Tax exemption for gains from disposal of shares in connection with listing exercise gazetted
09 October 2024
The
Income Tax (Initial Public Offering) (Exemption) Order 20241 (“
Exemption Order”) was gazetted on 8 October 2024. The Exemption Order will have effect from 1 March 2024 to 31 December 2028.
The Exemption Order exempts a company, limited liability partnership, trust body or co-operative society (severally “
eligible disposer” and collectively “
eligible disposers”) from the payment of income tax in respect of chargeable income from gains or profits received from the disposal of shares of a company incorporated in Malaysia which is not listed on Bursa Malaysia Securities Berhad (“
Bursa Malaysia”) subject to the following conditions being fulfilled:
- the disposal of shares is made within the period from 1 March 2024 to 31 December 2028;
- the shares are disposed of in relation to restructuring of any company for an initial public offering;
- the eligible disposers2 shall apply for the initial public offering under the Capital Market and Services Act 2007 within one year from the date of the disposal of shares:
- to the Securities Commission Malaysia for the listing on the Main Market of Bursa Malaysia; or
- to Bursa Malaysia for the listing on the Access, Certainty, Efficiency Market (ACE Market) and the Leading Entrepreneur Accelerator Platform Market (LEAP Market) of Bursa Malaysia; and
- the eligible disposers3 shall obtain the approval for the application of the initial public offering referred to in paragraph (3) above on or before 31 December 2028.
The eligible disposers shall apply to the Director General of Inland Revenue within one year from the date of approval for the application of the initial public offering referred to in paragraph (3) above.
Any loss incurred by an eligible disposer from the disposal of shares within the period from 1 March 2024 to 31 December 2028 shall be disregarded for the purposes of subsections (5) and (6) of section 65E
4 of the Income Tax Act 1967 (“
Act”).
The Exemption Order does not apply to:
- a disposal of shares of a company incorporated in Malaysia which is not listed on Bursa Malaysia where gains or profits from the disposal of shares is chargeable to tax as a business income under paragraph 4(a) of the Act;
- an eligible disposer who has made an application for exemption under the Income Tax (Restructuring of Companies Scheme) (Exemption) Order 20245 in respect of the same disposal of shares; or
- an eligible disposer which has been granted a tax exemption under section 127(3)(b) or section 127(3A)6 of the Act in respect of the same disposal of shares.
The grant of the exemption under the Exemption Order is one of the exemptions from the imposition of capital gains tax in Malaysia which commenced from 1 March 2024. The Exemption Order removes the imposition of capital gains tax on gains from the disposal of shares as a financial obstacle to corporate restructuring schemes that are part of a proposed listing of shares on Bursa Malaysia.
Alert by Kok Chee Kheong (Partner) of the Corporate Practice of Skrine.
2 It would be more appropriate to refer to the purchaser of the shares, i.e. the company that is applying for a listing on any of the prescribed stock exchanges.
3 The comment in endnote 2 applies.
4 Section 65E(5) permits losses from the disposal of a capital asset to be deducted to reduce the adjusted income of an eligible disposer from a subsequent disposal of capital assets in the same basis period for a year of assessment in which the disposal was made, whilst section 65E(6) permits the loss to be carried forward to reduce the adjusted income in subsequent disposals of capital assets by the eligible disposer for up to the subsequent 10 consecutive years of assessments if there is insufficiency or absence of adjusted income in the basis period for the year of assessment in which the shares were disposed.
6 Sections 127(3)(b) and 127(3A) relate to specific exemptions from income tax granted by the Minister of Finance to a particular person or class of persons in respect of a particular kind or class of income.
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