Principal Hub Incentive 2.0

The following gazette orders for Principal Hub (“PH”) 2.0 incentives have been issued on 23 August 2023:

Income Tax (Exemption) (No.2) Order 2023 (“EO No.2”); and
Income Tax (Exemption) (No.3) Order 2023 (“EO No.3”)

collectively referred to as the “EOs”.

EO No.2

This order provides that a PH which carries on core income generating activities under the PH 2.0 incentive will be eligible for a concessionary tax rate of 10 % on the statutory income (excluding intellectual property income) derived from core generating activities for a period of five consecutive YAs.
This order applies to existing companies:

which are a Malaysian-resident company being incorporated under the Companies Act 2016;
that have a paid-up capital of more than RM2.5 million;
without Operational Headquarters (“OHQ”), International Procurement Centre (“IPC”) or Regional Distribution Centre (“RDC”) status, or
with OHQ, IPC or RDC status, with or without the incentive related to this status.

EO No.3

This order provides that a PH which carries on core income generating activities under the PH 2.0 incentive will be eligible for a concessionary tax rate of either 0% or 5% on the statutory income (excluding intellectual property income) derived from core generating activities for a period of five consecutive YAs. The tax exemption will be based on the level of commitment of the company.
This order applies to new companies which:

are a Malaysian-resident company being incorporated under the Companies Act 2016;
have paid-up capital of more than RM2.5million;
do not have an existing entity or related entity in Malaysia which carries on any qualifying services in Malaysia.

Any unabsorbed losses or current year losses incurred of a PH from the qualifying services or trading activities are not allowed to be utilized for set-off against income from the same source or other businesses during the tax exemption period. Such losses also cannot be carried forward to the post-tax exempt period.

The following terms are defined in both the EOs above:

CORE INCOME GENERATING ACTIVITIES: Activities taken by a PH in relation to the qualifying services or qualifying trading activities;
QUALIFIYING SERVICES: Services specified in Schedule 1 of the Exemption Order,
QUALIFYING TRADING ACTIVITIES: Activities undertaken by a PH in respect of the procurement and sale of raw materials, components and finished products from the PH to a network company within or outside Malaysia,
NETWORK COMPANY: A related company; an entity within the same group of companies; or a company which has a contractual agreement with the PH or the PH’s ultimate holding company which related to the PH’s supply chain and business for at least three years.