Retail Investors are allowed to invest in IEO by the Securities Commission.
In my previous article “A Guide to Understand Malaysian New IEO Legal Framework – A Mild Commencement”, I shared the basic outlines of the new IEO legal framework announced by the Malaysian Securities Commission and why the IEO legal framework is a mild commencement of the authority(ies) in Malaysia to accepting and integrating digital asset as part of the capital market mechanisms.
Within the new guidelines, the Securities Commission has had for the first time allowed retail investors to take part in investment activity that involves digital asset, which has been prescribed as securities and thus would be governed under the scope of securities laws.
Therefore under the new Guidelines on Digital Assets, investors have been generally defined into three main categories, as follows:
- Sophisticated Investor
- Angel Investor
- Retail Investor
Pursuant to the Malaysian Capital Market and Services Act 2007 (CMSA), Sophisticated Investor encompasses three categories:
1st category: Accredited Investors
2nd category: High Net Worth Entity
3rd category: High Net Worth Individual
Among others, for individuals that wish to subscribe the IEO tokens under the category of Sophisticated Investors, he or she shall at least have a gross annual income of RM300,000 or net personal asset more than RM3m excluding his primary residence.
Under the new Guidelines on Digital Assets, there is no any restrictions whatsoever imposed on Sophisticated Investors. They could subscribe as much IEO project as they want to with no limitation on amount.
Angel Investors are those samaritans that come to you with shed of light (of money) for your company
Angel Investors are not a new term in the capital market as such term has been widely heard and known in multiple fundraising channel such as Venture Capital (VC) and Equity Crowdfunding Platform (ECF).
More often than not, the investing scale of Angel Investors is smaller than Sophisticated Investors, as well as their qualifications too. The new Guidelines on Digital Assets have stipulated the legal requirements of an Angel Investor:
Under the new Guidelines, an Angel Investor is restricted to subscribe IEO projects up to RM500,000 within continuous twelve months.
The new Guidelines did not make any reference to tax deduction eligible by an Angel Investor. Under the angel tax incentive program in the Malaysian Business Angel Network (MBAN), a qualified angel investor can register himself with MBAN as an accredited angel investor and may enjoy Angel Tax Incentive.
If you want the Angel Tax Incentive, make sure those investee companies are registered as qualified companies
An accredited angel investor with MBAN may qualify for tax deduction equivalent to the amount of investment made by the angel investor in qualified startup companies. In order to enjoy the Angel Tax Incentive, the angel investor must make sure the companies that he intended to invest into shall be a qualified investee company registered with the Angel Tax Incentive Office (ATIO).
Conversely, those person that are not within the category of Sophisticated and Angel Investors, they would fall under the Retain Investors classification. Simple as that.
The Securities Commission imposed a restrictive investment manner on Retail Investors where they could only subscribe the IEO up to RM2,000 per IEO project and maximum RM20,000 per annum, which effectively means that they could only subscribe up to ten different IEO projects per year.
After all, the new Guidelines did not prescribe in practical how one could identify themselves as Sophisticated or Angel Investors. It could be done via the KYC by the IEO operator or disclosure to be made by the relevant investors.
I hope this article helps you understand the definition and categories of investors under the new Malaysian IEO legal framework. If you need further information or consultation, contact us:
[contact-form-7 id=”170″ title=”Contact form 1″]Please find the entire Guidelines on Digital Assets here. The Guidelines will come into force in 2H2020.
This article was written by Malaysian Tech Lawyer Marcus Tan Kian Han which was first published at his LinkedIn page on January 21, 2020.
