(TAX UPDATE) Buying Property under a Sdn Bhd? Here’s the Real Story about IHC Tax Rules

(TAX UPDATE) Buying Property under a Sdn Bhd? Here’s the Real Story about IHC Tax Rules

Many SME owners in Malaysia buy properties using their Sdn Bhd. Many taxpayers assume it’s smarter for tax or financing.
But if your company mainly earns from rental, interest, or dividends, it could be classified as an Investment Holding Company (IHC) under Section 60F of the Income Tax Act 1967.

Once that happens, your tax treatment changes and often not for the better.

1. What Is an Investment Holding Company (IHC)?

An IHC is a company that doesn’t run an active business. It mainly holds investments such as property, shares, or fixed deposits.

Your Sdn Bhd is considered an IHC if:

  • Its main activity is holding investments, and

  • At least 80% of its total income comes from investment sources for example, rent, dividends, or interest.

If you only collect rent and do not provide active maintenance, repairs, or management services, your company will likely fall under this IHC category.

2. Tax Rules for Unlisted IHCs (Section 60F)

When your company becomes an unlisted IHC, it is no longer treated as a normal business.
Different rules apply and they are less favourable.

Flat 24% Tax Rate

You pay a flat 24% corporate tax, regardless of size.
You do not qualify for SME tax rates (15% or 17%) even if your capital is below RM2.5 million.

Income Separation

Each type of income is taxed separately:

  • Dividends and interest under Section 4(c)

  • Passive rental under Section 4(d)

  • Management fees under Section 4(f)

You cannot mix or offset expenses between these income types.

Permitted Expenses Only

IHCs cannot claim normal business expenses. Only certain costs are deductible called permitted expenses such as:

  • Directors’ fees and staff salaries

  • Audit, accounting, and secretarial fees

  • Office rent, utilities, and stationery

Even then, the allowable amount is limited by a strict formula and capped at 5% of investment income.
In short, you may only deduct a small fraction of your actual costs.

No Capital Allowances

In general, IHCs cannot claim depreciation or capital allowances on fixed assets, because investment income is not considered business income.

No Loss Carry Forward

If you make a loss or your expenses exceed income, you cannot carry that loss to the next year.
Each year stands alone.

3. Dividends and Property Gains

Dividends received from Malaysian companies are tax-free under the single-tier system.
However, because they are exempt, any related expenses (such as interest or management costs) are also disallowed for deduction.

When an IHC sells property, Real Property Gains Tax (RPGT) still applies, no matter how long you hold the property.

  • Disposal within 3 years: 30%

  • 4th year: 20%

  • 5th year: 15%

  • 6th year onwards: 10%

Individuals enjoy 0% RPGT after 6 years, but companies do not.

Watch out for income tax implications instead of just focusing on RPGT if you own multiple properties. We will discuss this important tax issue in detail in our upcoming blog next week.

4. Why It Matters for SME Owners

Once your company becomes an unlisted IHC:

  • You lose SME tax privileges.

  • Only a small part of your expenses is deductible.

  • You cannot carry forward any losses.

  • You cannot claim capital allowances.

  • You still pay RPGT even after many years.

For many small businesses, owning property personally instead of through a Sdn Bhd, may actually save more tax in the long run.

5. Final Thoughts

Buying property under a Sdn Bhd may sound smart, but the Investment Holding Company rules can quietly increase your tax bill.

Before buying, review your income sources and structure.
Seek advice from a licensed tax agent who understands Public Ruling No. 2/2024 and Section 60F of the Income Tax Act.

What looks like a clever move can become an expensive lesson if you don’t understand the fine print.

Written by:
KOH TECK PENG, Approved Company Auditor & Licensed Tax Agent (Malaysia)
KTP & Company PLT – www.ktp.com.my

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