(Tax Update) Investment Holding Company As Per Public Ruling

In Malaysia, there are special businesses called Investment Holding Companies (IHCs). Unlike regular companies that sell products or services, IHCs make money by managing investments like shares, properties, or earning interest.

Public Ruling 2/2024, issued by the Inland Revenue Board of Malaysia, is titled “Investment Holding Company” and was released on May 28, 20241. It replace the old Public Ruling 10/2015 on IHC.

It provides guidance on the interpretation of tax laws, policies, and procedures related to investment holding companies. This ruling is intended to assist both the public and officers of the Inland Revenue Board by clarifying the Director General of Inland Revenue’s stance on specific tax matters.

What is an Investment Holding Company (IHC)?

Think of an IHC as a big boss who controls various valuable assets—like owning stocks in different companies, real estate, or bonds. Their main job is to look after these investments and earn money from them, rather than selling goods or everyday services.

An IHC means a company whose activities consist mainly in the holding of investments and not less than 80% of its gross income other than gross income from a source consisting of a business of holding of an investment (whether exempt or not) is derived from the holding of those investment.

What is a Business of Holding of an Investment ?

A company is involved in renting out property and also offers maintenance or support services for those properties.

This means that besides allowing someone to use the property based on a lease or rental agreement, the company takes care of the property by providing upkeep services like cleaning, repairs, and managing facilities such as lifts, stairs, and outdoor areas like parking lots and gardens.

How Are IHCs Taxed?

Here’s how IHCs are taxed depending on the type of income they receive:

Money from Shares (Dividend Income): When IHCs receive dividends from the shares they own, this income is not taxed again. Why? Because the company distributing the dividends has already paid taxes on those profits.
Money from Interest (Interest Income): If an IHC earns interest from things like fixed deposits or bonds, this income is taxable. The IHC must report this income and pay taxes just like any other company.
Money from Renting Out Property (Rental Income): Just like interest, any income from renting out property owned by the IHC is taxable.

What About Expenses?

All businesses incur costs, but not all expenses can reduce their taxable income.

The tax treatment for an IHC depends on whether the IHC is or is not listed on the Bursa Malaysia. The special tax treatment for an IHC is provided under section 60F of the ITA for an IHC not listed on the Bursa Malaysia

For IHCs not listed on Bursa Malaysia, only expenses directly linked to earning taxable income are deductible. For example, costs to manage a rental property can be deducted from the rental income. However, general expenses like office supplies or company events are not deductible.

Why This Matters to You

Investment Holding Company (IHC) can no longer be considered as SME starting year 2020. That means it shall no longer be kept as 17% tax rate but 24% now.

Difference Between Old and New Public Ruling IHC

Expenses and deduction related to single-tier dividend

Capital allowance and deductions relating to single-tie dividends are to be disregarded

Time Limit for Unabsorbed Business Loss Carried Forward

Restrict to carry forward unabsorbed business loss for a period of 10 years with effect from YA 2019

Conclusion

For more detailed information, you can check the Public Ruling 2/2024 from the Inland Revenue Board of Malaysia titled "Investment Holding Company," released on May 28, 2024.

This ruling provides guidance on tax laws related to IHCs and is intended to help the public and tax officers understand specific tax matters better.

You can view the full document on the official website of the Inland Revenue Board of Malaysia or consult with a tax professional for deeper insights.

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