Lowtax Network

Back To Top

Your Lowtax Account

Malaysia: Types of Company

The 'Malaysian Satay' V Danish Holding Companies

Since Denmark is currently the benchmark holding company jurisdiction which other holding company jurisdictions seek to emulate a comparative assessment of the 2 jurisdictions is a useful exercise:

  • Withholding Taxes on Incoming Dividends:

    In terms of reducing withholding taxes on incoming dividends Denmark is considered to have 2 distinct advantages over Malaysia namely: 
    • Where the foreign subsidiary is resident in an EU territory all remittances flowing to an EU parent corporation which has held at least 10% of the subsidiary shares for 12 months prior to the distribution are under EU law free of withholding taxes. Since this directive can only apply to an EU member state such as Denmark it puts Danish holding companies at a distinct advantage over their Malaysian counterparts where the subsidiary corporation is an EU resident entity. 

    • When the foreign subsidiary is not resident in an EU territory (such that the EU Parent-Subsidiary directive does not apply) the only means of reducing withholding taxes levied on incoming dividends remitted by the foreign subsidiary to the holding company is through double taxation treaties. Denmark has significantly more double taxation treaties in place than Malaysia, meaning that in this respect Denmark has considerably more scope than Malaysia for the reduction of withholding taxes on incoming dividends. Thus in respect of withholding taxes levied in the foreign subsidiary jurisdiction on outward bound remittances, the Danish holding company enjoys significant advantages over the "Malaysian Satay".

  • Corporate Income Tax on Incoming Dividends:

    In Denmark dividend income received by a Danish holding company from a foreign subsidiary is exempted from corporate income tax provided that the Danish holding company meets the "participation exemption criteria" in that for a minimum period of 12 months prior to the dividend distribution it held at least 10% of the shares of the foreign subsidiary (which subsidiary must not be deemed a "financial company"). If the subsidiary is resident outside the EU and in a country with which Denmark does not have a tax treaty, the dividends are exempt only if the Danish parent holds more than 50% of the shares of the foreign subsidiary.

    By comparison the "Malaysian Satay" is not governed by any "participation exemption rules" specifying a minimum shareholding or time limit if fiscal benefits are to apply. Provided the dividend income is from a non-Malaysian source it is free of corporate income tax in Malaysia. (N.B. By way of exception 3% corporate income tax is levied in Labuan on royalty income received from the resident Malaysian corporation).

    Thus in respect of corporate income tax levied on incoming dividends the "Malaysian Satay" enjoys significant advantages over its Danish counterpart.

  • Capital Gains on the Sale of Shares: 

    A Danish holding company is exempt from any capital gains tax on the profitable sale of shares in a foreign subsidiary provided that it has held the foreign subsidiary's shares for a minimum period of 3 years prior to the disposal and the foreign subsidiary is not deemed a "financial company" (although the 3-year rules will be removed from 2010). 

    By comparison the "Malaysian Satay" is not governed by any participation exemption rules specifying a minimum shareholding or time limit if fiscal benefits are to apply. The "Malaysian Satay" does not pay any capital gains tax in Malaysia on the disposal of shares in a foreign subsidiary irrespective of the size or duration of its shareholding. (N.B. If the foreign subsidiary had been owned by a resident Malaysian company with no Labuan connection then 10% withholding tax is applied on any distributions made by the Malaysian company which represent capital gains from the sale of shares in a foreign subsidiary). 

    Thus in respect of capital gains tax levied on the profitable sale of shares in a foreign subsidiary the "Malaysian Satay" currently enjoys significant advantages over its Danish counterpart.

  • Withholding Taxes on Outgoing Dividends: 

    In Denmark no withholding taxes are deducted from outgoing dividends provided there is a tax treaty in place between Denmark and the country where the foreign parent is located. Where the "Malaysian Satay" corporate structure is deployed no withholding taxes are deducted on remittances made by either: 

    A resident Malaysian Company: to an offshore Labuan company in accordance with the generally accepted fiscal practice that remittances made between resident entities are exempt from withholding taxes; 

    An offshore Labuan Company: to its shareholders given that Labuan is an offshore jurisdiction which does not levy withholding taxes on any transaction.

    Thus in respect of withholding taxes on outgoing remittances the "Malaysian Satay" enjoys significant advantages over its Danish counterpart.

 

 

Back to Malaysia Index »