If your company’s primary activity is holding investments, it is essential to know if you qualify as an Investment Holding Company (IHC) under Malaysian tax law. This classification determines how your income is assessed and what expenses you can deduct.
1. Does Your Company Qualify as an IHC?
Under Public Ruling No. 2/2024, a company is regarded as an IHC if both of the following conditions are satisfied:
- Principal Activity: The main activity of the company is the holding of investments.
- 80% Gross Income Test: The company derives at least 80% of its gross income from investment sources, such as dividends, interest, and non-business rental income.
Note on “Business of Holding an Investment”: The company carries on a business of holding investments if it provides active, substantial, and comprehensive rental services, such as:
- Maintenance and repair services
- Security
- Cleaning services
- Utilities management
- Tenant support services
- Income from such activities is excluded from the 80% gross income computation.
The specific tax rules depend on whether the IHC is listed on Bursa Malaysia:
2. Tax Treatment by Category
A. Non-Listed IHCs (Section 60F)
For companies not listed on Bursa Malaysia, the following rules apply:
- Income Classification: Classify all investment income (interest, dividends, and rental) as a non-business source.
- Permitted Expenses: You can deduct certain “permitted expenses” using a specific formula, provided they do not exceed 5% of the total gross income from dividends, interest, and rent.
- Permitted expenses included: Deductible items include director’s fees, wages/salaries, management fees, secretarial/audit fees, and office maintenance costs.
B. Listed IHCs (Section 60FA)
For companies listed on Bursa Malaysia, the tax treatment is different:
- Business Source: “Income from investment holdings constitutes a business source.
- Deductions: Expenses are generally deductible under the standard rules of Section 33(1) of the Income Tax Act.
3. Capital Allowances (CA) & Industrial Building Allowances (IBA)
- Plant & Machinery: Generally, an IHC cannot claim capital allowances on plant and machinery unless it is listed on Bursa Malaysia.
- Buildings: An IHC (even if non-listed) may still claim an Industrial Building Allowance if its tenant uses the building specifically as an industrial building.
Need more help? Determining your IHC status and calculating “permitted expenses” can be complex. If you are unsure about your company’s classification or how to apply these rules to your tax filing, please reach out to our support team or consult with a tax professional.
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