| Investment
Incentives In Malaysia, tax incentives, both
direct and indirect, are provided for in the Promotion of Investments Act 1986,
Income Tax Act 1967, Customs Act 1967, Sales Tax Act 1972, Excise Act 1976 and
Free Zones Act 1990. These Acts cover investments in the manufacturing, agriculture,
tourism (including hotel) and approved services sectors as well as R&D, training
and environmental protection activities. The
direct tax incentives grant partial or total relief from income tax payment for
a specified period, while indirect tax incentives come in the form of exemptions
from import duty, sales tax and excise duty. Incentives
For The Manufacturing Sector Main Incentives
for Manufacturing Companies The major tax
incentives for companies investing in the manufacturing sector are the Pioneer
Status or Investment Tax Allowance. Eligibility
for Pioneer Status or Investment Tax Allowance is based on certain priorities,
including the levels of value-added, technology used and industrial linkages.
Such eligible projects are termed as "promoted activities" or "promoted products"
(Please refer to the List
of Promoted Activities and Products - General) (i) Pioneer Status
A
company granted Pioneer Status enjoys a 5-year partial exemption from the payment
of income tax. It pays tax on 30% of its statutory income*, with the exemption
period commencing from its Production Day (defined as the day its production level
reaches 30% of its capacity). To
encourage investment in the promoted areas i.e. the States of Sabah and Sarawak
and the designated "Eastern Corridor"+ of Peninsular Malaysia, applications received
from 13 September 2003 from companies located in these areas will enjoy a 100%
tax exemption on their statutory income during their 5-year exemption period. Companies which have been
granted approval for this incentive but have not commenced commercial production,
or applications under consideration, are also eligible.
All project applications received by 31 December 2005 will be eligible
for this enhanced incentive. Applications for Pioneer Status should
be submitted to the Malaysian Industrial Development Authority (MIDA).
(ii) Investment Tax Allowance
As an alternative to Pioneer Status,
a company may apply for Investment Tax Allowance (ITA). A company granted ITA
gets an allowance of 60% on its qualifying capital expenditure (such as factory,
plant, machinery or other equipment used for the approved project) incurred within
five years from the date on which the first qualifying capital expenditure is
incurred.The company can offset this allowance against 70% of its statutory income
for each year of assessment. Any unutilised allowance can be carried forward to
subsequent years until fully utilised. The remaining 30% of its statutory income
will be taxed at the prevailing company tax rate.
To encourage investment
in the promoted areas i.e. the States of Sabah and Sarawak and the designated
"Eastern Corridor" of Peninsular Malaysia, applications received from 13 September
2003 from companies located in these areas will enjoy an allowance of 100% on
the qualifying capital expenditure incurred within a period of five years.
The allowance can be utilised to offset against 100% of the statutory income
for each year of assessment. Companies
which have been granted approval for this incentive but have not commenced commercial
production, or applications under consideration, are also.
All project applications received by 31 December 2005 will be eligible
for this enhanced incentive. Applications should be submitted
to MIDA. *
Statutory Income is derived after deducting revenue expenditure and capital allowances
from the gross income.
+ The "Eastern Corridor" of Peninsular Malaysia
covers the States of Kelantan, Terengganu and Pahang, and the district of Mersing
in the State of Johor.
| 1.2 | Incentives
for High Technology Companies | |
A high technology company is a company engaged in
promoted activities or in the production of promoted products in areas of new
and emerging technologies (Please refer to the List
of Promoted Activities and Products - High Technology Companies). A high technology
company qualifies for:
| (i) | Pioneer
Status with a tax exemption of 100% of the statutory income for a period of five
years; or | | (ii) |
Investment Tax Allowance of 60% on the qualifying
capital expenditure incurred within five years from the date the first qualifying
capital expenditure is incurred. Any unutilised allowance can be carried forward
to subsequent years until the whole amount has been fully utilised. The allowance
can be utilised to offset against 100% of the statutory income for each year of
assessment. | Applications should be
submitted to MIDA. The high technology company must fulfil
the following criteria:
| (i) | The
percentage of local R & D expenditure to gross sales should be at least 1%
on an annual basis. The company has three years from its date of operation or
commencement of business to comply with this requirement. |
| (ii) | Scientific
and technical staff having degrees or diplomas with a minimum of 5 years experience
in related fields should comprise at least 7% of the company's total workforce. | |
| 1.3 | Incentives
For Strategic Projects | | Strategic
projects involve products or activities of national importance. They generally
involve heavy capital investments with long gestation periods, have high levels
of technology, and are integrated, generate extensive linkages, and have significant
impact on the economy. Such projects qualify for: -
Pioneer
Status with a tax exemption of 100% of the statutory income for a period of 10
years; or -
Investment Tax Allowance
of 100% on the qualifying capital expenditure incurred within five years from
the date the first qualifying capital expenditure is incurred. This allowance
can be offset against 100% of the statutory income for each year of assessment.
Applications should be submitted to MIDA.
| | 1.4 | Incentives
for Small- and Medium- Scale Companies | |
Effective from the year of assessment 2003, small-
and medium-scale companies with a paid-up capital of RM2.5 million and below are
eligible for a reduced corporate tax of 20% on the chargeable income of up to
RM100,000. The tax rate on the remaining chargeable income is maintained at 28%.
Dividends distributed will be given a tax credit of 20% in the hands of the shareholders. The
threshold for chargeable income eligible for the reduced corporate tax rate of
20% is increased from RM100,000 to RM500,000 effective from the year of assessment
2004. Small-scale manufacturing companies incorporated
in Malaysia with shareholders' funds not exceeding RM500,000 and having at least
60% Malaysian equity are eligible for the following incentives:
- Pioneer Status with an income tax exemption of 100% of the statutory
income for a period of five years; or
- Investment Tax Allowance
of 60% on the qualifying capital expenditure incurred within five years. This
allowance can be offset against 100% of the statutory income for each year of
assessment.
A sole proprietorship or partnership
is eligible to apply for this incentive provided a new private limited/limited
company is formed to take over the existing production/activities. To
qualify for the incentive, a small-scale company has to comply with any one of
the following criteria: -
The
value added must be at least 15%; or -
The
project contributes towards the socio-economic development of the rural population.
The company shall carry out the
manufacturing of products or participate in activities listed as promoted products
and activities for small-scale companies (Please refer to the List
of Promoted Activities and Products - Small Scale Companies). Applications
should be submitted to MIDA. | | 1.5 | Incentives
to Strengthen Industrial Linkages | |
To encourage large companies to participate
in an Industrial Linkage Programme (ILP), expenditure incurred in the training
of employees, product development and testing, and factory auditing to ensure
the quality of vendors' products, will be allowed as a deduction in the computation
of income tax. Vendors, including small- and
medium-scale companies that propose to manufacture promoted products or participate
in promoted activities in an ILP (Please refer to the List
of Promoted Activities and Products - Industrial Linkage Programme (ILP)),are
eligible for the following incentives: -
Pioneer
Status with a tax exemption of 100% of the statutory income for a period of five
years; or -
Investment Tax Allowance
of 100% on the qualifying capital expenditure incurred within five years from
the date the first qualifying capital expenditure is incurred. This allowance
can be offset against 100% of the statutory income for each year of assessment.
To encourage vendors to manufacture
promoted products or participate in activities for the international market, vendors
in an approved ILP who are capable of achieving world-class standards in terms
of price, quality and capacity, will be eligible for the following incentives:
-
Pioneer Status with a tax exemption of 100%
of the statutory income for a period of 10 years; or -
Investment
Tax Allowance of 100% on the qualifying capital expenditure incurred within a
period of five years which the company can offset against 100% of the statutory
income for each year of assessment Applications
should be submitted to MIDA. | | 1.6 | Incentives
for the Machinery and Equipment | |
| 1.6.1 | Incentives
for the Production of Specialised Machinery and Equipment |
| | Companies undertaking activities
in the production of specialised machinery and equipment, namely, machine tools,
plastic injection machines, plastic extrusion machinery, material handling equipment,
packaging machinery, robotics and factory automation equipment, specialised /process
machinery or equipment for specific industries, and parts and components of the
mentioned machinery and equipment, are eligible for: -
Pioneer
Status with a tax exemption of 100% of the statutory income for a period of 10
years; or -
Investment Tax Allowance
of 100% on the qualifying capital expenditure incurred within five years from
the date on which the first qualifying capital expenditure is incurred. This allowance
can be offset against 100% of the statutory income for each year of assessment.
Applications should be submitted to MIDA. |
| 1.6.2 | Additional
Incentives for the Production of Heavy Machinery | | |
Applications received from 13 September 2003 from
existing locally-owned companies that reinvest in the production of heavy machinery
such as cranes, quarry machinery, batching plant and port material handling equipment,
are eligible for the following incentives: -
Pioneer
Status with a tax exemption of 70% (100% for promoted areas) on the increased
statutory income arising from the reinvestment for a period of five years; or
-
Investment Tax Allowance of 60% (100%
for promoted areas) on the additional qualifying capital expenditure incurred
within a period of five years. The allowance can be offset against 70% (100% for
promoted areas) of the statutory income for each year of assessment. Applications
should be submitted to MIDA. | | 1.6.3 | Additional
Incentives for the Production of Machinery and Equipment |
| | Applications received from 13
September 2003 from existing locally-owned companies that reinvest in the production
of machinery and equipment, including specialised machinery and equipment and
machine tools, are eligible for the following incentives: -
Pioneer Status with a tax exemption of 70% (100%
for promoted areas) on the increased statutory income arising from the reinvestment
for a period of five years; or -
Investment
Tax Allowance of 60% (100% for promoted areas) on the additional qualifying capital
expenditure incurred within a period of five years. The allowance can be offset
against 70% (100% for promoted areas) of the statutory income for each year of
assessment. Applications should be submitted to
MIDA. | | | 1.7 | Incentives
for Automotive Component Modules | |
New and existing companies that undertake design,
R&D and production of qualifying automotive component modules or systems are
eligible for: -
Pioneer Status
with a tax exemption of 100% of the statutory income for a period of five years;
or -
Investment Tax Allowance of 60%
on the qualifying capital expenditure incurred within five years from the date
the first capital expenditure is incurred. The allowance can be offset against
100% of the statutory income for each year of assessment. The
qualifying modules or systems are front corner modules, rear corner modules, instrument
panel modules, struts and absorbers and spring assembly modules, bumper modules,
front cross member modules, function integrated door modules, fuel tank modules,
seat modules, pedal modules, door trim modules, floor console modules, tyre and
wheel modules, brake systems, wiper systems, exhaust systems, audio systems, heater
ventilation air-conditioning systems, air bag systems, power and signal distribution
systems, alarm systems, seat belt systems, exterior lighting systems, body in
white modules, engine management systems, safety systems, telematics, navigational
systems, engine fuel injection systems, and vehicle intelligence systems. This
incentive is for applications received by MIDA from 21 September 2002. |
| 1.8 | Enhanced
Incentives for the Utilisation of Oil Palm Biomass | |
Applications received from 13 September 2003 from
companies that utilise oil palm biomass to produce value-added products such as
particleboard, medium density fibreboard, plywood, pulp and paper are eligible
for the following incentives: - New Companies
-
Pioneer Status with a
tax exemption of 100% of the statutory income for a period of 10 years; or -
Investment Tax Allowance of 100% on the qualifying
capital expenditure incurred within a period of five years. The allowance can
be used to offset against 100% of the statutory income for each year of assessment.
However, companies which have
been granted approval for these incentives but have not commenced commercial production,
or applications under consideration, are also eligible for these incentives.
- Existing Companies that Reinvest
-
Pioneer Status with a tax exemption of 100%
on the increased statutory income arising from the reinvestment for a period of
10 years; or -
Investment Tax Allowance
of 100% on the additional qualifying capital expenditure incurred within a period
of five years. The allowance can be used to offset against 100% of the statutory
income for each year of assessment. |
| 1.9 | Additional
Incentives for the Manufacturing Sector | |
-
Reinvestment Allowance
A
manufacturing company that has been in operation for at least 12 months and incurs
qualifying capital expenditure to expand, modernize or automate its existing business
or diversify its existing business into any related products within the same industry
can apply for Reinvestment Allowance (RA).
The RA is given at the rate
of 60% on the qualifying capital expenditure incurred by the company, and can
be offset against 70% of its statutory income for the year of assessment. Any
unutilised allowance can be carried forward to subsequent years until fully utilised.
A
company can offset the RA against 100% of its statutory income for the year of
assessment if:
-
The
company undertakes reinvestment projects in the promoted areas i.e. the States
of Sabah, Sarawak and the designated "Eastern Corridor" of Peninsular Malaysia;
or -
The company attains a productivity
level exceeding the level determined by the Ministry of Finance. For further details
on the prescribed productivity level for each sub-sector, please contact the Inland
Revenue Board (see Useful Addresses - Relevant Organisations)
The
RA will be given for a period of 15 consecutive years beginning from the year
the first reinvestment is made. Companies can only claim the RA upon the completion
of the qualifying project, i.e. after the building is completed or when the plant/machinery
is put to operational use. Assets acquired for the reinvestment cannot be disposed
of within a period of two years from the time of the reinvestment.
Effective
from 21 September 2002, a company that intends to reinvest before the expiry of
its Pioneer Status can surrender its Pioneer Status for cancellation and be eligible
for RA.
Applications for RA should be submitted to the Inland Revenue Board
(IRB), while applications for the surrender of Pioneer Status for RA should be
submitted to MIDA.
-
Accelerated Capital
Allowance After the 15-year period of eligibility for RA, companies that reinvest
in the manufacture of promoted products are eligible to apply for Accelerated
Capital Allowance (ACA). The ACA on capital expenditure is to be utilised within
three years, i.e. an initial allowance of 40% and an annual allowance of 20%.
Applications
should be submitted to the IRB accompanied by a letter from MIDA certifying that
the companies are manufacturing promoted products.
- Tax
Exemption on the Value of Increased Exports
To promote exports, manufacturing
companies in Malaysia qualify for:
- A
tax exemption on the statutory income equivalent to 10% of the value of increased
exports, provided that the goods exported attain at least 30% value-added; or
- A tax exemption on the statutory income equivalent to 15% of
the value of increased exports, provided that the goods exported attain at least
50% value-added.
Claims should be submitted to
the IRB.
To further encourage the export of Malaysian goods, a locally-owned
manufacturing company with Malaysian equity of at least 60% is eligible for:
- A tax exemption on the statutory income
equivalent to 30% of the value of increased exports, provided the company achieves
a significant increase in exports;
- A tax exemption on the statutory
income equivalent to 50% of the value of increased exports, provided the company
succeeds in penetrating new markets;
- A full tax exemption on
the value of increased exports, provided the company achieves the highest increase
in export in its category.
These incentives are
effective from the year of assessment 2003. |
Source: The
Malaysian Industrial Development Authority
|
