Equity Crowdfunding (ECF) Tax Exemption
Please note that this article is not a definitive guide. Mystartr does not claim expertise in tax matters. Investors are encouraged to seek confirmations and clarifications from tax agents or the Lembaga Hasil Dalam Negeri.
Introduction
To encourage more individual investors to participate in Equity Crowdfunding (ECF), the government announced in Budget 2021 that a qualifying individual who invests in ECF would be entitled to an income tax exemption, subject to conditions stipulated in the Income Tax (Exemption) (No. 4) Order 2022 [P.U.(A) 142] (“Tax Exemption Order”).
Note: Tax exemption is not applicable for investments made through a Limited Liability Partnership (LLP) nominee from 1 January 2021 to 31 December 2023.
1. What is the investment eligibility period for the ECF tax exemption?
The investment made through ECF must be from 1 January 2021 to 31 December 2023. The latest amendment has extended this period from 1 January 2024 to 31 December 2026, but tax exemption does not apply to investments made through an LLP nominee from 1 January 2021 to 31 December 2023.
2. Can a corporate investor apply for the ECF tax exemption?
No, only qualifying individual investors can apply for the ECF tax exemption. The definition of a "qualifying individual" can be found under paragraph 2 of the Income Tax (Exemption) (No. 4) Order 2022 [P.U.(A) 142].
3. When will the qualifying individual investor be eligible for the ECF tax exemption?The investment must not be disposed of, either in full or in part, within 2 years from the date the investment is made.
Example:
Investment Year: 2021
Tax Exemption Year: 2023
Tax Filing Year: 2024
Investment Year: 2023
Tax Exemption Year: 2025
Tax Filing Year: 2026
4. What does the date of investment refer to?
The date of investment refers to the closing date of the issuer’s fundraising campaign on the Mystartr platform. If the investor exercises their cooling-off rights, they will not be entitled to apply for the tax exemption.
5. What is the definition of ‘the date of disposal’?
The date of disposal refers to the date when the individual investor receives the proceeds from selling their shares in the investee company.
6. Are there any limitations on the amount of investment that qualifies for the ECF tax exemption?
Yes, the exemption is:
- 50% of the total investment made by the qualifying individual.
- Capped at RM50,000 per year of assessment.
- Limited to 10% of the investor’s aggregate income for the year.
7. How does a qualifying individual investor apply for the ECF tax exemption?
Mystartr will issue a certificate/letter to confirm your eligibility for the tax exemption. Investors can use this certification when applying for the ECF tax exemption.
8. Am I eligible for the ECF tax exemption if my investment is held in an LLP nominee?
- Ineligible Period: Investments made via LLP nominees between 1 January 2021 – 31 December 2023 were not eligible for tax exemption.
- Eligible Period: Investments made via LLP nominees from 1 January 2024 – 31 December 2026 are now eligible, provided all other conditions are met.
Investors should refer to the Income Tax (Exemption) (NO. 4) Order 2022 (Amendment) Order 2024 [P.U. (A) 367] updates for more information
9. Are two investors with a family relationship eligible for the ECF tax exemption if they invest in the same company?
Yes, they are eligible as long as they do not have a family relationship with the investee company (issuer).
10. What happens if I miss the tax exemption filing window?
If an investor misses the tax exemption filing window, they cannot apply for it in the following year. However, they can appeal to LHDN through a process known as “rayuan khilaf” within 5 years from the tax filing year, subject to LHDN’s terms and conditions.
For further information, please refer to the Official FAQ from SC , Income Tax (Exemption) (No. 4) Order 2022 [P.U.(A) 142] and Income Tax (Exemption) (NO. 4) Order 2022
