20 December 2012

What are the TAX benefits from Private Retirement Scheme (PRS)?

According to Securities Commission of Malaysia, tax incentives are provided to both employers and individuals for the first 10 years from the year of assessment 2012; in addition to the tax deduction permitted for EPF contributions:
Amount of Tax Savings by individuals for PRS contributions
For Individual:
Tax relief of up to RM3,000 per year will be given for contributions made within that year. This is on top of existing tax relief already enjoyed by taxpayers. How much can you save from tax?

Let's look at the table above which illustrates the amount of tax saving an individual get after personal tax relief and RM6,000 EPF + Life Insurance tax relief.

Assuming a maximum RM3,000 PRS relief, the amount of tax saving depends on your level of income. For high tax bracket individuals, you can save up to RM780 annually!!!

For the Employer:
Tax deduction on contributions to PRS made on behalf of their employees above the statutory rate of up to 19% of employees' remuneration was granted.

For example, if an employer already making 12% EPF contributions to his employees, the employer may choose to reward their employees by contributing to employees' PRS account for up to another 7%.

Vesting Schedule to Retain Employees?
Yes, an employer can use PRS as a tool to retain employees by adding a "vesting schedule" clause. Currently, there are a few available vesting methods: by the length of service, job rank, or by age.

Unlike EPF, if an employee leaves before vesting, the employer can access the unvested portion of contribution already made. Likewise, for EPF, the employee takes the full amount when they left. 
With the PRS vesting schedule, an employee may think twice before switching jobs.

In conclusion, there are tax incentives for every taxpayer, employee or employer. Ultimately, enough retirement funds were the key objective of PRS. On top of that, a tax exemption is also provided on income received by the funds under the PRS.

Source: Private Pension Adminstrator (PPA)


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This is a guest post from Alex Yeoh in the series of Private Retirement Scheme. For more PRS info, you may contact Alex Yeoh (alexyeoh@vka.com.my), a licensed financial planner and representative of a corporate PRS adviser, who can market/distribute PRS from multiple providers. Thank you.


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