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Incentives for Sukuk

22 Oct 2018 | Monday

Pro-business policies ease the process of issuing or listing sukuk in Malaysia while liberalised foreign exchange administration rules enable issuers to issue multicurrency sukuk or convert RM-denominated sukuk into other currencies.
 
Many Islamic financial institutions based in Malaysia have participated in notable sukuk issuances and possess a proven track record and in-depth experience. Issuers can leverage on their technical expertise and knowledge of various Islamic principles to produce and customise innovative sukuk offerings while benefiting from a smooth issuance process. These Islamic financial institutions have also established a strong regional network and this allows for an effective distribution strategy, and provides maximum exposure and visibility to issuers. 
 
The cost to issue RM- denominated and multicurrency sukuk can be more efficient for issuers with the various tax incentives available in Malaysia. The nurturing of a critical mass of Islamic financial players together with the availability of ancillary services familiar with sukuk and Shariah matters further support cost efficiencies for issuers.
 
Malaysia’s facilitative approval process for new issuances and industry expertise in structuring and lead-arranging sukuk deals shortens the time to market. Meanwhile, documentation based on governing laws of the United Kingdom and United States as well as ratings from international credit-rating agencies for multicurrency sukuk are accepted, resulting in cost and time efficiencies.
 
A wide investor base, from growing interest in this new asset class and an increasing number of institutions seeking Islamic investments, has led to competitive pricing for sukuk. Investors can pick from a wide array of tenures, issuers and ratings, and have the option to hold or trade their investments with an active secondary market for RM-denominated sukuk.
 
Tax Incentives for Issuers
 
Special Purpose Vehicles

  • Tax exemption on income received by Special Purpose Vehicles (SPV) in issuing sukuk (excluding asset-backed securities).
  • Companies that establish Special Purpose Vehicles for the purpose of issuing Islamic securities are allowed a tax deduction on the issuing costs incurred by the Special Purpose Vehicles. This incentive is also extended to SPV established under the Offshore Companies Act 1990 electing to be taxed under the Income Tax Act 1967.

Issuer

  • Tax deduction on expenses incurred in the issuance of Islamic securities approved by the Securities Commission Malaysia until year of assessment 2015. The incentive is also extended to expenditure incurred on the issuance of Islamic securities approved by Labuan Financial Services Authority (Labuan FSA).

Instruments

  • Stamp duty exemption on instruments used to issue sukuk in any currency.

Tax Incentives for Investors
 
Institutional

  • Tax exemption and withholding tax exemption on interest or profits received by non-resident investors from investment in Islamic securities issued in any currency, other than convertible loan stock, approved by Securities Commission Malaysia
  • Tax exemption on profits received by resident and non-resident investors in respect of foreign currency Islamic securities approved by the Securities Commission Malaysia and originating from Malaysia, other than convertible loan stock. This exemption extended to profits received from non-ringgit sukuk originating from Malaysia approved by Labuan Financial Services Authority (Labuan FSA).
  • Stamp duty exemption on investing and trading of sukuk.

Individual

  • Tax exemption on interest or profits paid to an individual from investment in:
  • Securities issued or guaranteed by the Government.
  • Debentures, other than convertible loan stocks, approved by the Securities Commission Malaysia
  • Bon Simpanan Malaysia issued by Bank Negara Malaysia.
  • Tax exemption and withholding tax exemption on interest or profits received by non-resident investors from investment in Islamic securities issued in any currency, other than convertible loan stock, approved by the Securities Commission Malaysia
  • This exemption extended to profits received from non-ringgit sukuk originating from Malaysia approved by Labuan Financial Services Authority (Labuan FSA).
  • Stamp duty exemption on investing and trading of sukuk.