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Extension of tax exemption for management fee income for Shariah-compliant funds
In Budget 2020, the Government proposed to extend the tax exemption for fund management companies managing Shariah-compliant funds for another three years (i.e. until YA 2023) (see Special Tax Alert: Highlights of Budget 2020).
To legislate this, the following Exemption Orders were gazetted on 29 June 2021 and are effective from YA 2021 to YA 2023:
- Income Tax (Exemption) (No. 6) Order 2021 [P.U.(A) 282]
- Income Tax (Exemption) (No. 7) Order 2021 [P.U.(A) 283]
- Income Tax (Exemption) (No. 6) Order 2021 [P.U.(A) 284]
The Exemption Orders will apply to a company which:
(a) Is incorporated under the Companies Act 2016
(b) Is a Malaysian-resident
(c) Holds a Capital Markets Services Licence under the Capital Markets and Services Act 2007 (CMSA) and carries on a business of providing fund management services to certain categories of recipients (further details outlined below)
The Orders stipulate that the exemption granted does not absolve the company from any requirement to submit any return, statement of accounts or any other information as required under the ITA. The company is also required to maintain a separate account for the income exempted under the Orders. The exempted income is to be treated as a separate and distinct source of business income.
Income Tax (Exemption) (No. 6) Order 2021
The Order provides that a company is exempted from tax on the statutory income derived from the business of providing fund management services to business trusts or real estate investment trusts (REIT) in Malaysia.
The exemption is on condition that the company obtains an annual certification from the Securities Commission Malaysia (SC) that the following conditions have been fulfilled:
(a) The company provides fund management services to business trusts or REITs in Malaysia in accordance with Shariah principles.
(b) The company has at least two full-time employees in Malaysia, with one of the employees holding a Capital Markets Services Representative Licence under the CMSA.
(c) The company incurs an annual operating expenditure of at least RM250,000 in Malaysia.
Income Tax (Exemption) (No. 7) Order 2021
The Order provides that a company is exempted from tax on the statutory income derived from the business of providing fund management services to local investors in Malaysia.
“Local investors” are defined in the Order to mean:
(a) Individuals who are citizens of Malaysia and resident in Malaysia
(b) Companies where the entire issued share capital is beneficially owned (directly or indirectly) by any person who is a citizen of Malaysia and resident in Malaysia
(c) A trust fund where the entire interest in the fund is beneficially held (directly or indirectly) by any person who is a citizen of Malaysia and resident in Malaysia. In this case, the trust fund refers to a fund that is created in Malaysia, with trustees who are citizens of Malaysia and residents in Malaysia.
The exemption is provided on condition that the company obtains an annual certification from the SC that the following conditions have been fulfilled:
(a) The company provides fund management services to local investors in Malaysia in accordance with Shariah principles.
(b) The company has at least two full-time employees in Malaysia, with one of the employees holding a Capital Markets Services Representative Licence under the CMSA.
(c) The company incurs an annual operating expenditure of at least RM250,000 in Malaysia.
The Order provides that Paragraphs 5 and 6 of Schedule 7A of the ITA will apply to the amount of exempted statutory income. The Order also stipulates that Section 60G of the ITA will not apply to the statutory income exempted under this Order.
Income Tax (Exemption) (No. 8) Order 2021
The Order provides that a company is exempted from tax on the statutory income derived from the business of providing fund management services to foreign investors in Malaysia.
“Foreign investors” are defined in the Order to mean:
(a) Individuals who are not residents in Malaysia or not citizens of Malaysia
(b) Companies where the entire issued share capital is beneficially owned (directly or indirectly) by any person who is not a citizen of Malaysia and not a resident in Malaysia
(c) A trust fund where the entire interest in the fund is beneficially held (directly or indirectly) by foreign investors, where the trustees of the fund are not residents in Malaysia and not citizens of Malaysia. In this case, it does not matter where the trust fund is created (i.e. whether in or outside Malaysia).
The exemption is provided on condition that the company obtains an annual certification from the SC that the following conditions have been fulfilled:
(a) The company provides fund management services to foreign investors in Malaysia in accordance with Shariah principles.
(b) The company has at least two full-time employees in Malaysia, with one of the employees holding a Capital Markets Services Representative Licence under the CMSA.
(c) The company incurs an annual operating expenditure of at least RM250,000 in Malaysia.
The Order provides that Paragraphs 5 and 6 of Schedule 7A of the ITA will apply to the amount of exempted statutory income. The Order also stipulates that Section 60G of the ITA will not apply to the statutory income exempted under this Order.