本帖最后由 osk 于 10-3-2019 11:03 PM 编辑
Setting up an Investment Holding Company (IHC): What property investors need to know
This article was updated on 2 January 2019. Property investor, Andy Gan shares all you need to know about using an Investment Holding Company (IHC) to build a real estate portfolio.
#1 What is an IHC?A corporation which is incorporated for the sole purpose of holding something like an asset, where the company does not carry out any form of business and merely acts as a shell company to hold said assets. A) At least 80% of the company’s gross income (whether exempt or not exempt) is derived from the holding of those investments, where: Total Gross Income = Dividend + Interest + Rental B) It is a separate legal entity by itself – The owner and the company are treated as two separate persons. This means that the shareholders are not liable for the company’s debts beyond the amount of share capital they have contributed. C) An IHC has its own capacity to borrow loans and pay taxes. Similarly, it can sue and be sued.
#2 What are the benefits of using an IHC?Ali and Adam are interested in investing in a piece of commercial property (Property A) in Mont Kiara. Assuming that Ali and Adam use their own capacity to purchase Property A, it will be under their JOINT names. However, if Ali and Adam use an IHC as an investment vehicle, the property will be under the IHC’s name. But let’s say an IHC was not used – in the event of Ali’s death, Adam will now have a problem to dispose of the property somewhere in the future.
It will probably take at least a year of legal proceedings to settle such a transaction. However if an IHC was used, Ali’s death will only affect the shareholding of the company and not Property A. Therefore, Adam will not have any problems in disposing of Property A whenever he wants to.
In the event of a conflict between partners, say there is a disagreement over whether or not to sell Property A; it might prove problematic as both parties have equal say.This will be a great disadvantage for the investment partner who invested a larger sum of capital. In the case of an IHC, whoever holds a larger shareholding in that company will have the final say. The investment partner who invested the larger sum will thus have larger shareholding, therefore reducing his investment risks.
IHCs safeguard your investments from any potential threats. There is the possibility that your partner will embezzle all of the investment money. Setting up an IHC requires the implementation of proper authorization by the banks, thus, avoiding such an event from happening.
Financing – It helps you to obtain greater finances
Do you know that you can immediately apply for a loan upon setting up an IHC? In comparison, when an operating company wants to borrow from a bank, it is required to present at least 3 years of audited financial statements. By having some extent of formality, it will be easier to raise finances internally for property investors to buy say, a shophouse. This is because all of the agreements will state clearly aspects such as capital invested, shareholding ratios and who the directors are. This will indirectly help reduce a property investor’s risks too.
Let’s say there are 3 shareholders involved and one of the shareholder’s businesses went bankrupt. To get himself out of a financial fix, he could liquidate or dispose of his shareholding in the IHC to the other 2 shareholders. Not only is this process quicker and hassle-free but the other 2 shareholders will not be forced to sell off the property as well. Especially when it is currently generating good rental yield and capital gains!
Another example would be: Let’s say Ravi who brings in a high monthly income and has a substantial nest egg, also owns 10 properties. If he wants to purchase another piece of property, most banks will probably only finance him between 30% to 50% of the property price due to the high-risk exposure and Ravi’s high personal liability.
By setting up an IHC, Ravi can transfer (or refinance) his existing properties. By transferring his properties to the IHC, Ravi’s risk exposure is reduced automatically and hence, he is now able to borrow further. Furthermore, there will be less legal fee expenditure as Ravi may not need to transfer the Sales and Purchase Agreement (SPA) under the IHC, but merely the loan agreement.
Taxation – It helps you to minimize your overall tax payments to the IRB
When an IHC is used, the Inland Revenue Board (IRB) provides investors with a list of permitted expenses. These could be set against any rental income. Examples of permitted expenses include director fees and management fees. There is also a formula to calculate the number of permitted expenses that are claimable. The general rule is that the amount allowed for deduction should not exceed 5% of the total gross rental income for that basis period.
Malaysia practices a regime of a progressive tax system. This implies that the more income you earn, the higher tax RATE you will have to pay. Assuming that you earn a chargeable income of more than or equal to RM70,000, you will be paying a minimum rate of 21% in taxes.
For the year of assessment 2018, the tax rate for companies with a share capital of less than RM2.5 million will be charged a minimum tax rate of 18%, hence, IHCs will help investors to save a minimum of 3% in tax payments.
However, it is not as favourable in terms of Real Property Gain Tax (RPGT) when compared with individual capacity. As per the new measures introduced under Budget 2019; for individuals, a property held after the 5th year from the acquisition date will be subjected to a 5% RPGT upon disposal, whereas a flat rate of 10% applies for companies.
#3 What are the things to consider before setting up an IHC?
A) Margin of financing for residential and commercial properties INDIVIDUALS:
| RESIDENTIAL | COMMERCIAL | First Property | Up to 90% | Up to 80-85% | Second Property | Up to 90% | Up to 80-85% | Third Property Onwards | Up to 70% | Up to 80-85% |
IHCs:
| RESIDENTIAL | COMMERCIAL | First Property | Up to 60% | Up to 80-85% | Second Property | Up to 60% | Up to 80-85% | Third Property Onwards | Up to 60% | Up to 80-85% |
As shown above, IHCs are much more profitable for the investment of commercial properties. Those who wish to invest in residential units must be prepared to fork out a minimum 40% down payment themselves.
Also, when it comes to considering a loan application submitted by an IHC, banks would place having a corporate guarantor with higher merit compared to the IHC having an individual guarantor (based on one of the Director’s income and commitment).
B) Administration cost
These include the maintenance cost of owning an IHC. Annual expenses including auditor fees and secretarial fees could range between RM4,000 to RM6,000.
C) It is time-consuming
There is the hassle of filing annual company accounts, etc.
D) Less tax savings
An IHC cannot carry forward losses for the year, if any, and is not able to claim any capital allowance.
Nevertheless, investors do get to enjoy some goodies with the recently-introduced Companies Act 2016, which served as a replacement to the prior Companies Act 1965. Upon its implementation on 31st January 2017, the Companies Act 2016 brought forth the following amendments: 1) A Sdn Bhd will no longer need a Memorandum and Article of Association (M&A) and now only requires a Constitution (if applicable).
2) A minimum number of two directors no longer applies.
3) There will be no more restrictions on object clauses.
4) There will be no more need for a Company Seal. With such changes, the administration costs are significantly reduced.
So, is the IHC way for you?An IHC does offer many advantages, but investors should be aware that it is just an alternative vehicle in property investment. It is very important that you consult a financial planner, tax accountant and an attorney beforehand as the rules that surround IHCs are complex. Each property investor’s circumstances will be different, so a careful analysis of the factors involved is advisable prior to deciding on setting up an IHC.
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发表于 24-2-2019 05:36 PM
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