Case Study: The Kraut Group

Based on the case, The Kraut Group currently is considering projects whether to set up a regional office to manage the group companies in Malaysia. The group companies that operate in the South-east Asia region will fund the regional office costs. From my point of view, the tax incentives for the proposed regional office is about the principal hub. In April 2015, the Malaysian government declared a new specialized principal hub incentive that would make major cities in Malaysia more forcing for multinational companies (MNCs) to locate their regional principal hub (The Principal Hub in Malaysia, n.d). The definition of principal hub is a locally incorporated company that sets Malaysia as a foundation for executing its regional and global businesses
First of all, it must be local incorporation that subjected to Companies Act 1965. Based on the case, since The Kraut Group plan to set up a regional office to manage the group companies in Malaysia. So, it will be a company that incorporated in Malaysia. Secondly, the condition is The Kraut Group paid-up capital need more than RM2.5 million. Thirdly, it must yield minimum RM 300 million of annual sales turnover. Next, it must serves and control network companies in at least 3 countries outside Malaysia. Since it has an extensive network of companies in South-East Asia and East Asia that engaged in marketing and sales of chemical-based products, so it fulfill this condition. Moreover, it need to carry out qualifying services which are at least one from strategic, one from business and another one from shared services. Kraup Group has fulfill it criteria as for the strategic services, it appears that Kraup Group carry out regional profit and loss and business unit management, for the shares services, it implements general administration to manage group companies in the South-East Asia Region, whereas for business services is engaged in marketing and sales of chemical-based
Besides, yearly reports must be handed over to Malaysian Investment Development Authority (MIDA). The principal hub incentive is granted for principal hub applications received by Malaysian Investment Development Authority (MIDA) between 1st May 2015 and 30th April 2018. Lastly, there are some places that can apply principal hub tax incentive such as Malaysian Investment Development Authority (MIDA), Central Bank of Malaysia and Customs Department of