Advanced Taxation - Bac 4644
Autor: Chia Ying • December 22, 2015 • Course Note • 1,583 Words (7 Pages) • 882 Views
TUTORIAL 6
Advanced Taxation / BAC 4644/Dr Nakha Ratnam Somasundaram
INVESTMENT HOLDING COMPANY
Question
What is an investment holding company?
Answer
These are companies that hold investments and for financial purposes, they generally function as a holding company within a group of companies usually providing common user services with or without charges: in other instances they are used as a vehicle for listing purposes in the Malaysian stock exchange (Bursa Malaysia).
With effect from the year of assessment 2006, one need to distinguish between an ordinary investment holding company, and an investment holding company listed in the Malaysian stock exchange, since the tax treatment are different.
In other words, distinguish:
- an investment holding company (IHC); and
- a listed investment holding company (LIHC)
With effect from the year of assessment, an IHC is defined to mean a company whose activities consists mainly of investments, and not less than 80% of its gross income other than gross income from a source consisting of a business of holding an investments (whether exempt or not) is derived therefrom.
A business of holding of an investment is defined as follows:
It means the business of letting properties and the company also provides maintenance or support services in respect of the property.
In other words, if the company:
- does NOT provide any maintenance services in the letting of the property it is an investment income
- if it provides maintenance services then it a business of letting of property – and the income will be excluded as an investment income for the purposes of the 80% computation
Example 1
Determination of IHC status | |||||||
Sources of income | A | B | C | D | E | ||
Rent (Business) | 85,000 | 20,000 | 0 | 50,000 | 20,000 | ||
Rent (Non-business ) | 0 | 0 | 75,000 | 20,000 | 30,000 | ||
Dividend | 5,000 | 50,000 | 10,000 | 10,000 | 20,000 | ||
Interest | 10,000 | 30,000 | 5,000 | 20,000 | 20,000 | ||
Management fee | 10,000 | 10,000 | |||||
Total income | 100,000 | 100,000 | 100,000 | 100,000 | 100,000 | ||
% of income from | 15÷100 | 80÷100 | 90÷100 | 50÷100 | 70÷100 | ||
holding of investment | 15 | 80 | 90 | 50 | 70 | ||
IHC: Yes/No | No | Yes | Yes | No | No |
Once the 80% criteria is satisfied, and the company is now treated as an investment holding company or not an investment holding company, the rental income is still treated as a section 4(d) source income and NOT a section 4(a) income. The management income is then treated as a section 4(f) income and NOT a section 4(a) income
...