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Extension of tax exemption on management fee income for SRI funds
In Budget 2020, the Government proposed to extend the tax exemption for fund management companies managing Sustainable and Responsible Investment (SRI) funds for another three years (i.e. until the year of assessment (YA) 2023) (see Special Tax Alert: Highlights of Budget 2020).
To legislate this, the Income Tax (Exemption) (No. 5) Order 2021 [P.U.(A) 209] was gazetted on 4 May 2021. The Order provides that a company is exempted from tax on the statutory income derived from the business of providing fund management services for SRI funds in Malaysia.
“Company” refers to a fund management company which is:
- Resident in Malaysia
- Incorporated under the Companies Act 2016, and
- Licensed under the Capital Markets and Services Act 2007 (CMSA) or registered with the Securities Commission of Malaysia (SC) as a venture capital management corporation or a private equity management corporation
The exemption is on condition that the company obtains an annual certification from the SC that the following conditions have been fulfilled:
(a) The company provides fund management services for SRI funds in Malaysia.
(b) The company has incurred an annual operating expenditure of at least RM250,000 in Malaysia.
(c) The company that is:
- Licensed under the CMSA has at least two full-time employees in Malaysia, where one of the employees holds a Capital Markets Services Representative licence under the CMSA, or
- Registered with the SC has at least two full-time employees in Malaysia, where one of the employees is a responsible person approved by the SC
The Order stipulates that the exemption granted does not absolve the company from any requirement to submit any return, statement of accounts or any other information as required under the ITA. The company is also required to maintain a separate account for the income exempted under the Order. The exempted income is to be treated as a separate and distinct source of business income.
The Order also provides that Paragraphs 5 and 6 of Schedule 7A of the ITA will apply to the amount of exempted statutory income. However, the Order will not apply to a company if the company has been granted any incentive under Section 60G of the ITA or exemption under Sections 127(3)(b) or 127(3A) of the ITA for the YA.
The Order is effective from YA 2021 to YA 2023.