees from trading with Bursa Securities. Are brokerage, stamp duty and clearing fees subject to GST? 

Since ETF units are traded on Bursa Malaysia, the trading of ETF units is an exempt supply and therefore is not subject to GST. The brokerage and clearing fees are subject to GST at a standard rate but stamp duty does not attract any GST as it is a disbursement.

17. The spread between the selling and buying prices of unit trust is used to pay agents to market and distribute units and to defray the operating expenses of the unit trust management companies. What is the GST treatment on the spread? 

The spread between the selling and buying prices of unit trust is an exempt supply and therefore is not subject to GST.

 Transfer and Switching of Units

18. A unit holder may fully or partially transfer his units in a fund to another unit holder. A transfer fee will be charged for each transaction. What is the GST treatment on the transfer fee?

The transfer fee charged for the transfer of units is subject to GST at a standard rate.

19. A unit holder may move his investments between various funds in response to changing financial goals or market conditions. A switching fee is charged to the unit holder when he switches his units between funds. What is the GST treatment on switching fee?

Switching fee is subject to GST at a standard rate.

20. An exit fee which is only applicable for bond funds is a back end fee that is incurred when a unit holder redeems or switches his units on or before the specified investment period. Does the manager have to account for GST on the exit fee?

The manager has to charge GST on the exit fee at a standard rate.


Commissions, Expenses and Charges  

21. Pursuant to the Initial Public Offering the managing underwriter and underwriters have agreed to undertake the issued units to be issued at a commission payable by the fund. Is underwriting commission subject to GST?

Underwriting commission payable by the fund is subject to GST at a standard rate.

22. What is the GST treatment on commission I receive from insurance companies?  

You are required to charge GST on the commission received irrespective of whether the insurance product is general insurance or life insurance.

23. Listing expenses such as professional fees, regulatory fees, advertisement and printing expenses, brokerage and commissions and contingencies expenses are incurred by the fund pursuant to the retail offering. Are listing expenses borne by the REITs fund subject to GST?  

Listing expenses borne by the REITs fund are subject to GST at a standard rate.

24. Administrative charges such as courier or telegraphic transfer charges will be imposed by the manager for remittance of repurchase proceeds or money refunded during a cooling-off right. Is the manager liable to charge GST on the administrative charges?

Administrative charges are taxable supplies and therefore subject to GST at a standard rate.


Input Tax Credit 

25. If I decide to deregister from GST, am I eligible to claim for input tax on the supplies I received before deregistration? 

Yes, you can claim for input tax on goods and services supplied to you while you were registered provided that:

(a) you have not claimed the input tax; and

(b) the claim is made within six years from the date of supply or importation or one year from the date of deregistration, whichever is the earlier.

You cannot claim for GST on the supplies you have purchased after deregistration.

26. As a result of deregistration, I incur expenses such as legal charges and accounting charges. Can I claim ITC on the services supplied to me? 

Yes, you can claim input tax on services supplied to you provided that the services are related to the deregistration process and subject to the time limit of claiming input tax. 

27. As a financial planner, I sometimes entertain my customers. Can I claim GST incurred on the entertainment expenses?

Yes, you are entitled to claim the GST incurred on the entertainment expenses to existing customers and the tax invoice is in the name of the business.

28. The REIT will bear property operating expenses including auditors’ fees and expenses, fees for the valuation of any investment, taxation, advisers’ fees and the costs incurred for the modification of the deed of the fund. These expenses are subject to GST. Can the REIT claim the GST as input tax credit?   

Yes, the REIT is entitled to claim the input tax incurred on the expenses if the expenses are incurred for making taxable supplies such as rental or sale of commercial buildings, shop lots, factories and industrial buildings.


Agents  

29. A portion of the service or sales charge collected by the fund manager is paid out as sales commission to selling agents. What is the GST treatment?

As service or sales charge is a taxable supply, it is subject to GST at a standard rate. However, you can claim GST incurred on the commission paid to the tied agents as input tax.

30. UTMC may sell stationeries and other articles (e.g. umbrella) to agents for distribution to unit holders as free gifts. What is the GST treatment of selling stationeries and other articles to agents?   

The selling of stationeries and other articles to agents for distribution to unit holders as free gifts is subject to GST at a standard rate.

31. All tied agents would be paid on a quarterly basis a trailer fee at a specified rate based on net asset value of units held by the relevant unit holder out of the annual management fee. Is the trailer fee subject to GST?  

Yes, any trailer fee paid to tied agents for personal servicing of unit holder is considered as commission paid to agents and is therefore subject to GST at a standard rate. You cannot claim the GST incurred on such fee as it is used for making an exempt supply.


Financial Planner

32. I am a Financial Planner. Am I required to be registered for GST? 

As your supplies consist mainly of taxable supplies i.e. advisory and commission, you are required to register if your annual taxable turnover has exceeded the threshold. If you have not exceeded the threshold, you may want to register voluntarily.

33.  Besides financial planning service, I provide advisory and custodial services for which I charged some fee. What is the GST treatment?

Advisory and custodial services are subject to GST at a standard rate. 

34. Besides financial planning, I am authorized to perform collection service on the income earned by my client from his portfolio of investments. I do not charge the collection service as it is part of the contract. What is the GST treatment?

Since you do not charge any fee on your collection service and it is an integral part of the contract, you are not required to charge GST on the collection service supplied.

35. I provide some financial planning service to a client who planned to invest his pension in a unit trust fund. After some discussions, my customer changes his mind and I do not charge him. What is the GST treatment?  

Since you are giving a free service, there is no GST on your supply.

36. My customer requires me to arrange for him to buy a financial product, i.e. unit trust from a unit trust company. Am I subject to GST?  

If you charge a fee for arranging your customer to buy unit trust, then your fee is subject to GST at a standard rate. However, if you do not charge your customer any fee, you are not required to charge GST on the arrangement services.


Provident and Pension Funds  

37. An insurance company sets up and maintains a provident fund for his employees. The fund consists of contributions from the employees as well as employer. The objective of the fund is to provide financial assistance to the employees when they encounter any form of calamity. Is this form of coverage considered as insurance or takaful business or provident fund and what is the GST treatment on this financial service?

This form of coverage does not fall within the scope of insurance or takaful business but it is actually a provident fund set up by the company for the benefit of the employees upon retirement. Managing the fund by the insurance company is not a supply if the insurance company does not charge a fee for managing the fund. Therefore, there is no GST involved. However, if the insurance company charges a fee for managing the fund, it is subject to GST at a standard rate.

38. Are the protection schemes provided by SOCSO like the employment injury insurance scheme and the invalidity pension scheme under the mandatory workmen compensation subject to GST?  

Such protection schemes given are not considered as insurance or takaful business. SOCSO is regulated under the Employees’ Social Security Act, 1969 and it is a statutory body managed fund. Therefore, contributions or deductions made from the employees’ income for the schemes and the claims made are not subject to GST.


Free Life Insurance

39. Free Group Term Life with Total and Permanent Disability plus Group Personal Accident Insurance is provided by the manager for unit holders for a specified minimum investment in unit trust. Is the manager liable to charge GST on the free life insurance?

Life insurance is an exempt supply and is not subject to GST while total and permanent disability and group personal accident insurance is a taxable supply which is subject to GST at a standard rate. Since the insurance is given free, it is not a supply and therefore is not subject to GST. However, if the manager purchases the total and permanent disability and group personal accident insurance and incurs GST on it, he cannot claim the GST incurred as he is making an exempt supply.


Cooling-off rights 

40. Cooling-off right is the right of a first time investor to obtain a refund of his investment in a fund provided it is exercised within the cooling off period. The refund must not be less than the sum of the Net Asset Value on the day the units were first purchased. This refund includes the GST paid on service or sales charge. Can I recover GST paid if the service or sales charge is refunded to the investor during a cooling off rights?

You may make the necessary adjustment to recover the GST paid as input tax when you refund the service or sales charge together with the GST to the investor.


Treatment of Offshore Unit Trust Scheme 

41. What is the GST treatment of off shore unit trust scheme? 

There is no GST on the issuance and redemption of units in offshore unit trust. Unit trust issued to investors in Malaysia but outside Labuan, Langkawi or Tioman is exempt and therefore there is no GST on it. 


Self Invoicing Provision 

42. Normally, UTMC will issue a statement to investors and charge GST on the sales or service charge. Commissions to agents will be paid out of the sales or service charge. My company has appointed 100 tied agents for the distribution of units in the unit trust. For each tied agent, I will issue a self billed invoice stating the commissions to be received by each tied agent. How do I know that the agents have reached the threshold in order to charge GST on the statement?

Before a self billed invoice is approved, all tied agents including new tied agents must inform you about their GST status. If the tied agent is registered for GST, you are required to charge GST on the commissions received by him. If he is not registered, then there is no GST on commission. In addition, you can check whether the agents are GST registered persons through the GST enquiry system via online enquiry.


Mixture of Taxable Supply and Exempt Supply  

43. As a result of my advice, my customer purchases a life insurance product from an insurance company. What is the GST treatment?

If your advice directly results in your customer purchasing a life insurance product and there is no separate charge for the advice given, you are not required to charge GST on the advice supplied as there is no consideration for the advice supplied. Since life insurance is an exempt supply, the purchase of life insurance is not subject to GST.


44. What is the GST treatment if I supply financial advice and life insurance product separately?  

If your financial advice and life insurance product are supplied separately, the advice is subject to GST at a standard rate while the life insurance product is not subject to GST as the life insurance product is an exempt supply.


Subscription, Examination and Professional Fees.  

45. Is there GST on professional membership subscription fees, e.g. Certified Financial Planners (CFP), MIA, CIMA, etc.? 

There is no GST on professional membership subscription fees

46. Is there GST on professional examination fees? 

Any form of examination fee by any professional bodies is subject to GST at a standard rate.

47. I conduct professional course on Financial Planning and other related courses related to it. Like other professional courses conducted by some government or private agencies, I charge a fee for the training courses. Is professional training fee subject to GST?  

Yes. It is subject to GST at a standard rate.


Additional Charges  

48. I recover from my client expenses in excess of the amount I paid the third party. Do I have to charge GST on the excess amount? 

If you recover from your client an amount in excess of the amount you paid to the third party, GST should be collected on the excess taxable supply only.

49. Is there GST on any additional services charges related to the original supply?

If the additional services are taxable supplies, you are required to charge GST on the additional service charge.

Additional service charge

Original service charge:                                         RM100.00

Additional charge for administrative service:     RM20.00

Total charges:                                                           RM120.00

*GST @ 6%:                                                              RM7.20  

50. What is the GST treatment if the additional amount is an interest charge I paid on behalf of my client?

If the additional amount recovered is an interest charged for the loan you arranged for your client, there is no GST due because it is an exempt supply.

Excess on Exempt Supply  

Actual Interest amount due:                      RM100.00

Excess amount collected on interest:      RM 50.00

Total charges:                                              RM150.00 
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