Securities Commission Malaysia revises venture capital and private equity framework
09 December 2022
On 28 November 2022, the Securities Commission Malaysia (‘SC’) issued the following revised guidelines:
Both sets of the revised guidelines took effect on 28 November 2022.
The Revised VC/PE Guidelines
The Revised VC/PE Guidelines which replaces the previous version issued on 16 April 2020 (‘the superseded VC/PE guidelines’) aims to create a more conducive environment and increase the vibrancy of the market for venture capital (‘VC’) and private equity (‘PE’) asset classes and to add to the range of funding options available to micro, small and medium-sized enterprises (MSMEs) that are start-ups or high-growth enterprises.
The main changes under the Revised VC/PE Guidelines are as follows:
- Revising the registration requirements so that only firms carrying on fund management activities for VC and PE are required to be registered under the Revised VC/PE Guidelines. Entities that are solely fund vehicles will no longer need to be registered under the Revised VC/PE Guidelines;1
- Removing the 50-investor limit on VC and PE funds;2
- Expanding the pool of eligible investors who can invest in VC and PE funds by introducing a minimum investment amount of RM250,000 (or its equivalent in foreign currency) as an additional eligibility criterion;3 and
- Streamlining the requirements applicable to all registered corporations (i.e. venture capital corporation (‘VCC’), private equity corporation (‘PEC’), venture capital management corporation (‘VCMC’) and private equity management corporation (‘PEMC’)) by requiring all registered corporations to:
- maintain at all times minimum net assets of RM100,000;4 and
- have at least one responsible person.5
The Revised Tax Incentives Guidelines
The Revised Tax Incentives Guidelines, like its predecessor issued on 28 June 2022 (‘
the superseded tax incentives guidelines’) set out the types of tax incentives available for the venture capital industry
6, the qualifying criteria or requirements which must be fulfilled before a certification can be granted and the procedures for application.
The main changes made to the superseded tax incentives guidelines under the Revised Tax Incentives Guidelines are as follows:
- The definition of ‘Venture capital company (VCC)’ in paragraph 2.01 of the Revised Tax Incentives Guidelines has been amended to introduce a requirement that in relation incentives available to VCMCs under paragraph 1.03(b) (i.e. income tax exemption on share of profits, management fees, performance fees (including performance bonus and carried interest) received by a VCMC from a VCC) (‘the VCMC incentive’), the VCC must be registered under the Revised Tax Incentives Guidelines; and
- A new paragraph 4.04A provides that for a VCMC to be eligible for the VCMC incentive, the VCMC must apply for the registration of the VCC by submitting any information as required by the SC;
- The qualifying conditions set out in paragraph 4.07 of the Revised Tax Incentives Guidelines have been extended to a VCC from whom a VCMC receives tax exempted income under the VCMC incentive; and
- The application procedures for certification by the SC under the Revised Tax Incentives Guidelines via the SC’s website have been extended to applications for registration under the Revised Tax Incentives Guidelines.
Comments
The removal of the 50-investor limit on VC and PE funds, the introduction of a new category of sophisticated investors, the dispensation from registration of fund vehicles and the alignment of the requirements relating to PECs and PEMCs with those applicable to VCCs and VCMCs are certainly welcomed developments. However, the extent to which these enhancements under the Revised VC/PE Guidelines will boost the VC/PE industry in Malaysia remains to be seen.
Alert by Sheba Gumis (Partner) and Faith Chan (Associate) of the Corporate Practice of Skrine.
1 Refer to paragraph 3.01 of the Revised VC/PE Guidelines.
2 Paragraph 8.02 of the superseded VC/PE guidelines which sets out the 50-investor limit has been deleted from the Revised VC/PE Guidelines.
3 Refer to new paragraph (b) of amended definition of ‘sophisticated investor’ in paragraph 2.01 of the Revised VC/PE Guidelines.
4 This requirement is set out in paragraph 3.03 of the Revised VC/PE Guidelines. Paragraph 3.03 of the superseded VC/PE guidelines requires a VCC or VCMC to maintain at all times minimum shareholders’ funds or capital contribution of RM100,000, whilst paragraph 3.02 of the superseded VC/PE guidelines requires a PEC or PEMC to maintain at all times minimum shareholders’ funds or capital contribution of RM500,000.
5 This requirement is set out in paragraph 4.01 of the Revised VC/PE Guidelines. Paragraph 4.01 of the superseded VC/PE guidelines requires a VCC or VCMC to have at least one responsible person, whilst paragraph 4.02 of the superseded VC/PE guidelines requires a PEC or PEMC to have at least two responsible persons. Requirements relating to a responsible person are set out in Chapter 4 of the Revised VC/PE Guidelines.
6 The tax incentives available are listed in paragraph 1.03 of the Revised Tax Incentives Guidelines.
This alert contains general information only. It does not constitute legal advice nor an expression of legal opinion and should not be relied upon as such. For further information, kindly contact skrine@skrine.com.