Taxing investment holding company now redundant
TTCS Virtual Sharing Session on Indirect Tax

25 April 2023

THE original intention of introducing a specific provision to deal with investment holding companies in 1993 has disappeared because the main income of an investment holding company (IHC) – dividend income – is no longer taxable in the hands of the IHCs.

The reason is that the dividends are single-tiered dividends where the tax has been paid on the underlying income by the company distributing the dividends.

The other intention of introducing this specific provision in 1993 was to restrict the excessive deduction of expenses against dividend income which resulted in a repayment of tax. Prior to 2008, Malaysia had a tax imputation system whereby dividends could only be paid if there were tax credits available to the payer company through a particular section called Section 108. Unless the company had Section 108 credits, it could not distribute dividends.

On the converse, if the expense exceeded the dividend income, you could get a refund of Section 108 credits. To prevent excessive claims for refunds, the authorities enacted Section 60F which severely restricted expenses of investment holding companies.

Is it relevant now?

Now, any expenses relating to dividend income will be disregarded; therefore the original issue of attempting to overclaim expenses against dividend income or obtaining refunds is no longer present.

The other types of income a typical IHC will receive will be from fixed deposit interest, rental and perhaps management fees if it provides such services to its subsidiaries. These types of income can be taxed as that for a normal company without referring to the IHC legislation under Section 60F.

In fact, this piece of legislation is hindering investment holding companies and imposing an extra burden by treating all income as non-business income such as management fees or income from rental businesses. This provision goes against the key motive of forming a company because all companies are formed to carry on a business, which can include holding and managing investments.

It is about time that this piece of legislation under Section 60F be removed because it is redundant and is only adding to the cost of doing business.

There is a sister provision in Section 60FA which deals with investment holding companies listed on Bursa Malaysia. The dividend income received by the listed IHCs are not taxed, and expenses relating thereto are not deductible. However, any other income received by the listed IHC is taxed as business income.

The restriction imposed on this set of companies is less than that for non-listed IHCs. However, if there are losses or capital allowances that cannot be relieved against the particular income, you cannot carry forward the excess.

In today’s environment where businesses should be allowed to operate without any hindrance or restrictions, imposing restrictions on the deductibility of expenses and the carry forward of genuine unused losses or capital allowances appears to be merely hindering and adding costs to IHCs.

The presence of these two provisions has created “uncalled for behaviour” where the holding company delegates as much of its responsibilities to the operating companies below in order to minimise the tax costs that arises because of the restrictions to claim expenses and carry forward the losses and capital allowances.

It is time for the policymakers to consider rewriting this piece of legislation in the 2024 Budget later this year to remove these hurdles to doing business through a holding company structure.

This article is contributed by Thannees Tax Consulting Services Sdn Bhd managing director SM Thanneermalai (

This article was originally published on the Sun daily.

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