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Guidelines for Principal Hub (PH) incentive 3.0
In Budget 2021, the Government proposed that the application period for the Principal Hub (PH) incentive be extended for two years, until 31 December 2022. It was also proposed that the existing qualifying conditions relating to the number of high value jobs, annual operating expenditure and number of key posts be relaxed for the second five-year period of the incentive (see Take 5: Malaysia Budget 2021).
Following the above, the Malaysian Investment Development Authority (MIDA) has recently published on its website the “Guidelines for Principal Hub Incentive 3.0” (PH 3.0 Guidelines), which are effective from 1 January 2021.
A PH is a locally incorporated company that uses Malaysia as a base to conduct its regional or global businesses and operations and to manage, control and support its key functions, including management of risks, decision-making, strategic business activities, finance, management and human resource. Trading activities (which were part of PH 2.0) have been removed from PH 3.0 and are now covered under the Global Trading Centre (GTC) incentive (refer to the next article).
To qualify for the incentive, the PH must:
- Be a Malaysian-resident company incorporated under the Companies Act 2016
- Have paid-up capital of more than RM2.5 million
The PH 3.0 Guidelines stipulate that applications for the incentive must be received by MIDA between 1 January 2021 and 31 December 2022. The applications will be evaluated and approved by the National Committee on Investments (NCI).
An approved PH will be eligible for a concessionary tax rate on its statutory income from qualifying services (outlined in Appendix I to this Alert), depending on its level of commitment. The key details are as outlined in Appendix II to this Alert.
An approved PH must comply with the stipulated conditions throughout the incentive period. In the event the company fails to comply with the conditions in any year of assessment (YA) during the incentive period, the company may not enjoy the tax incentive for that YA.
The PH 3.0 Guidelines also explain the facilities that are accorded to an approved PH, the application process for the incentive as well as the compliance requirements throughout the incentive period.
Further details are available on the MIDA website [Forms & Guidelines - MIDA | Malaysian Investment Development Authority > Services sector > Regional operations > Principal Hub]
APPENDIX I
Qualifying services under PH 3.0
|
Type of services |
Description |
|---|---|
|
Strategic services |
|
|
Business services |
|
|
Shared services |
|
*Service activities which exclude royalties and other income derived from intellectual property rights owned by the company
APPENDIX II
Eligibility criteria for PH 3.0
- Category I: New manufacturing or services company
|
Criteria |
Tier 1 |
Tier 2 |
||
|---|---|---|---|---|
|
Tax incentive period (years) |
5 |
+5 (extension) |
5 |
+5 (extension) |
|
Concessionary tax rate |
0% |
5% |
||
|
Annual operating expenditureNote 1 |
RM10 million |
RM13 million |
RM5 million |
RM7 million |
|
Number of high value jobs with a basic salary of at least RM5,000 per month
|
50 |
60 |
30 |
36 |
|
Number of key positions with a basic salary of at least RM25,000 per month |
5 |
5 |
4 |
4 |
|
Serve and control a minimum number of network companies |
10 (including 4 related companies) Under PH 2.0, 15 companies (including 4 related companies) |
7 Under PH 2.0, 10 companies (including 3 related companies) |
||
|
Qualifying services |
Regional P&L / business unit management, strategic business planning and corporate development, and two other qualifying services* under strategic services, business services or shared services |
|||
|
Use of local ancillary services |
Local financial institution services (including finance and treasury), logistics, legal and arbitration services, finance and treasury services |
|||
*Refer to Appendix I
Note 1:
Expenses incurred to carry out day-to-day operations of the PH, excluding cost of goods sold (as indicated in the Guidelines) and/or cost of services and expenses which are not directly related to the core income-generating activities of the PH such as depreciation and interest on borrowings. The amount will be based on the operating expenditure reflected in the company’s audited financial statements, excluding interest, depreciation and other expenses which are not incurred for the production of the services income.