Investment Holding Company (IHC) in Malaysia: What It Is and How It Is Taxed

Reviewed by a Licensed Practitioner

Shahrul Nizar Ghazali

Executive Director, SASCO · Chartered Accountant & Licensed Company Secretary

MIA No: 39799 · SSM Practising Certificate No: 201908001424

An Investment Holding Company (IHC) is a company set up not to run day-to-day business operations, but to hold investment assets — such as shares in other operating companies, rental property, or a portfolio of stocks and unit trusts. Many successful business owners use this structure to separate operating business risk from family or personal assets.

But there’s one thing that’s often overlooked: an IHC’s tax treatment is completely different from a normal operating company. This guide explains the official definition of an IHC under Malaysian tax law, how its income is taxed, and what expenses can (and cannot) be deducted.

What Is an Investment Holding Company (IHC)?

Under Malaysian tax law, a company is treated as an Investment Holding Company (IHC) when its main activity is holding investments, and at least 80% of its total gross income comes from investment sources — such as dividends, interest, and non-business rental income. The definition and tax treatment of IHCs are set out in the Inland Revenue Board of Malaysia’s (LHDN) current Public Ruling.

The most common reasons business owners set up an IHC:

• To hold shares in several different operating companies (Sdn Bhd) under one umbrella.
• To hold investment or rental property separately from operating business risk.
• To hold a portfolio of shares, unit trusts, or other investments as a family wealth-holding vehicle.
• To separate risk — if an operating company is sued or goes insolvent, assets held in the IHC are structurally better protected.

Section 60F vs Section 60FA — A Crucial Difference

An IHC’s tax treatment depends on whether it is listed on Bursa Malaysia:

• Section 60F (unlisted IHC) — this is the category most private Sdn Bhd holding companies fall under. Investment income is treated as a non-business source, even if the company actively manages its investments.
• Section 60FA (IHC listed on Bursa Malaysia) — investment income is treated as a business source, expenses are deductible under the normal Section 33(1) rules, and capital allowances can be claimed.

This guide focuses on unlisted IHCs (Section 60F), since this is the structure relevant to most Malaysian SME business owners.

How Is an IHC’s Tax Calculated?

Permitted Expenses — There’s a Cap!

This is the part most often misunderstood. For an unlisted IHC, expenses such as director fees, management fees, audit fees, company secretarial fees, staff salaries, and office maintenance are only deductible up to a formula-based cap tied to a percentage of total gross dividend, interest, and rental income (generally around 5% under current LHDN guidance) — not fully deductible the way they would be for a normal operating company. Any excess above this cap is permanently lost and cannot be carried forward to a future year of assessment.

An unlisted IHC also cannot claim capital allowances on plant and machinery, although it may be eligible for Industrial Building Allowance (IBA) in certain circumstances if the tenant uses the building for industrial purposes.

Why This Matters Before You Set Up an IHC

Many business owners set up a holding company without realising the flat 24% tax rate and the expense deduction cap — only to be caught off guard when the IHC’s actual tax bill turns out higher than expected. A holding structure still has genuine benefits for risk separation and succession planning, but the decision to set one up should be made with a full understanding of its tax treatment — not just because it’s trending advice.

Further Reading

• SASCO Company Incorporation & Company Secretary Services
• PLT vs Sdn Bhd in Malaysia: Which Business Structure Should You Choose?
• What Is a Cosec? Company Secretary and E-Secretary Explained
• Official Website of the Inland Revenue Board of Malaysia (LHDN)

How SASCO Can Help

Our team at SASCO provides accounting, tax, and ongoing company secretarial services that can help you structure and manage a holding company correctly from a compliance standpoint — including annual tax filing and calculating permitted expenses within LHDN’s prescribed limits. If you’re weighing up whether an IHC suits your business situation, we can help you understand the real implications before you decide.

The right holding structure can protect your assets — but only if you understand its tax cost from the start.

Frequently Asked Questions

What are the conditions for a company to be treated as an IHC?

A company is treated as an IHC when at least 80% of its total gross income comes from investment sources such as dividends, interest, and non-business rental income.

Why is an IHC taxed at 24% even though it’s essentially a small company?

An unlisted IHC is deemed to have no business income under Section 60F, so it does not qualify for the tiered SME tax rate (15%/17%) regardless of how low its paid-up capital is — it is taxed at a flat 24%.

Is dividend income received by an IHC taxed again?

Generally no — dividends from other companies are usually no longer taxed in the IHC’s hands, because the paying company has already paid corporate tax under the single-tier tax system.

Can an IHC claim all of its management expenses?

No. Permitted expenses (such as director fees, audit fees, and company secretarial fees) are only deductible up to a formula-based cap tied to gross investment income — any excess above that cap cannot be deducted or carried forward.

Is an IHC listed on Bursa Malaysia taxed the same way as a private IHC?

No. An IHC listed on Bursa Malaysia is taxed under Section 60FA, where its investment income is treated as a business source with more flexible expense deductions compared to an unlisted IHC under Section 60F.