Companies that have been taking a tax deduction in Malaysia in connection with equity awards will need to revisit this practice if they use newly issued shares to satisfy the awards.

Pursuant to a recent amendment to the Malaysian Income Tax Act 1967, the local Malaysian entity can now take a tax deduction only if:

  1. 1.The issuer satisfies the equity awards granted to Malaysian employees using “treasury shares;” and 
  2. The local entity reimburses the issuer for the cost of the treasury shares (minus any price paid by employees for the shares). 

For this purpose, treasury shares are defined as shares of the issuer that were previously issued and repurchased, redeemed or otherwise acquired by the issuer and not cancelled.