Properties: Individual or Investment Holding Company (IHC)
1. What is an Investment Holding Company (IHC) LHDN IHC 02-2024-investment-holding-company 28052024.pdf :
An IHC (Sdn. Bhd.) is incorporated by a at least 1 director member and can be up 50 members where it will only to buy, hold and manage assets but will not be actively running business activities. The income for the IHC comes from dividend from investments, interest and rental from buildings. As IHC is an entity, it holds the power to sue or getting sued by the public.
2. The benefits between IHC vs Private Ownership (PO) :
a. Risk Management: IHC is capable to manage risk and sustainability as long as Board of Members had appointed Directors to run the business while individual ownership is exposed to risk of death, sudden death and bankruptcy. For example Real Estate Investment Trusts (REITs) like Sunway or Pavilion where it is sustainable and managed by the appointed management team.
b. Strong Financing: IHC’s financing comes from the investment of members, banks or directors’ loan to company while PO needs to forge out own investments and will be having financial limitation upon in buying properties with higher pricing. For IHC with stronger financial background, it will stand a higher chance to gain capital gain or better rental yield.
c. Tax Matters: IHC captures allowed expenses like salaries, management fees or maintenance fees in not more than 5% from the gross income as the tax rate for Sdn. Bhd. is only 18% tax rate while there are no expenses deduction for PO as all income will be consider as other income and will be tax for 24-25 %. IHC saves 7% on total tax payable.
3. The downside of having IHC VS PO:
a. Management costing: IHC needs to allocate from RM 4,000.00- RM 7,000.00/ yearly in paying accounting, audit, COSEC and audit fees and time allocation while for PO only proceed to do tax filling fees.
b. Tax Management: For IHC to enjoy capital allowance, it must not in bringing losses to the subsequent year while for PO, it is not related for them.
c. Bank’s finance margin: For IHC, from 1st to 3rd properties on-wards will be 60% (residential) while for commercial is from 80%- 85%. For PO, 1st -2nd is 90% & 3rd on-wards is 70% (residential) while for commercial is 80- 85% from 1st to 3rd properties on-wards. From here, IHC needs to have a bigger paid-up capital for financing the properties procurement either by investors to invest through shares allotment or legal loans to IHC.
d. Guarantor: Banks will need a corporate guarantor from IHC if having the weak financial credit score and it may be become a financial burden towards the Directors.
Conclusion: There will be no ultimate choice but it depends how many properties that you will buy. For business, it’s good to go for IHC and if for personal use, then PO is own use; do connect with your respective COSEC for making the final decision.