Updated: Nov 9, 2022
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Background to the Principal Hub Incentive
A locally incorporated company that uses Malaysia as a base for conducting its regional and global businesses and operations is considered to be a Principal Hub.
This type of company uses Malaysia as its base to manage, control, and support its key functions, which can include the management of risks, decision-making, strategic business activities, trading, finance, management, and human resources.
This new incentive, which went into effect on May 1, 2015, has replaced the International Procurement Centres (IPC), Regional Distribution Centres (RDC), and Operational Headquarters (OHQ) incentive schemes.
To be eligible to apply for this incentive, a locally incorporated company must have a paid-up capital of more than RM2.5 million, in addition to providing at least three Qualified Services.
The provision for the incentive can be found in the Income Tax Act of 1967 and approved through the National Committee on Investment.
Principal Hub Incentive 3.0
A review of the Principal Hub incentive scheme was one of the initiatives announced in the Budget 2021. This study is now mandated by legislation in the form of the Income Tax (The Principal Hub Incentive Scheme) Rules 2022.
In the meantime, trading operations are now included under the umbrella of the Global Trading Center incentive.
The Malaysian Investment Development Authority (MIDA) has issued guidelines that explain the tax incentive for the establishment of a Principal Hub. These guidelines can be found here:-
The guidelines have regularly been updated to take into account any new legislative initiatives that have been taken.
New and existing companies using Malaysia as a global regional hub for high-value activities that manage, control and support main business functions such as risk management, decision-making, strategic business, finance and human resource management are eligible for principal hub tax incentives with 0%, 5% or 10% income tax rate.
The tax incentive is for applications received by the Malaysian Investment Development Authority (MIDA) until 31 December 2022.
In attracting more companies to establish their principal hub in Malaysia, the proposed tax incentive will be extended for 3 years.
For applications received by MIDA from 1 January 2023 until 31 December 2025.
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