The objective of Public Ruling No. 7/2022 is to explain the tax incentives in relation to the venture capital industry in Malaysia.
A Venture Capital Companies (“VCC”) means a company that is:
A VC means a company that is:
A Venture Capital Management Company (“VCMC”) means a company that is:
The following definitions apply to the terms “seed capital financing”, “start-up financing”, and “early stage financing” that were previously mentioned:
“Seed Capital Financing” refers to
“Start-up financing” refers to
Early stage financing is defined as funding given to a VC in the following:
Regulatory Framework for the Venture Capital Industry
The SCM has been tasked with evaluating and certifying applications for tax incentives for the venture capital business in accordance with the pertinent Income Tax Rules and Income Tax (Exemption) Orders. SCM has issued the Guidelines on the Registration of VC and Private Equity Corporations and Management Corporations (revised on 16 April 2020), and the Venture Capital Tax Incentives Guidelines (revised on 28 June 2022), which are available from the SCM’s website at www.sc.com.my.
Tax Exemption Incentive for a Venture Capital Company Investing in a Venture Company
An application for exemption under this Order shall be made to the Minister through SCM on or after 27 October 2017 but not later than 31 December 2023.
A VCC is exempted from the payment of tax in respect of the statutory income:
Conditions to qualify for the tax exemption
During the period of exemption, the VCC shall obtain certification for each YA from the SCM confirming that:
Loss from disposal of investments
Where a VCC incurs a loss from the disposal of investments in a VC in the basis period for any YA within the exempt period, such loss shall be carried forward to the post-exempt period and deducted from the statutory income on all sources of income.
Tax Deduction Incentive for an Individual or a Company Investing in a Venture Company or Venture Capital Company
At present, after the third year from the date the investment is made and the investment holding period is certified by SCM, the investment made shall be deemed to be incurred.
Regardless of whether the investment is sold or otherwise after the third year, tax deduction is given after the third year from the date the investment is made, as recommended by the SCM, and not at the time the investment is made.
Tax Incentive for a Venture Capital Management Company
A VCMC must be registered with the SCM pursuant to the Guidelines on the Registration of VCC and Private Equity Corporations and Management Corporations issued by the SCM.
From the YA 2018 to YA 2026, in accordance with the Income Tax (Exemption) (No.3) Order 2022 [P.U.(A) 116/2022], the VCMC that is registered with the SCM will be exempted from the payment of income tax in respect of the statutory income derived from the management of VCC fund in relation to share of profits, management fees and performance fees, including performance bonus and carried interest on any investment made by the VCC as stipulated in the agreement entered into between the VCMC and the VCC.
Losses in the exemption period
Where a VCMC incurs a loss from the management of VCC fund in the basis period for any YA within the exempt period, the loss shall be carried forward to the post-exempt period and deducted from the statutory income derived from the management of VCC fund.
The VCMC shall maintain a separate account for the income derived from the management of VCC fund in the basis period for each YA and that income shall be treated as a separate and distinct source of business for the VCMC.
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