Malaysia: Debt securities – Amendment on exemption of withholding tax applicable to certain debt securities
Clearstream Banking’s1 depository, HSBC Malaysia, has informed us that based on the Finance Act 2017 published by the Government of Malaysia on 16 January 2017, there are amendments to the exemption of interest income stated under paragraph 33B(1) and (2) Schedule 6 of Income Tax Act 1967. An exemption of withholding tax is no longer applicable to interest paid to non-resident companies within the same group as the issuer in respect of:
- Sukuk or debentures issued in Malaysian Ringgit (other than convertible loan stocks), approved or authorised by, or lodged with the Securities Commission (eligible in Clearstream Banking);
- Sukuk originating from Malaysia (other than convertible loan stocks) issued in any currency other than Malaysian Ringgit, approved or authorised by, or lodged with, the Securities Commission, or approved by the Labuan Financial Services Authority (not eligible in Clearstream Banking).
A company is considered to belong to the same group as the issuer for the purposes of Paragraph 4, Section 2 of the Malaysian Income Tax Act, 1967 (‘ITA’) where:
(a) two or more companies are related within the meaning of section 6 of the Companies Act, 1965 (currently Section 7 of the Companies Act, 2016); or
(b) a company is so related to another company which is itself so related to a third company; or
(c) the same persons hold more than 50 per cent of the shares in each of two or more companies; or
(d) each of two or more companies is so related to at least one of two or more companies to which paragraph (c) applies.
Impact on customers
Customers having beneficial owners that are non-resident companies within the same group as the issuer are responsible for ensuring the appropriate tax rate is applied to interest paid in respect of sukuk or debentures issued in Malaysian Ringgit, approved or authorised by, or lodged with the Securities Commission (eligible in Clearstream Banking) for these types of beneficial owners by sending the required documentation to Clearstream Banking.
Description of the process
Upon request from the depository, HSBC Malaysia, Clearstream Banking will release a SWIFT notification to its customers to request the beneficial owner’s details.
Customers having beneficial owners that are non-resident companies within the same group as the issuer should submit to Clearstream Banking the following documentation:
- A breakdown of holdings (via MT599 attention “SIT, Tax Services Singapore”) giving the following details:
- Account number;
- ISIN code;
- Payment date;
- Total holding;
- Full name of the final beneficial owner(s) ;
- Full address of the final beneficial owner(s) for tax purposes;
- Tax identification number or registration number of the final beneficial owner(s) (when available);
- Holding per final beneficial owner(s); and
- Tax rate to be applied (that is, 15%).
- Any other tax documentation required from time to time.
Based on the above documentation, 15% withholding tax will be applied to the beneficial owners that are non-resident companies within the same group as the issuer.
If the final beneficial owner is subject to the above-mentioned taxation, then, on request from the customer, 15% withholding tax should be applied. It is the responsibility of the customer to ensure that final beneficial owners are eligible for the tax rates applied for (that is, 15%) including the Clearstream Banking default rate (that is, 0%). Neither Clearstream Banking nor its local depository has any direct or indirect liability towards the Malaysian authorities in this regard.
Customers are responsible for ensuring compliance with the above and agree to indemnify and hold harmless, Clearstream Banking, for any loss, expense, liability, damage or claims, whether direct or indirect, against or incurred by Clearstream Banking arising out of or resulting from such non-compliance.
Deadlines for receipt of documents
The above documents must be received by Clearstream Banking by the deadline stated in the SWIFT notification.
Malaysian securities may not be held in Clearstream Banking on behalf of beneficial owners that are Malaysian nationals.
Clearstream Banking’s account is designated as a “foreign” account and no securities that are owned by Malaysian nationals and/or residents may be held in this account. Customers are responsible for ensuring compliance with these restrictions and agree to indemnify and hold harmless, Clearstream Banking, for any loss, expense, liability, damage or claims, whether direct or indirect, against or incurred by Clearstream Banking arising out of or resulting from such non-compliance.
The Market Taxation Guide - Malaysia will be updated in due course.
For further information, please contact the Clearstream Banking Tax Help Desk, Clearstream Banking Client Services or your Relationship Officer.
1. Clearstream Banking refers collectively to Clearstream Banking S.A., registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg, and registered with the Luxembourg Trade and Companies Register under number B-9248, and Clearstream Banking AG (for CBF customers using CreationOnline), registered office at 61, Mergenthalerallee, 65760 Eschborn, Germany and registered in Register B of the Amtsgericht Frankfurt am Main, Germany under number HRB 7500.