6 November, 2019
On 8 October 2019, the Malaysian Investment Development Authority ("MIDA") announced enhancements to the Principal Hub ("PH") incentive, referring to it as the PH 2.0 incentive. Following the announcement, MIDA issued new guidelines for PH 2.0, which are applicable to PH applications received by MIDA from 1 January 2019 to 31 December 2020.
We discuss below the key features of the guidelines, and what they may mean to you.
Concessionary Tax Rates under PH 2.0
Locally incorporated companies that satisfy specific conditions will be able to enjoy the following concessionary corporate income tax ("CIT") rates on trading and services income derived from qualifying PH activities:
Category | Concessionary CIT Rate | Period of Enjoyment | |
(a) | New companies | Tier 1: 0% Tier 2: 5% |
5 years (plus an extension of 5 years where additional conditions are satisfied) |
(b) | Existing companies | 10% (instead of a full tax exemption on value added income under the previous PH regime) |
5 years |
It should be noted that royalties and other income derived from intellectual property rights owned by the PH company are excluded from the PH 2.0 incentive.
The PH company will also be entitled to a customs duty exemption when bringing raw materials, components, or finished products into free industrial zones, licensed manufacturing warehouse, free commercial zones, and bonded warehouses for production or re-packaging, cargo consolidation and integration before distribution to its final consumers.
Minimum Requirements
We have set out below the key minimum requirements:
Eligibility Conditions | |
Company Status |
|
Local Equity / Ownership |
|
Paid-up Capital |
|
Core Income Generating Activities |
(i) regional profit and loss ("P&L") / business unit management services; and (ii) strategic business planning and corporate development activities.
|
Network Companies |
|
Employment Requirements |
|
Annual Operating Expenditure |
|
Annual Sale Turnover |
|
Use of Local Ancillary Services |
|
Qualifying Services
The list of qualifying PH services are as follows:
No. | Cluster | Qualifying Service |
1. | Strategic services |
|
2. | Business Services |
|
3. | Shared services |
|
Compliance Obligations
A PH company is required to submit a PH Compliance Assessment Form within 6 months from the financial year-end of the company to MIDA on an annual basis forperformance evaluation. Failure to do so within the stipulated timeline or to request for an extension of time will cause the incentive to be withdrawn.
In addition, the new guidelines state that the PH company is required to comply with the specified conditions throughout the exemption period. If the PH company fails to comply with the stipulated conditions in any year of assessment, it will not be entitled to the exemption for that year of assessment. This signals the Malaysian Government's intention to tighten enforcement of the requirements, in line with international standards for tax incentives and preferential regimes.
Next Steps
The PH incentive was first introduced in 2015 in an effort to attract multinational companies to set up their regional and global operations to manage, control and support key functions including risk management, decision-making, strategic business activities in Malaysia.
We will be monitoring legislative updates relating to the PH incentive. At the time of this alert, the relevant statutory orders have not yet been made available to revise the incentive.
Companies interested in applying for the PH 2.0 incentive should consider the eligibility criteria and conditions in greater detail, especially since the Government has signaled its intention to tighten enforcement in the future.
Our team can support companies with their preliminary assessments of eligibility, and also with the preparation and submission of their PH 2.0 applications to MIDA
For further information, please contact:
Adeline Wong, Partner, Wong & Partners
adeline.wong@wongpartners.com