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28 June 2022

On 24 May 2022, Malaysia gazetted the Income Tax (The Principal Hub Incentive Scheme) Rules 2022 (“PHISR 2022”), setting out the new conditions for tax incentives under the Principal Hub Incentive Scheme (“Scheme”).

The PHISR 2022 have effect from the year of assessment (“YA”) 2021. Pursuant to rule 2, these rules apply to a qualifying company which applies in writing to the Minister for Finance (“Minister”) for the Scheme through the Malaysian Investment Development Authority (“MIDA”). Such applications must be received between 1 January 2021 and 31 December 2022.

The new conditions for tax incentives under the PHISR 2022 are as follows:

Qualifying company

Pursuant to rule 3 of the PHISR 2022, a qualifying company means “a new company or an existing company that fulfils the eligibility condition imposed by the Minister under the Income Tax Act 1967 and the PHISR 2022”.

A new company is defined as a company which:

  • is incorporated under the Companies Act 2016 and resident in Malaysia;
  • has a paid-up capital of more than RM2,500,000; and
  • is established for the purpose of carrying on a qualifying activity, which:
  • does not have an existing entity or related entity in Malaysia prior to the application referred to in rule 2 being made; or
  • has an existing entity or related entity in Malaysia which has not carried on a qualifying activity in Malaysia prior to the application referred to in rule 2 being made.

An existing company is defined as a company which:

  • is incorporated under the Companies Act 2016 and resident in Malaysia;
  • is already operating in Malaysia and carrying on a manufacturing or services activity other than the qualifying activity prior to the application referred to in rule 2 being made; and
  • has a paid-up capital of more than RM2,500,000.

Qualifying activity

A qualifying activity is a service activity set out in rule 4 of the PHISR 2022 undertaken by a qualifying company as specified in Schedule 1 of the PHISR 2022 and fulfils the eligibility condition prescribed by the Minister. The qualifying activities set out in the Schedule 1 are as follows:

No.

Cluster

Qualifying service

1.

Strategic services

·         Regional profit and loss or business unit management

·         Strategic business planning and corporate development

·         Corporate financial advisory services

·         Brand management

·         Intellectual property management

·         Senior-level talent acquisition and management

2.

Business services

·         Bid and tender management

·         Treasury and fund management

·         Research, development and innovation

·         Project management

·         Sales and marketing

·         Business development

·         Technical support and consultancy

·         Information management and processing

·         Economic or investment research analysis

·         Strategic sourcing, procurement and distribution

·         Logistics services

3.

Shared services

·         Corporate training and human resource management

·         Finance and accounting (transactions, internal audit)


Rate of tax and conditions

The rate of tax and conditions set out in Schedule 2 of the PHISR 2022 are as follows:

Category of qualifying company

Category 1
(new company under rule 3(c)(i))

Category 2
(new company under rule 3(c)(ii))

Category 3
(existing company)

 

Income tax rate

0%

5%

10%

 

Conditions for a qualifying company under the Scheme

Minimum number of full-time new employees in Malaysia with a minimum basic salary of RM5,000 per month and at least 50% of the new employees are Malaysians

50 persons

30 persons

30 persons

 

Minimum number of full-time new employees in Malaysia with a minimum basic salary of RM25,000 per month

5 persons

4 persons

5 persons

 

Minimum amount of annual operating expenditure in Malaysia

RM10 million

RM5 million

RM10 million

 

Extension of tax incentive period

The specified YAs is a period of five consecutive YAs for the implementation of the Scheme commencing from the YA as determined by the Minister.

The Minister may extend the specified YAs for a new company for a further period of five YAs subject to the new company fulfilling all conditions specified in Schedule 3 of the PHISR 2022 and any other conditions imposed by the Minister in the approval letter. The application for extension by the new company must be in writing and received by the Minister through MIDA within 30 days before the expiry of the specified YAs.

The conditions set out in Schedule 3 are as follows:

Category of qualifying company

Category 1
(new company
under rule 3(c)(i))

Category 2
(new company
under rule 3(c)(ii))

Income tax rate

0%

5%

Conditions for the extension of the specified YAs for a new company under the Scheme

Minimum number of full-time new employees in Malaysia with a minimum basic salary of RM5,000 per month and at least 50% of the new employees are Malaysians (to be complied with at the end of the last year of the specified YAs)

60 persons

36 persons

Minimum number of full-time new employees in Malaysia with a minimum basic salary of RM25,000 per month (to be complied with at the end of the last year of the specified YAs)

5 persons

4 persons

Minimum amount of annual operating expenditure in Malaysia (to be complied with at the end of the last year of the specified YAs)

RM13 million

RM7 million