| Investment Holding Company (IHC) can save more tax than personal ownership.

This statement is a familiar refrain, often prompting questions about the best option when making property purchases.

Yet, the advantages of an Investment Holding Company (IHC) are dwindling in today’s ever-evolving world.

And here’s why:

1. Real Property Gain Tax 0% for personal ownership starting 6th year onwards

When one disposes its property at a profit, RPGT will be imposed. However, starting of 2022, RPGT has been exempted for Malaysia citizen’s individual ownership longer than 5 years.

On the other hand, if a property is company owned regardless of how long the ownership should, a sales transaction occurred with profit, RPGT will be imposed. That simply means a saving of 10% of RPGT can be SAVED with individual ownership.

2. Tax revision from 17% to become 24% for Investment Holding Company (IHC)

Starting from the year 2020, Investment Holding Companies (IHCs) are no longer categorized as Small and Medium Enterprises (SMEs). Consequently, they are now subject to a higher tax rate of 24%, compared to the previous rate of 17%.

For instance, let’s consider a scenario where there is a rental gain of RM40,000 from the disposal of property. Under company ownership, an additional 7% tax amounting to RM2,800 will be imposed.

3. Maximum loan margin of 70% for Investment Holding Company (IHC)

Investors who adhere to capitalist principles typically seek to minimize upfront payments when purchasing property. In today’s real estate market, most banking institutions offer financing of up to 90%.

However, the scenario is different for company ownership, as indicated in the title. Companies can typically secure a maximum loan margin of only 70%. This disparity of 20% can result in significant cash flow implications that may not align with the company’s financial objectives.

4. Extra recurring fee of RM4,000 for Investment Holding Company (IHC)

It’s widely understood that annual recurring fees such as company secretary fees, audit fees, accounting fees, and tax submission fees are inevitable for companies. Moreover, these charges tend to increase gradually as the company’s revenue grows.

This additional cost burden is not applicable if the property is owned by an individual.

5. Stamp duty fee charged for ownership transfer is RM10 Only

The transfer of property owned by an Investment Holding Company (IHC) comes with notably higher costs, particularly evident in the stamp duty fees. As the property’s value increases, so does the stamp duty fee, leading to a substantial financial burden. (Refer to the chart below for detailed breakdown).

On the contrary, with the presence of a well-established will, property ownership transfer among individuals can incur as little as RM10. This stark difference highlights the advantageous financial implications for individual property ownership.

Above 5 reasons should justify the very reason why individual ownership of property is a better option compared to Investment Holding Company (IHC) owned.

However, as your preferred accounting and tax partner, we would like to outline the special reason why some corporate still decide to use Investment Holding Company (IHC) ownership.

1. Security: Separation of interest between Director & Company

It’s widely understood that unfortunate events such as the demise of an individual or bankruptcy can introduce complications regarding property ownership. However, with an Investment Holding Company (IHC) owning the property, this risk is significantly mitigated due to the separation of interests inherent in a corporate entity. This safeguards both the company and its directors from unnecessary risks.

Contrarily, in the event of losses incurred by the real estate, directors are only accountable for their respective portion of shares, offering a layer of protection for their personal assets.

2. Group of individuals acquiring one property

In certain scenarios, such as when a group of friends or business partners collectively purchase property under one Sales & Purchase Agreement, it may be opportune to establish an Investment Holding Company (IHC) to own the property.

This approach offers several advantages. By forming a company, various obligations and details, such as the percentage of ownership and responsibilities of each party, can be clearly delineated in black and white within the company’s memorandum and articles of association. Additionally, having the company secretary as a witness further solidifies the arrangement.

This structured approach helps to mitigate potential disagreements or disputes in the future, as all parties can refer back to the established documentation for clarity and resolution.

To sum things up

Undoubtedly, Investment Holding Company (IHC) ownership of property had numerous advantages in the past. However, in recent years, the Malaysian Government has progressively reduced the benefits of company ownership while simultaneously simplifying and making personal ownership more accessible and favorable. This shift has made personal ownership a more appealing option.

In our professional and friendly assessment, pooling resources with family or friends to purchase property may not be in the best interest of individuals. Personal ownership often proves to be superior, except in cases where multiple parties need to be involved in acquiring the mortgage or property ownership, which is where the IHC option becomes relevant.

The aforementioned information should provide a clearer understanding of the differences between personal and company ownership. If you’re considering forming an IHC after reviewing this information, Kem Accountant is your go-to for comprehensive services including company secretarial, tax, and audit services. We are your trusted partner for all your corporate needs.

Contact us now to learn about tax reduction opportunities of up to RM60,000 and our special promotion for company incorporation.

Contact us to get more information!