In 2013, Malaysia took a significant stride in fostering innovation and entrepreneurship by introducing the Angel Tax Incentive (ATI). Managed by the Angel Tax Incentive Office (ATIO) under Cradle Fund Sdn Bhd, ATI aims to stimulate early-stage investments in technology startups. This initiative, approved by the government, plays a crucial role in encouraging private sector participation in supporting the growth of innovative ventures. The core idea behind the Angel Tax Incentive is to mitigate the risks associated with early-stage investments by providing tax exemptions to individual investors.
To avail of the Angel Tax Incentive benefits, investors and startups must adhere to specific eligibility criteria.
1. Accredited Angel Investors: Investments must be made by accredited angel investors into certified startups, ensuring that only qualified individuals contribute to the growth of early-stage companies.
2. Exclusion of Immediate Family Members: Investments should not come from immediate family members, including spouses, children, parents, grandparents, and siblings, ensuring a fair and unbiased investment landscape.
3. Approved Activities: Funds must be exclusively allocated to finance activities approved by the Ministry of Finance, ensuring that investments contribute to the development and growth of the startup.
4. Investment Period: Angel investors must commit to a two-year investment period before becoming eligible for tax exemption.
5. Restrictions on Share Disposal: Shares allocated to angel investors cannot be sold or disposed of within two years from the date of the initial investment, promoting stability and commitment.
6. Investment Limits: The investment shall not exceed 30% of the issued and paid-up capital of the qualified startup, and the shares issued must be in the form of ordinary shares.
7. Minimum and Maximum Investment: Investors must contribute a minimum of RM5,000.00 and up to a maximum amount of RM500,000.00 per annum, facilitating a broad range of investors.
8. Cash Investments: Investments must be in full and in cash, eliminating the option for startups to repay the angel investors in kind.
9. Shareholders’ Agreement: The Shareholders’ Agreement must accurately reflect the shares issued by the startup, ensuring transparency and fairness.
10. Ordinary Shares Only: The shares allocated to angel investors must be in the form of ordinary shares exclusively.
The Angel Tax Incentive highlights the tax exemption granted to angel investors who meet the eligibility criteria. The process includes:
1. Ministry of Finance Approval: Upon approval by the Ministry of Finance, the angel investor becomes eligible for a tax exemption equivalent to the invested amount in the startup.
2. Third-Year Exemption: The tax exemption is granted in the third year of the shareholding period, allowing for a reasonable time frame for the startup to establish itself and generate returns.
3. Limitations on Excess Amounts: If the value of the investment exceeds the aggregate income of the angel investor for the specific year of assessment, any excess amount will not qualify for exemption. Moreover, it cannot be carried forward to offset against the angel investor’s future income in subsequent assessment years, ensuring a balanced and fair application of the incentive.
Latest Development: Extension in 2024 Budget
In a pivotal move to bolster the startup ecosystem, Malaysia has reaffirmed its commitment to fostering innovation by extending the Angel Investor Tax Incentive (ATI) until 31 December 2026. This development, announced in the latest 2024 budget, underscores the government's dedication to supporting capital funding for startup companies, particularly in the technology sector.
The extension of the Angel Investor Tax Incentive until the end of 2026 signifies a strategic decision by the Malaysian government to provide a more extended runway for investors and startups alike. This move recognizes the time it takes for startups to mature and establish themselves in the competitive landscape, aligning the incentive's duration with the realistic timelines of business growth
Encouraging Investment in Technology Startups:
The specific focus on encouraging investment in technology startups is a testament to Malaysia's aspirations to position itself as a regional hub for technological innovation. By providing tax incentives to angel investors, the government is stimulating economic growth and fostering a culture of innovation that can propel the nation to the forefront of the global technology ecosystem.
The Impact on the Startup Ecosystem:
The extension of the Angel Investor Tax Incentive is poised to impact the startup ecosystem in Malaysia significantly. By providing a conducive environment for capital funding, the government fosters an ecosystem where startups can thrive, innovate, and contribute to the nation's economic development. This measure is expected to attract more local and international investors to participate in the growth of Malaysia's vibrant startup community.
Malaysia's commitment to supporting capital funding for startup companies, particularly in the technology sector, is exemplified through the Angel Investor Tax Incentive extension until 31 December 2026. This strategic move showcases the government's dedication to fostering innovation and positions Malaysia as a favourable destination for investors seeking opportunities in the dynamic world of technology startups. To stay updated on the latest developments and to explore the full potential of the Angel Investor Tax Incentive, interested parties are encouraged to visit www.cradle.com.my for comprehensive information and guidance. As Malaysia continues to evolve as a hub for innovation, this extension is poised to play a pivotal role in shaping the future of the country's startup landscape.