Tax exemption for gains from disposal of shares in connection with company restructuring scheme gazetted
09 October 2024
The
Income Tax (Restructuring of Companies) (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”) (“
relevant shares”) subject to the following conditions being fulfilled:
- the disposal of the relevant shares is made within the period from 1 March 2024 to 31 December 2028;
- the relevant shares are disposed of under a scheme for restructuring of companies in the same group to increase the operational efficiency of the eligible disposer, or the acquirer company or both;
- the consideration for the disposal of the relevant shares shall consist of shares in the acquirer company or not less than 75% of shares in the acquirer company and the balance of a money payment; and
- the consideration shares referred to in paragraph (3) above are issued to the eligible disposers.
An eligible disposer shall apply in writing to the Director General of Inland Revenue after a period of three years from the date of the disposal of the relevant shares by the eligible disposer. The eligible disposer shall comply with the conditions imposed by the Minister of Finance as specified in the guidelines issued by the said Director General under section 134A of the Income Tax Act 1967 (“
Act”).
Any loss incurred by an eligible disposer from the disposal of the relevant 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
2 of the Act.
If the acquirer company subsequently disposes of the relevant shares, the acquisition amount or value of consideration determined for the relevant shares shall be deemed to be equal to the amount or value of consideration determined under section 65E(2)(b) of the Act paid for the relevant shares by the eligible disposer plus the allowable expenses under sections 65E(2)(a)(i) and 65E(2)(a)(ii) of the Act incurred by the eligible disposer
3.
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;
- a disposal of shares by an eligible disposer in respect of restructuring of any companies for the purposes of an initial public offering and the application for the initial public offering has been made to the Securities Commission Malaysia or Bursa Malaysia; or
- an eligible disposer which has been granted a tax exemption under section 127(3)(b) or section 127(3A)4 of the Act in respect of the same disposal of shares.
The Exemption Order is welcomed as it removes the imposition of capital gains tax on gains from the disposal of shares as a financial obstacle to company restructuring schemes that come within the ambit of the Exemption Order.
Alert by Sheba Gumis (Partner) of the Corporate Practice of Skrine.
2Section 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 the 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.
3 Section 65E(2) sets out the allowable deductions and amounts to be added back in determining the adjusted income of an eligible disposer from the gains or profits from the disposal of capital asset,
4 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.
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.