Principal Hub Incentive 2.0

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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: 
   
  1. CORE INCOME GENERATING ACTIVITIES: Activities taken by a PH in relation to the qualifying services or qualifying trading activities; 
  2. QUALIFIYING SERVICES: Services specified in Schedule 1 of the Exemption Order,
  3. 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,
  4. 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.

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