Frequently Asked Questions (FAQs) on tax incentive for equity crowdfunding (ECF)

Frequently Asked Questions (FAQs) on tax incentive for equity crowdfunding (ECF)

The Income Tax (Exemption) (No. 4) Order 2022 [P.U.(A) 142], gazetted on 28 April 2022, provides that a qualifying individual is given an income tax exemption in respect of his aggregate income equivalent to 50% of the amount of investment, up to a maximum of RM50,000 for each year of assessment (YA). The amount is limited to 10% of the aggregate income of the qualifying individual for the YA in which the exemption is granted (see Tax Alert No. 9/2022).

The Securities of Commission (SC) has published on its website the FAQs on ECF tax exemption, issued on 30 August 2023, to provide further clarification on the incentive above. Some of the important clarifications are as below:

• The exemption is given in the second YA following the YA in which the investment is made by the qualifying individual. The FAQs provide some examples of this, as follows:

As highlighted in the Exemption Order, to qualify for the exemption, the investment must not be disposed of, either in full or in part, within two years from the date the investment is made.

The FAQs provide that the “date of investment” refers to the closing date of the issuer’s fundraising campaign on the ECF platform. The investor will not be entitled to apply for the exemption if he or she exercises their cooling off rights.

• The FAQs provide that a qualifying investor may make multiple investments in different ECF platforms in a year. However, the exemption is limited to the specified amount as stated earlier.
• The FAQs reiterate the procedure to obtain an annual certification from the ECF operator in relation to the investment and amount of investment. The annual certification needs to be verified by the SC.