Investment Holding Company
4.7.1 The provisions of the Income Tax Act 1967 (ITA)
Paragraphs 4(a), 4(d), 4(f), 8(1)(b) and 8(1)(c), sections 43, 44, 60F and 60FA as
well as paragraph 75 of Schedule 3 and paragraph 12B of Schedule 6.
4.7.2 Definition of an Investment Holding Company
Generally, the determination of whether a company is an IHC depends on two (2)
criteria:
(a) its main activity is the holding of investments; and
(b) not less than 80% of the company’s gross income other than gross income
from a source consisting of a business of holding of an investment (whether
exempt or not) is derived from the holding of those investments.
Example 3
Jelly Investment Sdn Bhd (Jelly) started business in year 2012 and its main
activity is investment in several companies and fixed deposit. For the year 2015,
Jelly only receives dividend income from the investment in those companies and
fixed deposit interest. Jelly closes its account on 31 December every year.
Required:
Is Jelly Investment Sdn Bhd an investment holding company?
Answer:
Jelly Investment Sdn Bhd is an IHC for the year of assessment 2015 since its
main activity is the holding of investments and not less than 80% of its gross
income (only dividend and interest) is derived from the holding of those
investments.
Example 4
Ladang Sdn Bhd started business in year 2012 and its main activity is oil palm
plantation. Apart from that, Ladang Sdn Bhd also invests in several companies
and fixed deposit in several banks. In year 2015, the company receives interest
amounting to RM10,000 from the fixed deposit. The company has not generated
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any income from the plantation activity. The company closes its account on 31
December every year.
Required:
Is Ladang Sdn Bhd an investment holding company?
Even though the income of Ladang Sdn Bhd is 100% derived from the saving in
fixed deposit, Ladang Sdn Bhd is not an IHC for the year of assessment 2015
since its main activity is not the holding of investments but oil palm plantation.
4.7.3 Tax Treatment of IHC
The tax treatment for an IHC depends on whether the IHC is or is not listed on
the Bursa Malaysia. The special tax treatment for an IHC is provided under:
(a) section 60F of the ITA for an IHC not listed on the Bursa Malaysia; and
(b) section 60FA of the ITA for an IHC listed on the Bursa Malaysia
The income tax treatments of a non-listed and listed IHC are listed below:
Non-listed IHC Listed IHC
Classification of income Rental income –Section 4d Rental
Interest – Section 4c Interest
Dividend - Section 4c Dividend – Separate
deemed
Investment income business
income S.4a
Non-investment income =
Section 4f.
Management fees treated as
`other income’ rather than Management fees treated as
business income. business source.
Direct expenses incurred Expenses are deductible Expenses are deductible
in the production of against each source under against each source under
income Section 33(1), but restricted to Section 33(1), but restricted to
the gross income from the the gross income of the deemed
investment source. business source.
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Expenses related to single tier Expenses related to single tier
dividend are specifically not dividend are specifically not
deductible. deductible.
Common expenses Deduction is given at the level The expenses are deductible in
of aggregate in arriving at total arriving at the adjusted income
income. of the various deemed business
These are subjected to a source.
restrictive formula of permitted
expenses: Common expenses are fully
A x B/4C. apportioned to the separate
deemed business source and
[A is the total permitted deductible but restricted to the
expenses, B is the gross available gross income.
investment income chargeable
to tax and C is the aggregate The restrictive formula A x B/4C
of gross investment income is not applicable.
(taxable and exempt) and
gains from the realization of Common expenses relating to
investments. deemed business single tier
dividend are specifically not
The amount allowable is deductible.
further restricted to 5% of
gross taxable income.
Any unabsorbed permitted
expenses cannot be carried
forward
Only proportion of permitted
expenses relating to the
management fees is tax
deductible
The amount related to single
tier dividend is not deductible.
Availability of capital Capital allowances cannot be For a deemed business, CA are
allowances claimed. allowed but any unabsorbed CA
cannot be carried forward.
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Example 5
The Statement of Profit or Loss for the year ended 31 December 2015 of a non-listed IHC,
whose sole activity is in the making of investment is as follows:
RM
Gross income
Interest from fixed deposits 60,000
Rental from shop (note 1) 50,000
Dividend -Co. A (single tier) – note 1 150,000
Dividend from Co. B (single tier) – note 1 75,000
Rental from sublet of office 20,000
Gain from realization of investments 86,000
441,000
Expenses
Directors’ remuneration 50,000
Employees’ salaries 30,000
Accounting and secretarial fees 10,000
Audit fee 20,000
Interest (note 2) 40,000
Printing and stationery 2,000
Management expenses 28,000
Rent for office 50,000
Quit rent and assessment 2,000
Entertainment 3,000
Depreciation 5,000 240,000
Net profit 201,000
Notes:
1. Investment:
Cost Rental Dividend
RM RM RM
Shop 500,000 50,000 -
Co.A 2,000,000 - 150,000
Co B 1,000,000 - 75,000
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2. Interest expenses of RM40,000 was incurred on loans for the investments in shop house
and shares.
Required:
Calculate chargeable income of the company for the year of assessment 2015.
Answer:
RM
Section 4c: Dividend Exempt
Section 4c: Interest 60,000
Rent (shop) 50,000
(-) interest 40,000 x 500,000/ 3,500,000 (5,714)
(-) quit rent (2,000)
Adjusted income from rent 42,286
Aggregate income 102,286
(-) fraction of Permitted Expenses (5,500)
[note1]
Chargeable income 96,786
Note 1:
Permitted Expenses RM
Directors’ remuneration 50,000
Employees’ salaries 30,000
Accounting and secretarial fees 10,000
Audit fee 20,000
Printing and stationery 2,000
Management expenses 28,000
Rent for office 50,000 – sublet 20,000 30,000
A 170,000
Gross income chargeable to tax RM
Interest 60,000
Rent 50,000
B 110,000
Aggregate of gross income (exempt or taxable) RM
Interest 60,000
Rent 50,000
Dividend (exempt) 225,000
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Gain from realization of investments 86,000
C 421,000
A x B /4C = 170,000 x 110,000
4 x 421,000
= 11,105 or
5% of B (5% x 110,000 = 5,500),whichever is lower, therefore the lower amount
is RM5,500.
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