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Tax Alert Vol. 25 - No. 9_9 May 2022
Tax incentive for equity crowdfunding (ECF)
In Budget 2021, to encourage individuals to invest in ECF, it was proposed that individual investors be given an income tax exemption, subject to limits (see Take 5: Malaysia Budget 2021).
To legislate the above proposal, the Income Tax (Exemption) (No. 4) Order 2022 [P.U.(A) 142] was gazetted on 28 April 2022. The Order 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 YA. The amount is limited to 10% of the aggregate income of the qualifying individual for the YA in which the exemption is granted.
The exemption is given in the second YA following the YA in which the investment is made by the qualifying individual.
To qualify for the incentive, the following conditions must be complied with:
(a) The qualifying individual is required to make an investment in:
i) An investee company between 1 January 2021 and 31 December 2023, and
ii) The form of holding shares which are paid in cash to the investee company through an ECF platform or through a nominee company
(b) The qualifying individual obtains 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.
(c) The investment is not disposed of, either in full or partially, within two years from the date the investment is made
(d) The qualifying individual does not have a parent (including parent-in-law),child (including stepchild or child adopted in accordance with any law),brother, sister, grandparent, grandchild or spouse who has invested in the investee company
The following terms have been defined in the Order:
(i) Qualifying individual
Individual who is a Malaysian-resident and makes an investment in an investee company
(ii) ECF operator
A company incorporated under the CA and registered with the SC as a recognized market operator to operate an ECF platform in Malaysia under the Guidelines on Recognized Markets issued by the SC
(iii) ECF platform
Online equity fundraising platform operated by an ECF operator
(iv) Nominee company
A company which is:
(a) Incorporated under the CA,
(b) A Malaysian-resident, and
(c) Established by an ECF operator in Malaysia to receive investments from qualifying individuals for investment purposes through an ECF platform into an investee company
(v) Investee company
A company which is:
(a) Incorporated under the CA (excluding an exempt private company specified under Section 2 of the CA),
(b) A Malaysian-resident, and
(c) Hosted on an ECF platform to offer its shares
(ii) Shares
Shares offered on the ECF platform
The Order stipulates that the exemption granted does not absolve the qualifying individual from any requirement to submit any return, statement of accounts or any other information as required under the ITA.
The non-application provisos also stipulate that the Order shall not apply where the qualifying individual has:
(a) Made a claim for deduction under P.U.(A) 117 (see above), or
(b) Been granted exemption under Income Tax (Exemption) Order (No. 3) 2014 [P.U.(A) 167/2014]
The Order is effective from YA 2021.