Malaysia: Tax-Efficient Sectors
Venture Capital Companies
The Securities Commission Malaysia (SC) has released new Venture Capital Tax Incentives Guidelines (VC Tax Incentives Guidelines), to incorporate the new tax incentives for the venture capital industry as stipulated in the Income Tax (Exemption)(Amendment) Order 2009 (Tax Order 2009).
Under the Tax Order 2009, venture capital companies (VCCs) registered with the SC are eligible for tax exemption for five years of assessment subject to them investing at least 30% of their invested funds in the form of seed capital, start-up and/or early stage financing in qualified investee companies. Application for this exemption must be submitted to the SC by December 31, 2013.
This new and more attractive tax exemption incentive supplements existing incentives, where VCCs registered with the SC are eligible for tax exemption for ten years of assessment if they invest either at least 70% of their invested funds in the form of seed capital, start-up or early stage financing or at least 50% of their invested funds in the form of seed capital in qualified investee companies.
In addition to tax incentives in the form of tax exemption for VCCs registered with the SC, the current venture capital tax framework also provides tax deduction for an amount equivalent to the value of the investment made by an individual or a company in qualified investee companies.
Venture capital management companies (VCMC) registered with the SC can also enjoy tax exemption on income arising from a profit-sharing agreement between the VCMC and the VCC. The VCMC, however, need not obtain certification from the SC provided that the VCC under the profit-sharing agreement is registered with the SC and has received certification for tax exemption from the SC.
Financing for the venture companies must be utilised at seed, start-up or early stage for various technology based activities, including products or activities promoted under the Promotion of Investments Act 1986 where the venture companies may have been granted special status and/or have received incentives such as the following:
- Pioneer status or investment tax allowance incentive granted by MIDA or Ministry of International Trade and Industry;
- High technology incentives granted by MIDA;
- MSC status granted by MDeC; or
- Financial assistance from Small and Medium Industries Development Corporation.