A public ruling has been issued by the Inland Revenue Board of Malaysia explaining the tax treatment of income received by a foreign fund management company that provides fund management services to foreign and local investors.
Foreign fund management companies are companies incorporated to provide such services to their clients in Malaysia, and licensed by the Securities Commission Malaysia (SC). Among the conditions stipulated by the SC for the licensing of such companies is that more than 50 percent of the paid-up capital must be owned by foreign equity.
The basis period for a year of assessment of a foreign fund management company will be its financial accounting period, determined in accordance with the provisions of the Malaysian Income Tax Act (ITA), which also affords it special tax treatment. The management fee received for its services by a foreign fund management company in the course of carrying on a business is treated as business income by the ITA. However, where a foreign fund management company provides fund management services to both foreign investors and local investors, the income derived from the provision of such services to each of these categories of investors will be treated as arising from separate and distinct business sources.
A 10 percent income tax rate is applicable to a foreign fund management company with 100 percent foreign ownership, as it also is when the management company is at least 30 percent-owned locally and dealing with foreign investors. However, when the latter companies are dealing with local investors, the tax rate will be the prevailing Malaysian tax rates applicable to resident companies. On the other hand, foreign fund management companies that manage funds of foreign or local investors according to Sharia principles are exempted from the payment of income tax in respect of income derived from a business of providing fund management services in Malaysia. The Sharia funds need to be certified by the SC for each year of assessment during the exempt period. The exemption applies until the 2016 year of assessment.
