In this second part, we'll proceed to the tax incentive provided under Cradle Fund. The tax incentive provided by Cradle Fund is offered via ANGEL TAX INCENTIVE (ATI) programme.
ATI is designed to help technology based start-ups in Malaysia to raise funding by offering tax incentive to Angel Investors who have invested in Qualified Investee Company. ATI is attractive to individual investors because it allows their investment to qualify for tax deduction equivalent to the amount of investment made by the Angel Investor in an investee company. The deduction will be applicable in the third year of the shareholding period. To qualify for ATI, the Angel Investor has to hold the investment in the investee company for at least 2 years.
However, in the event the value of investment exceeds the aggregate income of the Angel Investor for that year of assessment, any excess amount will not be refunded nor carried forward to be set-off against the Angel Investor’s future income in other years of assessment.
How to be an Angel Investor?
Angel Investors are High Net Worth Individuals or High Income Earners who are registered with and accredited by Malaysian Business Angel Network (MBAN). High Net Worth Individuals or High Income Earners are defined as follows:-
- High Net Worth Individual– Having a total wealth or net personal assets of RM3 million and above or its equivalent in foreign currencies.
- High Income Earner– Someone who has a gross total annual income of not less than RM180,000 in the preceding twelve (12) months; or jointly with one’s spouse, a gross combined total annual income of RM250,000 in the preceding twelve (12) months.
- be a tax resident of Malaysia; and
- has a domain expertise/ management experience of at least five (5) years. This is to ensure that the Angel Investor is able to contribute more to the start-up company instead of just the financial support alone.
In addition, being a member of an angel club or network, either inside or outside of Malaysia will be an added advantage to qualify as an Angel Investor.
What is a Qualified Investee Company?
Qualified investee company means a start-up which has been certified by Cradle Fund as eligible to be invested by the qualified angel investor for the purpose of ATI.
To be eligible as a Qualified Investee Company, the core activities of the company must be in qualifying activities as approved by Ministry of Finance under the focus areas of investment. Currently the focus areas are in High Growth or High Technology industries such as the following:-
- Advanced electronics and information technology
- Equipment/instrumentation, automation and flexible manufacturing systems
- Electro-optics, non-linear optics and optoelectronics
- Advanced materials
- Value-added services
- Emerging technologies
- be a Malaysian incorporated company;
- the company must be a resident of Malaysia whereby control and management of the company's businesses are exercised in Malaysia - if Board Meetings are regularly held outside Malaysia, at least one of the Board Meetings must be held in Malaysia to qualify as resident;
- be owned by at least 51% Malaysian individuals (no corporations allowed);
- all the shareholders must be individuals acting in their personal capacity (shareholders must not have family relationships such as father/ son, grandparents etc);
- has cumulative revenue of less than than RM5 million and has been in operation for 3 years or less (starting date for the investee company’s business operation is on the first year upon receiving revenue); and
- the Investee Company must not be involved in any court proceedings whether inside or outside of Malaysia.
Point to note, in order for the investment made to qualify for ATI,
- no more than 30% of the Investee Company's share capital should be held by Angel Investors. The number of Angel Investors contributing to the share capital of the Investee Company is irrelevant so long as the total share capital does not exceed 30%;
- all investments made are to be paid in cash and in full;
- shares issued to the individual shareholders must be reflected in a Shareholders’ Agreement; and
- shares issued to Angel Investors must be in the form of ordinary shares only.
If all the above conditions are met, the tax incentive given will be on a minimum amount of RM5,000 and maximum of RM500,000 per annum in total.
Unlike Cradle Investment Programme, ATI applications have to be submitted manually together with the Angel Tax Incentive Application Form and all the relevant supporting documents. If you wish to know more about Angel Tax Incentive Programme, you can head over to Cradle Fund's website.
In our next and final part of this post (Part 3), we'll delve into the Coach & Grow Programme offered by Cradle Fund. This is an interesting programme offered by Cradle Fund because other than having a coach that has been there and done that guiding the business owners on the myriad business challenges faced, funding will also be provided if certain conditions are met.
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