New conditions for tax incentives under Principal Hub Incentive Scheme gazetted in Malaysia

28 June 2022

On 24 May 2022, Malaysia gazetted the Income Tax (The Principal Hub Incentive Scheme) Rules 2022 (“PHISR 2022”), setting out the new conditions for tax incentives under the Principal Hub Incentive Scheme (“Scheme”).

The PHISR 2022 have effect from the year of assessment (“YA”) 2021. Pursuant to rule 2, these rules apply to a qualifying company which applies in writing to the Minister for Finance (“Minister”) for the Scheme through the Malaysian Investment Development Authority (“MIDA”). Such applications must be received between 1 January 2021 and 31 December 2022.

The new conditions for tax incentives under the PHISR 2022 are as follows:

Qualifying company

Pursuant to rule 3 of the PHISR 2022, a qualifying company means “a new company or an existing company that fulfils the eligibility condition imposed by the Minister under the Income Tax Act 1967 and the PHISR 2022”.

A new company is defined as a company which:

• is incorporated under the Companies Act 2016 and resident in Malaysia;
• has a paid-up capital of more than RM2,500,000; and
• is established for the purpose of carrying on a qualifying activity, which:
• does not have an existing entity or related entity in Malaysia prior to the application referred to in rule 2 being made; or
• has an existing entity or related entity in Malaysia which has not carried on a qualifying activity in Malaysia prior to the application referred to in rule 2 being made.

An existing company is defined as a company which:

• is incorporated under the Companies Act 2016 and resident in Malaysia;
• is already operating in Malaysia and carrying on a manufacturing or services activity other than the qualifying activity prior to the application referred to in rule 2 being made; and
• has a paid-up capital of more than RM2,500,000.

Qualifying activity

A qualifying activity is a service activity set out in rule 4 of the PHISR 2022 undertaken by a qualifying company as specified in Schedule 1 of the PHISR 2022 and fulfils the eligibility condition prescribed by the Minister. The qualifying activities set out in the Schedule 1 are as follows:

Rate of tax and conditions

The rate of tax and conditions set out in Schedule 2 of the PHISR 2022 are as follows:

Extension of tax incentive period

The specified YAs is a period of five consecutive YAs for the implementation of the Scheme commencing from the YA as determined by the Minister.

The Minister may extend the specified YAs for a new company for a further period of five YAs subject to the new company fulfilling all conditions specified in Schedule 3 of the PHISR 2022 and any other conditions imposed by the Minister in the approval letter. The application for extension by the new company must be in writing and received by the Minister through MIDA within 30 days before the expiry of the specified YAs.

The conditions set out in Schedule 3 are as follows: