Introduction
The investment holding company in Malaysia is defined under Public Ruling No. 2/2024 (PR 02/2024) by the Inland Revenue Board of Malaysia (IRBM).
An Investment Holding Company (IHC) mainly holds investments rather than carrying on active business operations. Determining IHC status affects how the company is assessed under the Income Tax Act 1967 (ITA), especially in differentiating passive investment income from active business income.
Definition of an Investment Holding Company (IHC)
Under PR 02/2024, a company is considered an IHC if:
- Its principal activity is the holding of investments, and
- At least 80% of its gross income (excluding business income from the holding of investments) arises from investment sources such as dividends, interest, or rental income.
Only income under Section 4(c) (interest, dividends) and Section 4(d) (rental) of the ITA 1967 are included in the 80% test.
Income from business rental (Section 4(a)) — where active maintenance or support services are provided — is excluded as it is not purely investment holding.
Business of Holding of an Investment vs Active Rental Business
An IHC is typically engaged in passive letting of property.
If a company provides comprehensive maintenance or support services — such as building management, landscaping, or facility upkeep — it is regarded as carrying on an active rental business, not passive investment holding.
🔹 Example:
Providing only security or access control is not considered comprehensive or active.
Providing full maintenance and management services is active business, not investment holding.
Temporary Cessation of Tenancy
If a company temporarily loses tenants or stops collecting rent due to:
- Building repair or renovation,
- Absence of tenants (up to 2 years after termination),
- Legal injunction or government order, or
- Other unavoidable circumstances,
then the company remains treated as a non-IHC during those affected years, even if more than 80% of its gross income arises from investments.
This ensures that temporary rental disruptions do not unfairly change the company’s tax classification.
Deeming Provision for IHC Status
Once a company is determined to be an IHC in a particular Year of Assessment (YA), it will continue to be deemed an IHC in subsequent years — unless the company can prove that it no longer meets the definition in that year.
This deeming rule provides administrative consistency for tax purposes.
Key Takeaways
- An Investment Holding Company (IHC) mainly earns from passive income such as dividends, interest, and rental.
- The 80% test determines whether a company qualifies as an IHC.
- Providing comprehensive maintenance services changes classification to active business.
- Temporary vacancy does not affect non-IHC status.
- Deeming provision ensures continuity once IHC status is established.
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