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Sohaib Ikram
Sohaib Ikram serves as the Director of Emerhub in Malaysia.
For investors looking to streamline their investment portfolio and maximize tax efficiency in Malaysia, setting up an Investment Holding Company (IHC) is often a suitable option.
In this guide, we’ll walk you through the essentials of establishing and operating an investment holding company (IHC) in Malaysia.
What is Considered an Investment Holding Company in Malaysia?
An Investment Holding Company in Malaysia is a specialized business entity designed to hold and manage investments in other companies, securities, or assets.
The primary purpose of an IHC is not to engage in direct business operations but to generate income through dividends, interest, and capital gains from its investments.
According to the Inland Revenue Board of Malaysia (LHDN), an IHC is defined as a company whose main activity is holding investments, and at least 80% of its gross income comes from these investments. This excludes income from any business related to managing the investments, such as management fees, or rental income from properties that your company is actively managing, etc.
That means, to qualify as an IHC, a company must meet two conditions:
- Its main activity must be holding investments
- At least 80% of its gross income must come from these investments such as dividends, interest, rental (passive), etc.
If, during any fiscal year, the gross income from holding investments is less than 80%, the company will not be considered an IHC for that year.
Types of Investment Holding Companies and Their Tax Treatment in Malaysia
In Malaysia, Investment Holding Companies are classified into two main types based on their status in the stock market: listed IHCs and unlisted IHCs. This distinction determines the overall tax calculations for the investment holding company.
1. Listed Investment Holding Company
A listed investment holding company is the one traded on Bursa Malaysia, Malaysia’s stock exchange.
For listed IHCs, all investment income (e.g., dividends, interest, rental) is treated as business income under Section 60FA of the Income Tax Act 1967. This means that listed investment holding companies can fully deduct expenses incurred to generate income.
However, any losses or unused capital allowances can’t be carried forward to future years.
2. Unlisted Investment Holding Company
A non-listed IHC is an investment holding company that is not traded on Bursa Malaysia, the Malaysian stock exchange.
For non-listed IHCs, their income from investments is considered non-business income under Section 60F of the Income Tax Act 1967. This includes income from dividends, interest, and passive rental. That means, they can only deduct permitted expenses from the gross income from investments with a cap at 5%.
The permitted expenses for an unlisted investment company include directors’ fees, wages, salaries, management fees, etc.
Any losses of an unlisted holding firm can be carried forward indefinitely, potentially reducing tax bills in future profitable years.
How to Register an Investment Holding Company in Malaysia
Here’s the step-by-step process to establish an Investment Holding Company in Malaysia:
1. Determine Your Holding Company Structure
When establishing an Investment Holding Company (IHC) in Malaysia, you must first decide between a private limited company (Sdn Bhd) or a public limited company (Bhd).
Most IHCs opt for the Sdn Bhd structure due to its lower compliance requirements and greater flexibility. However, if you plan to list your company on Bursa Malaysia in the future, you might consider the Bhd structure.
Keep in mind that your choice will impact your tax treatment under either Section 60F (unlisted) or Section 60FA (listed) of the Income Tax Act.
If you are unsure about the most suitable option as per your planned activities and goals, you can book a free consultation with our business advisors in Malaysia.
2. Company Name Reservation
Once you have decided on a suitable business entity, the next step is to reserve the business name with SSM before you can apply for company registration.
Our team will assist in selecting and verifying a unique name that aligns with your brand and complies with Malaysian regulations. It’s advisable to have at least 2 alternative names ready in case your first choice is unavailable.
3. Prepare the Required Documents for SSM registration
To register your investment holding company with SSM, companies must meet the company registration requirements and prepare the following documents:
- Memorandum and Articles of Association
- Form 13A (Declaration of Compliance)
- Form 48A (Statutory Declaration by Directors)
- Copies of directors’ and shareholders’ identification documents
Emerhub will handle all necessary paperwork, including the Memorandum and Articles of Association, and secure the Certificate of Incorporation on your behalf.
4. Open a Corporate Bank Account
After company incorporation, it is important to open a business bank account in Malaysia to manage the company finances.
Malaysian banks typically require the following documents to open a corporate account:
- Certificate of Incorporation
- Company constitution
- Board resolution
- Directors’ identification documents
5. Obtain the Tax Identification Number from LHDN
While investment holding companies generally don’t require any operational permits, they still need to secure the Tax Identification Number (TIN) from the Inland Revenue Board of Malaysia (LHDN).
Once the incorporation process is complete, our experts will apply for tax registration with LHDN and obtain the TIN.
Once you start your business operations, you must file your taxes as per the deadlines to stay compliant with local regulations.
Need expert assistance with setting up your Investment Holding Company in Malaysia? Fill out the form below and we will put you in touch with one of our local advisors.
