LN 6.

1: Investment Holding Company (IHC)

1. Unlisted IHC
2. Listed IHC
3. Investment dealing company

References:
ACCA Study Text – ATX (BPP)
Advanced Malaysian Taxation by Choong Kwai Fatt
Mr. Chong Geok Chuang’s lecture notes
Public Ruling Nos. 3/2011 & 10/2015

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Investment Holding Company (IHC)
sole activity is investment

dealing = trading of investment

1. Unlisted IHC or
IHC NOT listed on
the Bursa Malaysia
– S60F of ITA, 1967
(Co. name end with
Sdn Bhd)
2. Listed IHC or 3. Investment
IHC listed on dealing company
the Bursa Malaysia - Badges of Trade
– S60FA of ITA, 1967 (Co. name end with
(Co. name end with Bhd) Sdn Bhd or Bhd)
 Investment Holding Companies (IHC)
(Unlisted / Listed IHC or Investment Dealing Company)
Basis of Assessment
Effective YA 2001, investment income will be
assessed in accordance with the financial
year-end (FYE) of the company under Section 21A
of the ITA 1967.

Example: doesn't matter if company's YE is in June or whatever

due to declaration of investment income, not business
FYE, 30 June and
formerly was calendar year-end, 31 December

The financial year end of the company can

be 31 December or other than 31 December.
 Investment Holding Company (IHC)

Section 60F(2) of ITA, 1967: An ‘investment holding company

means a company whose activities consist mainly of 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 there-from.

A business of holding an investment is defined to mean business

of letting of property, provide maintenance or support services
(comprehensively and actively) of the property.
company let out property while giving maintenance, the renting is source of income, but importantly more than
80% of gross income

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 Determination of an Investment Holding Company
1. Generally, the determination of whether a company is an IHC
depends on two (2) criteria:
(a) its main activity is the holding of investments; and
(b) not less than 80% of the company’s gross income other than
the 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 investments.

2. An additional criterion in determining whether a company is an

IHC is that any amount of gross income from a business holding
an investment is not computed as gross income from the holding
of investments. Therefore only income from interest and
dividends under Section 4(c) of the ITA 1967 and rental under
Section 4(d) of the ITA 1967 are computed as gross income from
the holding of investments.
 Determination of an Investment Holding Company

3. If a company is a non-IHC in a year of assessment but gross income from

rental (business of holding of investment) decreases in the subsequent year or
years of assessment due to temporary cessation of the tenancy because of the
following circumstances:

(a) repair or renovation of the building;

(b) absence of tenants for a period of 2 years after termination of tenancy;
(c) legal injunction or other official sanction; or court order
(d) other circumstances beyond the control of the company;
the company is still deemed as a non-IHC for the subsequent year or years of
assessment even though income from the holding of investment is not less than
80% of the gross income of the company.

4. Any company which has been determined to be an IHC in the basis period for a
year of assessment will be deemed to be an IHC in the subsequent years of
assessment. However, this treatment is not applicable if the company is able to
prove that it is no longer an IHC in the relevant year of assessment.
 Investment Holding Company (IHC)
Example: Determine IHC status
Dividends Taxable Total (A) Rental (NOTE) Total (B)
(Exempt) (Investment (with maintenance
Interest Income) OR
or support services)
(Taxable)
Rental
(without
maintenance/s NOTE:
upport Business of This is including
maintenance and
services) holding an support
investment

RM60K RM40K RM100K RM20K / RM30K RM120K or

20K is rental
RM130K

(A) / (B) = RM100K / RM120K = 83% (IHC)

or
RM100K / RM130K = 77% (Non-IHC)7
 Unlisted IHC - Tax treatment
1. Interest (from banks) or Dividend – Section 4(c)
all rentals counted as one together
2. Rental income assessed as ONE source [whether it derived from
commercial/residential properties (e.g. land, factory, house)] – S4(d).
Section 60F provides that the rental income shall NOT be treated as
business income under S4(a). It will be assessed under S4(d) as an
investment income [i.e. rental (non-business) and rental (business of
holding of an investment)] or non-business source.treated as non-business income,
investment

Hence No capital allowance (CA) claim under Schedule 3, except

Para. 60 of Sch. 3, ITA, 1967 Industrial building allowance (IBA) is
deductible against the adjusted income from rental under S4(d).
If the building is an industrial building (e.g. factory) and it has been used
as a manufacturing business.
3. Management fees (services provided) and commission income – S4(f)
holding company gives management servcies and collect management fees

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UNLISTED IHC: RENTAL INCOME – ONE SOURCE

Section 4(d) RM RM
Gross rental income from:
• Factory (the industrial building used for 240,000
manufacturing)* 15,000
• Shophouse one source, everything 255,000

Less: Allowable expenses

(RM60,000 + RM35,000)
Quit rent, Assessment, Insurance & etc. (95,000)
Adjusted income from rental 160,000
Less: *Industrial building allowance *(10,000)
Statutory income 150,000
 CAPITAL ALLOWANCE (or IBA)
Section 4(d) RM RM
Gross rental income from:
• Factory (the industrial building used for 240,000
manufacturing)* 15,000
• Shophouse 255,000

Less: Allowable expenses

(RM60,000 + RM35,000)
Quit rent, Assessment, Insurance & etc. (95,000)
Adjusted income from rental 160,000
Less: *Industrial building allowance (IBA) (180,000)
Permanent loss cannot c/f (20,000)
 Unlisted IHC - Tax treatment
4. The foreign source income, dividend only (paid at least 15% foreign tax)
received in Malaysia is tax exempt. The exempt income can be credited to an
exempt income account and it can be used to declare exempt dividends.
Effective 1 January 2022, foreign source income such as interest, rental, etc.,
remitted to Malaysia is taxable. except dividend taxed on 15%
5. Any gains from the realization of investments (i.e. shares, real properties)
will NOT be taxable (including its distribution to shareholders, capital gains).

6. Each source of investment income (i.e. dividend, interest or rental & etc.)
must be computed individually.

7. Single-tier dividend income (received from resident companies in Malaysia)

is tax-exempt under Para 12B of Sch. 6 of ITA, 1967. Any expenses
(e.g. interest expense) related to the derivation of the single-tier dividend are
to be disregarded. loan interest be deductible? no, the expenses will be disregarded,
no deduction

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 Unlisted IHC - Tax treatment
8. Deduction of revenue expenses must be wholly and exclusively incurred in
the production of that particular source of income to arrive at the adjusted
income under S33.
9. If the revenue expenses cannot be treated as ‘wholly and exclusively
incurred in the production of the gross income of that particular source
of income, then such expenses would only be allowed as deduction fall into
the ambit of permitted expenses under S60F(2) of ITA 1967.
10. Permitted expenses mean expenses incurred by an IHC which are NOT
deductible under Section 33.
11. In the event that expenses are more than income, the difference is a
cannot utilise loss, cause it is investment loss, not business loss
permanent loss i.e. the current year loss is not allowed to be set-off
against other income or carry forward to the following year of assessment.
12. An unlisted IHC is not eligible to be taxed at the preferential two-tier tax
rate (i.e. 17% and 24%) as the unlisted IHC does not have gross business
income. The chargeable income is taxed at 24% (IRB Practice Note 3/2020).
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Unlisted IHC: Deduction under S60F(1)
(Fraction of Permitted Expenses)
FORMULA : A X B / 4C
A Total of the permitted expenses incurred for that basis period reduced
by any receipt for a similar kind;
B Gross income consisting of dividend, interest and rent chargeable to
tax for that basis period; and if dividend exempt, then no need.
C Aggregate of the gross income consisting of dividend and interest
(whether exempt or not) rent, and gains from the realization of
Dividend that exempted need to be put as is mostly for
investments for that basis period things not subjected to tax
OR

5% of B; whichever is the lower

Note: “Dividend” includes income distributed by a unit trust.

 Unlisted IHC: Permitted Expenses (A) – S60F(1)

(a) Directors’ fees;

(b) Wages, salaries and allowances;
(c) Management fees; for business income, is restricted

(d) Secretarial (full amount), audit and accounting, telephone

charges, printing and stationary costs and postage; and
(e) Rent and other expenses incidental to the maintenance of an
office, which is not deductible under subsection 33(1) of
the Income Tax Act 1967.

Note:
Please refer to Sample 1 for the unlisted IHC tax computation.

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 Listed Investment Holding Company (under Bursa Malaysia)
S60FA of the Income Tax Act (ITA) 1967
1. Effective YA 2006, listed IHC is given preferential tax treatment to have its
income from holding of investments (dividend, interest or rental) be
assessed as business income.
2. Any income derived from the holding of investment [interest, dividend, rental
(non-business and business of holding of an investment)] is treated as a
business source or deemed business under Section 4(a) of ITA 1967.
all expenses for dividend exemeption is not deductible
3. From the year of assessment 2008, single-tier dividend income is exempted
from tax under Para. 12B of Sch. 6 and any expenses related to the derivation
of the dividend are to be disregarded. However, for a listed IHC, single tier
dividends are to be treated as a separate / deemed business source.

4. Each source of income (e.g. dividend, interest, rental) has to be assessed as

a separate business source and to apportion common expenses based on the
proportion of respective gross income from each and every deemed business.

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 Listed Investment Holding Company (under Bursa Malaysia)
S60FA of the Income Tax Act (ITA) 1967

5. Management fees (services provided) under Listed IHC are assessable under
Section 4(a) as a business source (known as genuine business source).

The adjusted loss (current year business loss) is deductible from Aggregate
Income to arrive at the Total income.

Any unabsorbed business loss can be carried forward to the subsequent year
of assessment. It has to be utilised within 10 consecutive YAs.
Any amount which is not deducted at the end of the 10 consecutive YAs
shall be disregarded / permanent loss.

Capital allowance (including IBA) can be deducted from the adjusted

income. The unutilized/unabsorbed capital allowance can be carried forward
to the subsequent YA.

use any office equipment can claim CA in order to get/produce management fees.
 Listed Investment Holding Company (under Bursa Malaysia)
S60FA of the Income Tax Act (ITA) 1967

6. The foreign income (dividend only, after tax of 15% tax in a foreign
country) received/remitted to Malaysia is tax-exempt. The exempt income
can be credited to an exempt income account and it can be used to declare
exempt dividends.
Effective 1 January 2022, foreign source income other than dividend income
remitted back to Malaysia is taxable.
7. Any gains from the realization of investments (shares, real properties &
etc.) will NOT be taxable. Any distribution by the listed IHC out of capital
gains will be treated as exempt dividends as dividends in the hands of
shareholders.
8. A listed IHC is taxed at 24% or is eligible to be taxed at the preferential
two-tier tax rate of 17% and 24% (provided it fulfills the requisition
conditions) as its investment income is deemed to be business income.
Listed IHC: Deduction of Expenses
In ascertaining the adjusted income of each business source for a year of
assessment:
(a) No deduction on expenses is allowed if that source does NOT produce
any income.
(b) Expenses wholly and exclusively incurred in the production of
business income can be given a deduction against the gross income.
The amount of allowable deduction for direct expenses is restricted to
the amount of gross income from that source for that YA.
Any excess of that expense is to be disregarded (i.e. losses cannot be set
off against any other source of income or carried forward to subsequent
years of assessment).
(c) The amount of allowable deduction for common expenses which is
determined based on the gross income is restricted to the amount of
gross income from that source for that YA. Any excess of that expense
is also to be disregarded (or permanent loss). Refer to Sample 2.
(d) For listed IHC, “a fraction of permitted expenses” is not applicable.
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 Listed IHC
Deduction under Schedule 3 of ITA, 1967
In ascertaining the statutory income of each business source for a year of
assessment (YA), the capital allowance (CA) / industrial building
allowance (IBA) under Schedule 3 of the ITA, 1967 can be allowed but
restricted to the amount of adjusted income from that source.

If there is no adjusted income (i.e. adjusted loss) or the adjusted income is

not sufficient to absorbed the CA / IBA, any excess of the allowances
(i.e. unabsorbed CA or IBA) cannot be carried forward to subsequent YAs.
This is for things other than genuine
business.
income/ management fees Ex. 1 Ex. 2
Example (Ex.) RM RM
Adjusted income 100,000 80,000
Less: CA / IBA – Restricted to (80,000) (80,000) – RM100,000
Statutory income 20,000 Nil (Note)

Note: Unabsorbed / Unutilised CA/IBA of RM20,000 (RM100K - RM80K)

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(in Ex. 2) is Permanent loss!
 Investment dealing company
1. Investment dealing company refers to a company which actively buys
and sells investments (shares or real properties & etc.) and makes profit
from dealing / trading activities.

2. Investment income (i.e. interest, dividend & rental) and gains on

disposal/sale of investment are considered to be revenue profit or
income and will be assessed (taxable) as business income under
Section 4(a).

3. Deduction of expenses under Section 33, which is wholly and

exclusively incurred (expenses 100% deductible) in the production of
gross income.

4. Capital allowance (CA) and industrial building allowance (IBA) are

granted to the company. Unabsorbed capital allowance can be carried
forward to the subsequent year of assessment.

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 Investment dealing company
5. Effective from YA 2019, any unabsorbed business losses can be carried
forward to the subsequent year of assessment to set off within 10 consecutive
years of assessment (YAs). Any amount that is not deducted/utilized at the
end of the 10 YAs shall be disregarded / permanent loss.

6. Distribution of the profits as dividends is subject to the availability of

accounting profit. whether company has cash to distribute or not

7. The foreign source income (dividend only, after 15% foreign tax paid)
received in Malaysia is tax-exempt. The exempt income can be credited to an
exempt income account and it can be used to declare exempt dividends.

8. Effective 1 January 2022, foreign source income other than dividend income
(15% tax paid in foreign country) remitted back to Malaysia is taxable.

Note:
Please refer to Sample 3 tax computation for the Investment dealing company.
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