Investment Holding Company (IHC) can save more tax than personal ownership.
This statement is commonly heard of and always bring about the question which to choose from when one making their property purchase.
However, the benefit of Investment Holding Company (IHC) is getting lesser day by day in today’s world.
And below is the reason 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)
Investment Holding Company (IHC) can no longer be considered as SME starting year 2020. That means it shall no longer be kept as 17% tax rate but 24% now.
Assuming a rental gain of RM40,000 from disposal of property. An extra 7% of taxes equivalent to RM2,800 will be imposed under company ownership.
3. Maximum loan margin of 70% for Investment Holding Company (IHC)
Investor who subscribes to the idea of capitalism will always preferred to minimize upfront payment upon purchase of property. With today’s norm and practices in real estate market, most banking institution can finance up to 90%.
However, this is not the case for company ownership and as stated in the title. A significant lower margin of 70% is the maximum loan margin a company can acquire. Difference of 20% can translate into significant cash flow output that is not the best interest for a company’s financial outlook
4. Extra recurring fee of RM4,000 for Investment Holding Company (IHC)
It is a public knowledge annual recurring fee such as company secretary fee, audit fee, accounting fee and tax submission fee will be imposed. And this amount of charges will gradually increase with the company’s revenue continue climbing
This extra cost will not be in place should the property is owned by individual.
5. Stamp duty fee charged for ownership transfer is RM10 Only
Property Owned by Investment Holding Company (IHC) has a significant higher cost when it comes to transfer of property. The higher the property value, the higher the stamp duty fee. (Can refer to chart below)
However, with the presence of an established will, property ownership transferred among individual is as low as RM10 only.
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 is a common knowledge that should unfortunate accident such as demise of an individual or bankruptcy shall occur some complication to the property. However, with IHC ownership on property, this risk is eliminated because there is a separation of interest as a company. This protects both the company and the directors to refrain from unnecessary risk occurred. On the contrary, should the real estate occur any losses, directors are only accountable to the portion of their share.
2. Group of individuals acquiring one property
There are some practices where a group of friends or business partners are buying property with several individuals into one Sales & Purchase Agreement. This is the best time to form a Investment Holding Company (IHC) to own the property.
This is because with the establishment of a company, plenty obligations and details such as percentage of ownership and responsibility of each party is clearly established in black and white paper and having the company secretary as witness. That shall eliminate plenty of arguments in the future as everything can be referred to the company’s memorandum and articles of association.
To sum things up
Without a doubt, there were plenty of advantages of Investment Holding Company (IHC) ownership on property in the older days. However, in the recent days, Malaysia’s Government has slowly reduced the benefit of company ownership at the same time making personal ownership easier and friendlier. This has resulted in making the landscape of personal ownership a better decision.
It is in our professional and friendly opinion that buying property by joining name with your family or friends are not in the best interest of any individual. Personal ownership is far more better and should a necessity of involving more than 1 individual into acquiring the mortgage or property ownership. That is the time when the IHC options comes into the picture.
And above information should suffice one to better understand the difference.
Should you want to form an IHC after reading above information. L&CO is your number to call for services involving company secretary, tax and audit services. We are the number to be called.
Enquire now to enquire reduction of taxes up to RM60,000 and our special promotion of incorporation of company.
Contact us to get more information!