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Industry Guide:

Investment Banking

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FREQUENTLY ASKED QUESTIONS

GST Registration

1. Am I eligible for group registration?

You are not eligible to register for group registration because as an investment bank, you are making both taxable and exempt supplies. To be registered as a group, you must make wholly taxable supplies. 

2. Can I use the bank account number that appears in the monthly bank statements as the GST registration number required on tax invoice?

You are not allowed to use the bank’s account number as your GST registration number on your tax invoice. You will be given a GST registration number when you register your business.

3. I am a dealer representative. Am I required to be registered?  

You are not required to be registered. However, your stock broker will be required to be registered if his taxable sales turnover exceeds the threshold and he has to account the GST on your brokerage commission irrespective of whether the amount of your annual brokerage commission is above or below the threshold limit.

4. If my dealer representative wants to quit from my stock broking company and intends to join with another stock broking company, what must I do? What do I have to do if a new dealer representative joins my company?  

If your dealer representative wants to quit from your company, you must inform the Customs Department on the withdrawal of the dealer representative by filling the form GST-A. Similarly, you must inform the Customs Department if a new dealer representative joins your company.


Structured Investment Product  

5. I structure an investment product for my client. In the process, I also supply advisory service for which the charge is embedded into the price of the structured investment product. Do I have to charge GST on my supplies?

Since the provision of advisory services is part of the cost in the structuring of the investment product, you are not required to apportion the advisory service. GST is not chargeable to the structured product as it is exempt.


Securities Syndication  

6. I enlist the support of other investment banks to sell securities, thus forming a security syndicate. In addition to that, each member of my syndicate have their own selling groups, consisting of other investment bankers, dealers and brokers that sell to their own investors. How should I account for the GST?

As the originating bank, you are accountable for the GST on the fee based services related to the syndication. Therefore, you should charge GST at a standard rate on any fee based service which you make to your customer. 

Explanation on GST treatment:  

No.  Transactions GST 
1. Originating Investment Bank(s) charges arranger fee to issuer for the syndication service.  Standard Rate 
2. Originating Investment Bank(s) sell securities to Investment Bank(s) and receive commission.  Sell securities - Exempt Commission – Standard Rate 
3. Originating Investment Bank(s) may sell securities directly to investors and receive commission.  Sell securities – Exempt Commission – Standard Rate 
4. Investment bank(s) sell securities to Selling Group (SGs); receive commission from Originating Investment Bank(s) and pays brokerage fee to (SGs).  Sell securities - Exempt Brokerage and Commission – Standard Rate 
5. Originating Investment Bank(s) may sell securities directly to Selling Groups (SGs) and pay brokerage fee.  Sell securities - Exempt Brokerage – Standard Rate 
6. SGs sell securities directly to investors, charges brokerage fee and receive commission.  Sell securities - Exempt Brokerage and Commission – Standard Rate
7. Investment Bank(s) may sell securities directly to investor and earn full commission from Originating Investment Bank(s)  Sell securities - Exempt Commission – Standard Rate


Loan Syndication 

7. I am the arranger of a syndicated loan. I provide the loan of RM100 million and receive an arranger fee of RM50,000. How do I charge GST?

Since the provision of a loan is a provision of credit, it is an exempt supply. However, you are required to account GST on RM50,000.00, since arranger fee is taxable.

Example 1: Mixed Supply

Loan Amount:                               RM100 million 

Arranger Fee:                                RM 50,000.00

GST @ 6%: (RM50,000 x 6%)  RM 3,000.00

8. I am the mandated arranger as well as the administrative agent of a syndicated loan facility. The other participating banks’ roles in the syndicates’ composition is shown in Table 1. What is the GST treatment on the supply of these participating banks? 

The GST treatment is shown in the Table 1 below:-

Table 1: Example of a Syndicated Loan Structure 

Participating Banks’ Role  Services  Fee/Income  GST Treatment
1. Mandated Arranger (Lead manager/ Administrative agent) 1. Originate, structure and syndicate the transaction

2. Provide portion of the loan to the syndicate. 

3. Receives portion of the interest on the loan from borrower. 
1.Syndication fee 

2. Loan 

3. Interest 
Standard rate 

Exempt

Exempt 
2. Joint Manager/ Co-Manager  1. Member of the syndicate receiving a portion of the syndication’s fee.

2. Provide portion of the loan to the syndicate. 

3. Receive interest on the loan.
1.Syndication fee

2. Loan

3. Interest
Standard rate

Exempt 

Exempt 
3. Book Runner  1. Issues invitations to participate in the syndication, disseminates information to banks and informs the borrower about the progress of the syndication.

 2. Provide portion of the loan to the syndicate.

3. Receive interest on the loan. 
1. Book Runner fee

 2. Loan

3. Interest
Standard rate

 Exempt

Exempt 
4. Participants only  1. Provide portion of the loan to the syndicate.

 2. Receive interest on the loan.
1. Loan

 2. Interest
Exempt

 Exempt

 

9. Sometimes an application fee on a non-syndicated loan may be termed as “acceptance fee” or “review fee” and it is charged upon approval of the loan. What is the GST treatment on this fee?

Irrespective of the term you use for the fee, the application fee is subject to GST at a standard rate..

10. I charged processing fee when a non-syndicated loan application is approved. Is there GST on processing fee if the loan is declined?  

GST is chargeable at a standard rate even though the loan is declined.


Corporate Financing

11. Debt assignment is the assignment of debt for a consideration. In this assignment, the debt factor will charge service fee. What is the GST treatment on the service fee?

The service fee on the debt assignment is subject to GST at a standard rate. 

12. Is there GST for late payment penalties?

If you impose a penalty because your clients did not pay by the due date, the penalty is not subject to GST.


Securities Services 

13. Many securities transactions are effected by electronic means. Is the supply through a dealing system that matches and sell deals subject to GST?

The trading of securities is an exempt supply. However, the rental of the dealing system is a taxable supply and therefore is subject to GST at a standard rate.


Initial Public Offering (IPO)  

14. What is the GST treatment on fees paid in an IPO exercise? 

Fee based services relating to IPO exercise is standard rated even though you may have progress billings. The GST is due when the billing is made or payment received. This may include any kind of additional costs on report preparation, administrative and maintenance on corporate governance.

15. My supply in an IPO exercise is basically related to the new securities of a public company in which I am also the company’s underwriter. What is the GST treatment if I sell the new securities in large blocks to institutional or retail buyers?  

The sale and purchase of securities to an institution is an exempt supply and therefore it is not subject to GST. GST is not chargeable even though you resell the securities to a retail purchaser. However, if there is any brokerage fee or commission, it is subject to GST at a standard rate.


Acquisition through Borrowings 

16. A leveraged buyout is essentially a strategy involving the acquisition of another company using borrowed money through bonds or loans in order to meet the cost of the acquisition. Often, the assets of the company being acquired will be used as collateral in addition to the assets of the acquiring company. Is collateral subject to GST? 

Collateral is a form of security to ensure settlement of the loans. Hence, it is not subject to GST.


Takeover 

17. A friendly takeover occurs with the consent of the management of the target company and consists of a straight buyout of the company. In this kind of takeover, the shareholders either receive cash or an agreed-upon number of shares of the acquiring company’s shares. What is the GST treatment? 

Cash payment and shares buyout is not subject to GST.


Stock Lending 

18. I lend shares to another entity (borrower) for it to complete some shares transaction. The borrower will return the same number of shares to me at a later agreed date. In this transaction I charged the borrower some fees. Is the fee subject to GST? 

The fee you charged the borrower is subject to GST at a standard rate. However, the lending of shares is not subject to GST.

19. Where stocks are loaned, the borrower has the legal title of the shares and received the dividend until these shares are returned. What is the GST treatment on the dividend received by the borrower?  

The dividend received is not subject to GST.


Swaps  

20. When is the tax point in an interest rate swaps i.e. when the banks and other financial institutions exchange fixed interest rate on their debts?

An interest rate swap is an exempt supply. Therefore, the issue of tax point does not arise.

21. Is the GST treatment on interest rate swaps similar to currency swaps?  

The GST treatment will be similar since currency swap is also an exempt supply.


Preparatory Services  

22. I provide preparatory services to my nominee companies. What is the GST treatment on these preparatory services? 

Preparatory services such as preparing and filling of documents in a rights issue are subject to GST at a standard rate.


Stock broking  

23. My client is a Singaporean. He trades shares on Bursa Malaysia. Do I charge GST on brokerage commission? 

You are required to charge GST on the brokerage commission even though your client is not a Malaysian.

24. I purchase 10 lots of shares from Hong Kong stock market through my stock broking company in Johor and I have been charged commission twice for the services rendered that is, commission charged by the stock broking company and their parent company in Kuala Lumpur. Do I have to pay GST on the commissions charged for such purpose?  

Your payment for both commissions will not be charged GST because it is zero-rated.

25. I intend to buy 20 lots of a foreign-listed company’s call warrants which are also listed at Bursa Malaysia. Do I have to pay GST on commission for such dealing?

You have to pay GST on the commission charged.  

 

Input tax recovery 

26. Can an IB claim input tax incurred in respect of medical and hospitalization benefits of its employees? 

The bank is not entitled to claim the input tax incurred since medical and hospitalization benefits for the employees are blocked.

27. Can an IB claim the input tax incurred in relation to entertainment to existing clients?  

The bank may claim the input tax incurred since entertainment to existing clients is not blocked.

28. As a dealer’s representative or futures broker’s representative, I incur GST on telecommunication services when I call my clients through my mobile phone. Can my lead member claim the GST incurred on my behalf?  

Your lead member cannot claim the GST incurred on telephone service made by you when you call your clients through your mobile telephone. However, GST paid on your fixed line telephone which is registered under your name is allowed to be claimed as your input tax credit (ITC).

29. As a dealer’s representative or futures broker’s representative, I sometimes incur parking charges on the car which I use to meet up with my clients. Can the stockbroking company claim the GST incurred on my behalf?  

Your stockbroking company can claim the GST incurred provided that parking charges incurred is related to the meeting with your client.

30. As an investment bank, I sometimes provide margin financing to my clients besides charging brokerage commission. How do I claim the GST incurred on my expenses?  

As margin financing is an exempt supply, you are required to apportion and claim the GST incurred on making taxable supplies.


Bad Debts 

31.  After paying upfront the value of a share transaction which includes the share price, commission, stamp duty and GST on commission to my lead member eight months earlier, as a dealer’s representative I still have not received any payment from my client. My lead member then proceeded to treat the unpaid dues as bad debts. Can my lead member claim the GST that I have paid on commission?

Your lead member can claim GST in full provided that your lead member has satisfied all of the requirements of bad debts relief. However, when your lead member subsequently recovers the bad debts, the lead member shall pay the GST recovered to the dealer’s representative.

32. After I have claimed the GST due to the unpaid account, one of my clients pays me. Do I have to pay GST back to the government?   

You have to pay back the amount of GST which your client has paid to the government.
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