Tax incentive for issuance of sukuk under the principles of Wakalah

Extension of tax incentive for issuance of sukuk under the principles of Wakalah

In Budget 2020, it was proposed that the tax deduction for issuance cost and further deduction on additional issuance cost of sukuk under the principles of Wakalah be extended for another five years, until YA 2025 (see Special Tax Alert: Highlights of Budget 2020).

To legislate the above, the Income Tax (Deduction for Expenditure on Issuance of Sukuk and Retail Sukuk Structured Pursuant to Principle of Wakalah) Rules 2021 [P.U.(A) 5] were gazetted on 12 January 2021. The Rules provide that the following “expenditure” or “additional expenses” incurred by a company on the issuance of sukuk or retail sukuk shall be allowed as a deduction (single and/or double) in ascertaining the adjusted income of the company from its business for a YA:

(a)   Single deduction on the expenditure incurred on the issuance of sukuk structured pursuant to the principles of Wakalah comprising mixed asset and debt components:

(i)    Approved or authorized by, or lodged with, the Securities Commission Malaysia (SC) under the Capital Markets and Services Act 2007 (CMSA), or

(ii)   Approved by the Labuan Financial Services Authority (LFSA) established under the LFSA Act 1996

and

(b)  Single deduction on the “expenditure” and double deduction on the “additional expenses” incurred on the issuance of retail sukukNote structured pursuant to the principles of Wakalah comprising mixed asset and debt components and approved or authorized by the SC under the CMSA

Note:

Retail sukuk is any sukuk that is issued or offered to a retail investor, including sukuk where an invitation to subscribe or purchase the sukuk is made to the retail investor (as defined).

“Additional expenses” have been defined to mean:

(a)   Professional fees relating to due diligence, drafting and preparation of the prospectus

(b)  Printing cost of the prospectus

(c)   Advertisement cost of the prospectus

(d)  SC prospectus registration fee

(e)   Bursa Malaysia processing fee and initial listing fee

(f)    Bursa Malaysia new issue crediting fee, and

(g)  Primary distribution fee

The Rules are effective from YA 2021 until YA 2025.