•  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.

• The percentage of local R & D expenditure to gross sales should be at least 1% on an annual basis. Companies have three years from their date of operation or commencement of business to comply with this requirement
• Scientific and technical staff with degrees/diplomas and a minimum of five years’ experience in related fields should comprise at least 7% of the company’s total workforce

Applications should be submitted to MIDA.

• The company’s finished products should be used as raw materials  or components by manufacturing industries;
• The company’s products shall substitute imports and the  local material content is more than 50% in terms of value;
• The company exports at least 50% of its output; or
• The project contributes towards the socio-economic development of the rural population.

• The company undertakes reinvestment projects in Sabah, Sarawak and the designated “Eastern Corridor” of Peninsular Malaysia.
• 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 IRB)

• A tax exemption on 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 statutory income equivalent to 15% of the value of increased exports, provided that the goods exported attain at least 50% value-added.

• Agro-based cooperative societies and associations
• Sole proprietorships and partnerships engaged in agriculture.

Companies producing promoted products or engaged in promoted activities in the agricultural sector qualify for the following incentives:

2.1 MAIN INCENTIVES FOR THE AGRICULTURAL SECTOR

(i)  Pioneer Status

As in the manufacturing sector, companies producing promoted products or engaged in promoted activities are eligible for Pioneer Status.

A Pioneer Status company enjoys partial exemption from the payment of income tax. It will only have to pay tax on 30% of its statutory income for five years, commencing from its Production Day (defined as the day its production level reaches 30% of itscapacity).

As an added incentive, companies located in the States of Sabah, Sarawak and the designated “Eastern Corridor”of Peninsular Malaysia will only have to pay tax on 15% of their statutory income during these five years. This additional incentive applies to all applications received by 31 December 2005.

Applications should be submitted to MIDA

(ii)  Investment Tax Allowance (ITA)

As an alternative to Pioneer Status, companies producing promoted products or engaged in promoted activities can apply for ITA. A company granted ITA gets an allowance of 60% of qualifying capital expenditure incurred within five years from the date on which the first qualifying capital expenditure is incurred.

Companies can offset this allowance against 70% of their statutory income in the year of assessment. Any unutilised allowance can be carried forward to subsequent years until fully utilised. The remaining 30% of statutory income will be taxed at the prevailing company tax rate.

Additional incentives are enjoyed by companies located in the States of Sabah and Sarawak and the designated “Eastern Corridor” of Peninsular Malaysia. Such companies can obtain an allowance of 80% of the qualifying capital expenditure incurred. The allowance can be utilised to offset 85% of the statutory income in the year of assessment.  All applications received until 31 December 2005 are eligible for this additional incentives.

To increase the benefit to agricultural projects, the government has broadened the definition of qualifying capital expenditure to include:

• Clearing and preparing land
• Planting crops
• Providing plant and machinery used in Malaysia to pursue crop
  cultivation, animal farming, aquaculture, inland or deep-sea fishing and other agricultural or pastoral pursuits
• Constructing access roads including bridges, constructing or purchasing buildings (including those provided for the welfare of people or as living accommodation ) and structurally improving land or other structures which are used for crop cultivation, animal farming, aquaculture, inland fishing and other agricultural or pastoral pursuits.

Such roads, bridges, buildings, structural improvements on land and other structures should be on land forming part of the land used for the purpose of such crop cultivation, animal farming, aquaculture, inland fishing and other agricultural or pastoral pursuits.

In view of the time lag between start-up and processing of the produce, integrated agricultural projects qualify for ITA for an additional five years for expenditure incurred for processing or manufacturing operations.

Applications should be submitted to MIDA.

(iii)  Incentives for Food Production

Incentives for New Projects

To encourage food production, a company which invests in a subsidiary company engaged in food production, together with the subsidiary company qualify for either one of two incentive packages as follows:

Incentive Package A:

a)	A company which takes up a 100% equity in another subsidiary company engaged in food production receives tax deduction equivalent to the amount of investment made in that subsidiary, and
b)	The subsidiary company enjoys income tax exemption of 100% on its statutory income for 10 years commencing from the first year the company enjoys profit, in which :

• losses incurred before and during the exemption period can be brought forward after the exemption period of 10 years
• INdividends paid from the exempt income is  exempted in the  hands of the shareholders.

Incentive Package B:

a)	A company which takes up 100% equity in a subsidiary company engaged in food production will be given group relief for the losses incurred by the subsidiary company before it records any profit, and
b)	The subsidiary company enjoys full income tax exemption on its statutory income for 10 years. This commences from the first year the company enjoys profit in which:

• losses incurred during the exemption period can be carried forward after the exemption period of 10 years; and
• dividends paid from the exempt income is exempted in the hands of the share-holders.

The eligible food products are as approved by the Minister of Finance. These include kenaf, vegetables, fruits, herbs, spices, aquaculture, rearing of cattle, goats and sheep.

Incentives for Existing Companies which Reinvest

Any company which reinvests in the production of the same food products as above also qualify for the same incentives for a period of five years.

The food production project for both new and existing companies should commence within a year from the date the incentive is approved. Applications should be submitted to the Ministry of Agriculture by 31 December 2003.

2.2.  ADDITIONAL INCENTIVES FOR THE AGRICULTURAL SECTOR

(i)  Reinvestment Allowance

Persons or companies engaged in the production of essential food such as rice, maize, vegetable, tubers, livestock, aquatic products, and any other activities approved by the Minister of Finance for at least 12 months enjoys Reinvestment Allowance. The qualifying capital expenditure involves:

• Clearing and preparing land
• Planting crops
• Providing irrigation or drainage systems
•  Providing plant and machinery
• Constructing access roads including bridges 
• Constructing or purchasing buildings, including those provided for the welfare of persons or as living accommodation for persons, and structural improvements on land or other structures.

The RA is in the form of an allowance of 60% of capital expenditure incurred by the companies. The allowance can be offset against 70% of the statutory income in the year of assessment. Untilised allowances can be carried forward to the following years until it is fully utilised.

RA will be given for a period of 15 years beginning from the year the first reinvestment is made. Companies can only claim upon completion of the qualifying project i.e. after the building is completed or when the plant/machinery is put to operational use. However, assets acquired for the reinvestment cannot be disposed within two years of reinvestment.

Companies which undertake reinvestment projects in Sabah, Sarawak and the designated “Eastern Corridor” of Peninsular Malaysia can offset the allowance fully against the statutory income for that year of assessment.

Claims should be submitted to the IRB.

(ii)  Reinvestment Incentives for Resource-Based Industries.

This incentive is offered to local companies (companies that are at least 60 % owned by Malaysians) in the rubber, oil palm and wood-based industries which have export potential. Companies in these industries reinvesting for expansion purposes are eligible for Pioneer Status or Investment Tax Allowance. Activities located in the promoted areas (Sabah, Sarawak and the “Eastern Corridor” of Peninsular Malaysia) are eligible for Pioneer Status or Investment Tax Allowance in accordance with that given for promoted areas.

Applications should be submitted to MIDA.

(iii)  Accelerated Capital Allowance (ACA)

Upon the expiry of Reinvestment Allowance (RA), companies that reinvest in promoted agricultural activities and food products are eligible to apply for Accelerated Capital Allowance (ACA). For agricultural activities, these include cultivation of rice, maize, vegetables, tubers, livestock, aquatic products and any other activities approved by the Minister of Finance.

The ACA on capital expenditure is to be  utilised within three years, i.e., an initial allowance of 40% in the first year and an annual allowance of 20%.

Claims should be submitted to the IRB, accompanied with MIDA’s letter certifying that the companies are undertaking promoted agricultural activities or producing promoted food products.

(iv)  Agricultural Allowance

A person or a company carrying on an agricultural activity can claim capital allowances and special industrial building allowances under the Income Tax Act 1967 for certain capital expenditure. Capital expenditure which qualify for deduction include:

• Expenditure incurred in clearing and preparing land, planting crops and constructing roads for agricultural purposes qualify for a yearly allowance of 50% of the expenditure incurred.           
• Expenditure incurred in constructing buildings for the welfare of persons or living accommodation can be written off at a rate of 20% per annum.
• Expenditure incurred in constructing any other building used for the purposes of working the farm can be written off over a period of 10 years.

Companies continue to get this allowance regardless whether they already enjoy Pioneer Status or Investment Tax Allowance for as long as the company incurs this expenditure.

Claims should be submitted to the IRB.

(v) 100% Allowance on Capital Expenditure for Approved Agricultural  Projects

The Income Tax Act 1967 provides a 100% allowance on capital expenditure for Approved Agricultural Projects, as approved by the Minister of Finance. This covers qualifying capital expenditure incurred within a specific time frame for a farm that cultivates and utilises a specified minimum acreage as stipulated by the Minister of Finance.

Approved agricultural projects are cultivation of vegetables, fruits (papaya, banana, passion fruit, star fruit, guava and mangosteen), tubers, roots, herbs, spices, crops for animal feed and hydroponic based products; ornamental fish culture; fish and prawn rearing (pond culture, tank culture, marine cage culture, off-shore marine cage culture); cockles, oysters, mussels, seaweed culture; and  shrimp,  prawn and fish hatchery and certain species of forest plantation project.

The incentive enables persons carrying on such projects to elect to deduct the qualifying capital expenditure incurred in respect of that project from his aggregate income, including income from other sources. Where there is insufficient aggregate income, the unabsorbed expenditure can be carried forward to subsequent years of assessment. Where he so elects, he will not be entitled to any capital allowance or agricultural allowance on the same capital expenditure. 

The qualifying capital expenditure eligible for deduction includes:

•  Clearing and preparing land
• Planting new crops related to an approved agricultural project
• Constructing roads and bridges in estate areas
• Constructing buildings in estate areas under approved agricultural projects or constructing buildings in estate areas for the welfare and housing of workers
• Constructing ponds or installing irrigation or drainage systems.

This incentive is not available to companies which have been granted incentives under the Promotion of Investments Act 1986 and whose tax relief period have not started or have not expired.

Claims should be submitted to the IRB.

(vi)  Tax Exemption on the Value of Increased Exports

Companies which export fresh and dried fruits, fresh and dried flowers, ornamental plants and ornamental fish enjoy exemption of statutory income equivalent to 10% of the value of increased exports.

Claims should be submitted to  the IRB.

(vii)  Incentives for Companies providing Cold Chain Facilities and Services for Food Products

Companies providing cold room and refrigerated truck facilities, and related services such as collection and treatment of locally produced perishable food products qualify for Pioneer Status or Investment Tax Allowance. Activities located in the promoted areas are offered higher percentage of Pioneer Status or ITA to set off against the statutory  income.

Applications should be submitted to MIDA.

(viii)  Deduction on Expenses for obtaining Halal Certification and Quality Certification and Accreditation.

To enhance the competitiveness of Malaysian companies in the global market for halal products (products suitable for consumption by Muslims) including halal food, expenses incurred by these companies in obtaining halal and quality certification and accreditation are allowed as deductions in the computation of income tax.

Claims should be submitted to the IRB.

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3. INCENTIVES FOR TOURISN INDUSTRY

To encourage the growth of the tourism industry including eco-tourism and agro-tourism, incentives exist for tourist projects. This includes hotel businesses, construction of holiday camps, recreational projects including summer camps, and construction of convention centres with a capacity to accommodate at least 3,000 participants.

Hotel businesses refer to the following:

• Construction of medium and low-cost hotels (up to a three star category hotel as certified by the Ministry of Culture, Arts and Tourism); and
• the expansion/modernisation of existing hotels.

3.1 MAIN INCENTIVES FOR TOURISN INDUSTRY

(i)  Pioneer Status

A  company granted Pioneer Status enjoys a 5-year partial exemption from the payment of income tax. It will only have to pay tax on 30% of its statutory income, commencing from its Production Day which is determined by the Minister of International Trade and Industry.

As an added incentive, companies located in the States of Sabah, Sarawak, the Federal Territory of Labuan and the designated “Eastern Corridor” of Peninsular Malaysia will only have to pay tax on 15% of their statutory income during the 5-year exemption period. This additional incentive applies to all applications received by 31 December 2005.

Applications should be submitted to 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% of qualifying capital expenditure incurred within five years from the date on which the first qualifying capital expenditure was incurred.

Companies can offset this allowance against 70% of the statutory income in the year of assessment. Any unutilised allowance can be carried forward to subsequent years until the whole amount has been used up. The remaining 30% of the statutory income will be taxed at the prevailing company tax rate.

As in the case of Pioneer Status Companies, additional incentives are enjoyed by companies located in the States of Sabah, Sarawak, the Federal Territory of Labuan and the designated “Eastern Corridor” of Peninsular Malaysia. Such companies can obtain an allowance of 80% of the qualifying capital expenditure incurred. The allowance can be utilised to offset 85% of the statutory income in the year of assessment. This additional incentive applies to all applications received by 31 December 2005.

Applications should be submitted to MIDA

(iii) Incentives for the Luxury Yacht Industry

The industry is promoted as part of tourism products with the following incentives :

• Companies that construct luxury yachts are eligible for Pioneer Status incentives.Applications should be submitted to MIDA
• Companies that carry out repair and maintenance activities of luxury yachts in the islands of Langkawi, Malaysia are eligible for income tax exemption of 100% for five years.Applications should be submitted to the Ministry of Finance.
• Companies that provide chartering services of luxury yachts in the country are eligible for income tax exemption of 100% for a period of five years.Claims should be submitted to the IRB.

3.2.  ADDITIONAL INCENTIVES FOR THE TOURISM INDUSTRY

(i)  Double Deduction on Overseas Promotion

Hotels and tour operators qualify for double deduction on expenditure incurred for promotional activities overseas. The qualifying expenditure are:

• Expenditure on publicity and advertisements in any mass media outside Malaysia 
• Expenditure on the publication of brochures, magazines and guide books, including delivery costs that are not charged to the overseas customers 
• Expenditure on market research into new markets overseas, subject to the prior approval of the Minister of Culture, Arts and Tourism 
• Expenditure that includes fares to any country outside Malaysia to negotiate or secure a contract for advertising or participate in trade fairs, conferences or fora approved by the Minister of Culture, Arts and Tourism. Such expenses are subject to a maximum of RM300.00 per day for lodging and RM150 per day for food for the duration of the stay overseas 
• Expenditure in organising trade fairs, conferences or fora approved by the Minister of Culture, Arts and Tourism; and 
• Maintenance of sales offices overseas for purposes of promoting tourism to Malaysia.

Claims should be submitted to the IRB.

(ii) Double Deduction on Approved Trade Fairs

Companies also enjoy double deduction for expenditure incurred to participate in an approved international trade fair in Malaysia.

Claims  should be submitted to the IRB.

iii) Tax Exemption for Tour Operators

Foreign Tourists

Tour operators who bring in at least 500 foreign tourists a year through groups, inclusive tours that enter and exit the country by air, sea or land transportation, will be exempted from tax in respect of income derived from the business of operating such tours. This incentive applies to tour operators licensed by the Ministry of Culture, Arts and Tourism.

Local Tourists

Companies that organise domestic tour packages for at least 1,200 local tourists per year get tax exemption on the income earned. A domestic tour means any tour package within Malaysia participated by local tourists (excluding inbound tourists) by air, land or sea transportation involving at least one night’s accommodation.

These incentives apply until the Year of Assessment 2006.

Claims should be submitted to the IRB.

(iv) Tax Exemption for Promoting International Conferences and Trade Exhibitions 

• Local companies which promote international conferences  in Malaysia qualify for tax exemption on income earned from bringing at least 500 foreign participants into the country.
• Income earned from the organisation of international trade exhibitions held in Malaysia qualify for tax exemption as long as the exhibition is approved by MATRADE and the organisers brings in at least 500 foreign visitors per year.    

Claims should be submitted to the IRB.

(v)   Deduction on Cultural Performances

Single deduction applies to companies that incur expenditure on establishing and managing a musical or cultural group and sponsoring local and/or foreign cultural performances as approved by the Ministry of Culture, Arts and Tourism.

Claims  should be submitted to the IRB.

(vi)  Incentive for Car Rental Operators

Operators of car rental services for tourists are eligible for excise duty exemption on the purchase of national cars.
Applications should be submitted to the Ministry of Finance.

 Applications should be submitted to MIDA.

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4. INCENTIVES FOR THE ENVIROMENTAL PROTECTION

4.1 INCENTIVES FOR FOREST PLANTATION PROJECTS

Companies which undertake forest plantation projects are eligible for incentives under Strategic Projects. Such projects qualify for:

• Pioneer Status with full tax exemption at statutory income level for 10 years; or
• Investment Tax Allowance of 100% on qualifying capital expenditure incurred within five years, which the company can offset against the statutory income for each year of assessment without any restriction.

Applications should be made to MIDA.

4.2  INCENTIVES FOR THE STORAGE, TREATMENT AND DISPOSAL OF TOXIC AND HARARDOUS WASTES

Incentives exist to encourage the setting up proper facilities to store, treat and dispose toxic and hazardous wastes. Companies which are directly involved in these three activities in an integrated manner qualify for

• Pioneer Status (income tax exemption on 70% of statutory income for five years); or
• Investment Tax Allowance  of 60% of capital expenditure  incurred within a period of five years to be set off against 70% of the statutory income in the assessment year. Any unutilised allowance can be carried forward to subsequent years until the whole amount has been used up; or
• Activities located in the promoted areas (Sabah, Sarawak and the “Eastern corridor” of Peninsular Malaysia) are eligible for Pioneer Status or Investment Tax Allowance in accordance with that given for promoted areas.

Applications should be submitted to MIDA.

4.3 INCENTIVES FOR ENERGY CONSERVATION

In order to reduce operation costs and at the same time promote environmental preservation, companies providing energy conservation services qualify for Pioneer Status or Investment Tax Allowance.  Activities located in the promoted areas are offered higher exemptions/allowances under Pioneer Status or ITA to set off against their statutory income. The companies must implement their projects within one year of approval. This incentive applies to applications received by 31 December 2002.

Applications should be submitted to MIDA.

4.4 INCENTIVES FOR WASTE RECYCLING ACTIVITIES

Companies undertaking waste recycling activities that are of high value added and use high technology enjoy Pioneer Status or Investment Tax Allowance. Activities located in the promoted areas are offered higher exemptions/allowances under Pioneer Status or ITA to set off against the statutory income. This includes recycling of agricultural wastes or agricultural by products, chemicals and reconstituted wood-based panel boards or products.

Applications should be submitted to MIDA.

4.5 INCENTIVES FOR UTILISING BIOMASS

To encourage the generation of energy using biomass which is renewable and also environment friendly, companies which undertake such activities qualify for Pioneer Status or Investment Tax Allowance, with activities located in the promoted areas offered higher exemptions/allowances under Pioneer Status or ITA to set off against the statutory income. This is on the condition that the company implements the project within one year from the date of approval. This incentive applies for applications received by 31 December 2002.

For the purpose of this incentive, ‘biomass sources’ refers to palm oil mill/estate waste, rice mill waste, sugar cane mill waste, timber/sawmill waste, paper recycling mill waste, municipal waste and biogas (from landfill, palm oil mill effluent (POME), animal waste and others), while energy forms in this incentive refer to electricity, steam, chilled water, and heat.

Applications should be submitted to MIDA.

4.6 ADDITIONAL INCENTIVES FOR ENVIROMENTAL PROTECTION PROJECTS

Accelerated Capital Allowance

This  incentive is for a special allowance at an initial rate of 40% and an annual rate of 20% (to be written off within a period of  3 years) for all capital expenditure on related machinery and equipment incurred by: 

• Companies which are themselves waste generators and wish to establish facilities to store, treat and dispose of their wastes, either on-site or off-site. 
• ompanies which conserve their own energy consumption 
• Companies undertaking waste recycling activities.

Applications should be submitted to IRB. In the case of companies which conserve their own energy consumption, application should be accompanied with a letter from the Ministry of Energy, Communications and Multimedia certifying that the related equipment is used exclusively for the purpose of conservation of energy.

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5. INCENTIVES FOR THE RESEARCH AND DEVELOPMENT

The Promotion of Investments Act 1986 defines research and development (R&D) as “Any systematic or intensive study carried out in the field of science or technology with the object of using the results of the study for the production or improvement of materials, devices, products, produce or processes but does not include:

• quality control of products or routine testing of materials, devices, products or produce
• quality control of products or routine testing of materials, devices, products or produce
• routine data collection
• efficiency survey or management studies
• market research or sales promotion.”

To further strengthen the foundation for a more integrated R&D in the future, companies which carry out designing or prototyping are eligible for incentives.

5.1 MAIN INCENTIVES FOR RESEARCH AND DEVELOPMENT

(i)  Contract R&D Company

A contract R&D company (i.e., a company that provides R&D services in Malaysia to a company other than its related company) is eligible to apply for Pioneer Status with full income tax exemption at statutory income level for five years or an Investment Tax Allowance (ITA) of 100% on qualifying capital expenditure incurred within 10 years. The ITA can be offset against 70% of the statutory income in the year of assessment.

Applications should be submitted to MIDA.

(ii)  R&D Company

An R&D company (i.e., a company that provides R&D services in Malaysia to its related company or to any other company) enjoys ITA of 100% on qualifying capital expenditure incurred within 10 years. The ITA can be used to offset against 70% of the statutory income in the year of assessment. Should the R&D company opt not to avail itself to the ITA, related companies can enjoy double deduction for payments made to the R&D company for the use of its services:

Applications should be submitted to MIDA.

Eligibility:

Contract R&D and R&D companies can apply for the various incentives as long as they fulfill the following criteria: 

• Research undertaken should be in accordance with the needs of the country and bring benefit to the economy 
• At least 70% of the income of the company should be derived from R&D activities 
• For manufacturing-based R&D, at least 50% of the workforce of the company must be appropriately qualified personnel performing research and technical functions; and 
• For agriculture-base R&D, at  least 5% of the workforce of the company must be appropriately qualified personnel performing research and technical functions.

(iii)  In-house Research

A company which undertakes research and development in-house to further its business can apply for 50% ITA on qualifying capital expenditure incurred within 10 years. The company can offset the ITA against 70%  of the statutory income in the year of assessment.

Applications should be submitted to MIDA.

5.2  ADDITIONAL INCENTIVES FOR RESEARCH AND DEVELOPMENT

(i)  Double Deduction for Research & Development

A company can enjoy double deduction on revenue (non-capital) expenditure for research which is directly undertaken and approved by the Minister of Finance. Double deduction applies to payment for the use of services of approved research institutes, R&D companies or contract R&D companies. Also applies to cash contributions to approved research institutes.

Claims should be submitted to the IRB.

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6. INCENTIVES FOR TRAINING

To encourage human resource development, the following incentives are available.

6.1   MAIN INCENTIVES FOR TRAINING

Investment Tax Allowanceviva

Companies which establish technical or vocational training institutions get Investment Tax Allowance of 100% for 10 years. This allowance can be abated from the statutory income, limited to 70% of the income for each assessment year.

Existing companies providing technical or vocational training that incur new investment to upgrade their training equipment or expand their training capacities also qualify for this incentive.

Applications should be submitted to MIDA.

6.2   ADDITIONAL INCENTIVES FOR TRAINING

(i)  Special Industrial Building Allowance

Companies that incur expenditure on buildings used for approved industrial, technical or vocational training can claim a special annual  Industrial Building Allowance (IBA) of 10% for 10 years.

Claims should be submitted to the IRB.

(ii)  Tax Exemption on Educational Equipment

Apart from all approved training institutes and in-house training projects, all private institutions of higher learning are eligible for import duty, sales tax and excise duty exemptions on all educational equipment including laboratory equipment, workshop, studio and language laboratory.

Applications should be submitted to MIDA.

(iii)  Exemption on Royalty Payments

Royalty payment made by educational institutions to non-residents (franchisor) for franchised education scheme programmes that are approved by the Ministry of Education are eligible for tax exemption.

Claims should be submitted to the IRB.

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 7. INCENTIVES FOR INFORMATION AND COMMUNICATION (ICT)

7.1   MAIN INCENTIVES FOR ICT

Incentive for Software Development

In line with the government’s objective to encourage the development of computer software, companies that develop both original and/or undertake major modifications of existing software other than those deemed established, can apply for Pioneer Status incentive for five years, subject to the following guidelines:

• The computer software must be for a general purpose and not for a specific customer
• For companies undertaking modification of existing software packages, the cost of acquiring the existing packages must not exceed 25% of the modification expenditure which includes software tools, labour and equipment costs.

Applications should be submitted to MIDA.

7.2 ADDITIONALINCENTIVES FOR THE USE OF ICT

(i)  Accelerated Capital Allowance

For computers and information technology assets including software, companies receive an initial allowance of 20% and an annual allowance of 40%. Thus, the full amount can be written off within two years.

Expenses incurred for developing websites are eligible for an annual deduction of 20 %, the full amount to be written off within five years.  

(ii) Other ICT Incentives

Companies enjoy a single deduction on:

• Operating expenditure including payments to consultants related to IT usage, in improving management and production processes in the manufacturing, agriculture and services sectors
• Contributions in cash and kind for ICT acculturation projects at local community levels effective until Year of Assessment 2003
• Computers given by employers to their employees are not deemed as income until Year of Assessment 2003

Claims should be submitted to the IRB.

(iii) Tax Exemption on the Value of Increased Exports

Companies in ICT sectors can apply for exemption of statutory income equivalent to 50% of the value of increased exports.

Claims should be submitted to the IRB.

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8. INCENTIVES FOR APPROVALSERVICE PROJECTS (ASPs)

Approved Service Projects (ASPs) or projects in the transportation, communications and utilities sub-sectors of the overall services sector approved by the Minister of Finance  qualify for tax incentives as follows:

8.1 MAIN INCENTIVES FOR ASPs

(i)  Exemption Under Section 127 of the Income Tax Act 1967

Generally, companies undertaking ASPs can apply for tax exemption of 70% of their statutory income for five years. However, companies undertaking ASPs in Sabah, Sarawak and the designated “Eastern Corridor” of Peninsular Malaysia gets 85% tax exemption on its statutory income for five years. Companies undertaking ASPs of national and strategic importance qualify for full tax exemption on statutory income for 10 years.

Applications should be submitted to the Ministry of Finance.

(ii)  Investment Allowance (IA) Under Schedule 7B of  the  Income Tax Act 1967

Investment Allowance (IA) is an alternative to the incentive offered under the income tax exemption of Section 127. Generally, companies undertaking ASPs qualify for IA amounting to 60% on qualifying capital expenditure incurred within five years from the date the capital expenditure is first incurred. The allowance can be offset against 70% of the statutory income.

However, for companies undertaking ASPs in Sabah, Sarawak and the designated “Eastern Corridor” of Peninsular Malaysia, 80% IA is granted, which can be offset against 85% of the statutory income.

Companies undertaking ASPs of national and strategic importance will be granted IA of 100% on qualifying capital expenditure incurred within five years from the date the capital expenditure is first incurred. This IA can be offset against 100%  of the statutory income, with any unutilised allowance permitted to be carried to the subsequent years until it is fully utilised.

Applications should be submitted to the Ministry of Finance.

8.2 ADDITIONAL INCENTIVES FOR ASPs

(i)   Exemption from Import Duty and Sales Tax on Raw Materials/Components and Machinery/Equipment/Spares and Consumables

• Companies qualify for exemption from import duty and sales tax for imported raw materials/components not available locally which are used directly to implement ASPs. 
• Companies also get exemption on sales tax and excise duty of locally purchased machinery or equipment which are used to implement ASPs.          
• Companies providing promoted services can apply for import duty and sales tax exemption on spares and consumables that are not produced locally.

Applications should be submitted to the Ministry of Finance.

(ii) Tax Exemption on the Value of Increased Exports

Companies in selected services sectors comprising legal, accounting, engineering consultancy, architecture,  marketing, business consultancy, office services, construction management, building management, plantation management, private health and education, publishing, and Information and Communication Technology (ICT) can apply for tax exemption of statutory income equivalent to 50% of the value of increased exports.

Claims should be submitted to the IRB.

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9. INCENTIVES FOR THE SHIPPING AND TRANSPORTATION INDUSTRY

9.1 TAX EXEMPTION FOR SHIPPING OPERATION

The income of a shipping company derived from the operations of Malaysian ships is exempted from tax. This incentive applies to residents only. A “Malaysian Ship” is a sea-going ship registered as such under the Merchant Shipping Ordinance 1952 (Amended) other than a ferry, barge, tugboat, supply vessel, crew boat, lighter, dredger, fishing boat or other similar vessels.

Income of any person derived from exercising an employment on board a “Malaysian Ship” is exempted from tax. Income received by non-residents from the rental of ISO containers to Malaysian shipping companies is also exempted from income tax.

Claims should be submitted to the IRB.

9.2 EXEMPTION FROM IMPORT DUTY AND SALES TAX ON PRIME MOVERS AND TRAILERS

Container hauliers qualify for import duty and sales tax exemptions on prime movers and trailers that are not produced locally. However, sales tax exemption can still be considered for prime movers and trailers that are produced locally.

Applications should be submitted to the Ministry of Finance.

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10. INCENTIVES FOR MANUFACTURING RELATED SERVICES

Companies eligible for incentives are those providing value added manufacturing related services as follows :

(i)	Integrated logistic services which comprise the entire supply chain management, including procurement of software and hardware, warehousing, distribution (transportation and freight services), packaging activities and customs clearance.
(ii)	Integrated market support services which comprise the activities of brand development, consumer development, packaging design, advertising and promotion.
(iii)	Integrated central utility facilities which provide services including the supply of steam, demineralised water and industrial gas.

Income Tax Exemption

Companies undertaking activities under the manufacturing related services are eligible for Income tax exemption of 70% of the statutory income for a period of five years. For projects in the Eastern Corridor of Peninsular Malaysia, Sabah and Sarawak, the income tax exemption is 85% of the statutory income for a period of five years.

Application should be submitted to MIDA.

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11. INCENTIVE FOR THE MULTIMEDIA SUPER CORRIDOR (MSC)

The Multimedia Super Corridor (MSC) is a 15-by-50 kilometre (9-by-30 mile) zone extending south from Malaysia’s present national capital and business hub, Kuala Lumpur, and  is a perfect environment for companies wanting to create, distribute and employ multimedia products and services.

MSC Status is the recognition by the Government of Malaysia through the Multimedia Development Corporation (MDC) for companies that participate and undertake ICT activities in the MSC. Companies with MSC Status are entitled to enjoy a set of incentives and benefits from the Government of Malaysia that is backed by a Bill of Guarantees.

Financial Incentives

(i)	Pioneer Status with tax exemption of 100% of statutory income for a period of five years for the first round; or
(ii)	Investment Tax Allowance of 100%
(iii)	Eligibility for R&D grants (for majority Malaysian ownership MSC Status companies)
(iv)	Freedom to source capital and borrow funds globally

  Non-Financial Incentives

(i)	Duty-free importation of multimedia equipment
(ii)	Intellectual property protection and a pioneering and comprehensive framework of cyberlaws
(iiI)	No censorship of the Internet
(iv)	World-class physical and IT infrastructure
(v)	Globally competitive telecommunication tariffs and services guarantees
(vi)	High-powered implementation agency to act as an effective one-stop super shop

Applications for MSC Status should be submitted to the MDC.

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12. INCENTIVES FOR OPERATIONAL HEADQUARTERS (OHQs)

Approved operational headquarters (OHQs) refers to a locally incorporated company, whether local-owned or foreign-owned, which carries on a business in Malaysia of providing qualifying services to its offices or its related companies outside Malaysia.

Companies granted OHQ status enjoy a concessionary tax rate of 10% for income from:

• Qualifying services rendered to its offices or related companies outside Malaysia
• Interest on foreign currency loans extended to its offices or related companies outside      Malaysia
• Royalties received from R&D work carried out on behalf of their offices or related companies outside Malaysia.

Income arising from sources outside Malaysia and received in Malaysia by a resident company is not subject to tax. The OHQ incentives applies for five years and may be extended for another five years.

To qualify, the paid-up capital of the company should be a minimum of RM0.5 million and total business spending should be at least RM1.5 million per annum. The company should also perform a minimum of three of the following qualifying services to its offices or related companies outside Malaysia: 

• management and administrative services
• business planning and coordination
• procurement of raw materials, components and finished products
• technical support services
• marketing control and sales promotion planning
• training and personnel management
• research and development
• treasury and fund management service

Approved OHQs can also enjoy non-fiscal incentives as follows:

• Apply for expatriate posts that will be approved based on expertise, the skill requirements and needs of the company. Duration of work permits will be between three and five years
• Obtain any amount of foreign currency credit facilities from commercial banks and merchant banks in Malaysia, and from any non-residents; provided OHQ does not on-lend to or raise the funds on behalf of any resident
• Obtain domestic credit facilities in Ringgit not exceeding RM10 million, provided the Ringgit funds are used in Malaysia
• Open one or more foreign currency accounts or multi-currency accounts with any designated bank to retain export proceeds in foreign currency, subject to an aggregate overnight balance equivalent to USD10 million regardless of the amount of export receipts
• Open foreign currency accounts with the designated bank in Malaysia, including the offshore bank in Labuan, or overseas banks for crediting foreign currency receivables other than export proceeds
• Extend the same credit facilities to their related companies overseas or invested abroad if their aggregate domestic credit facilities in Ringgit does not exceed RM10 million
• Use professional services of a foreign firm if such services are not available in Malaysia.

Applications should be submitted to the Ministry of Finance.

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13. INCENTIVES FOR INTERNATIONAL PROCUREMENT CENTRES

An International Procurement Centre (IPC) is a locally incorporated company, whether local or foreign-owned, which carries on a business in Malaysia to undertake procurement and sales of raw materials, components and finished products for its group of related and unrelated companies in Malaysia and abroad. This would include procurement from and sales to local sources and third countries.

In order to encourage the establishment of IPCs and to make Malaysia a marketing and distribution centre, the following incentives are available:

• Approval for expatriate posts based on the requirements of the IPC
• Permission to open one or more foreign currency accounts with any licensed commercial bank to retain their export proceeds without any limit imposed
• Permission to enter into foreign exchange forward contracts with any licensed commercial bank to sell forward export proceeds based on projected sales
• Exemption from equity ownership requirement. Existing trading and manufacturing companies approved to operate IPCs will need to continue to abide by the existing equity ownership requirement
• permission to bring in raw materials, components or finished products without paying custom duties into Free Zones or Licensed Manufacturing Warehouses for repacking, cargo consolidation and integration before distribution to the final consumers.

To qualify for the incentives, the IPC must :

• be locally incorporated under the Companies Act 1965 with a minimum paid-up capital of RM0.5 million
• have a minimum total business spending (operating expenditure) of RM1.5 million per year
• its goods are handled directly through Malaysian ports and airports.

Applications should be made to the Ministry of International Trade and Industry (MITI).

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14. GENERAL INCENTIVES

This section covers other incentives not mentioned above and may be applicable for the following sectors : manufacturing, agricultural, tourism, environmental protection, research and development, training, information and communication technology, approved service projects and manufacturing related services.

14.1  INDUSTRIAL BUILDING ALLOWANCE

Industrial Building Allowance (IBA) is granted to companies incurring capital expenditure on construction or purchase of a building that is used for specific purposes including manufacturing, agriculture, mining, infrastructure facilities, research, Approved Services Projects and hotels that are registered with the Ministry  of Culture, Arts and Tourism. In this regard, companies are eligible for an initial allowance of 10% and an annual allowance of 3% so that the IBA can be claimed within 30 years.

Claims should be submitted to the IRB.

14.2  INFRASTRUCTURE ALLOWANCE

Companies in the States of Sabah and Sarawak and the designated “Eastern Corridor” of Peninsular Malaysia are also eligible for an infrastructure allowance of 100%. Companies eligible are those engaged in the manufacturing, agricultural, hotel, tourism or other industrial/commercial activities and which incur qualifying capital expenditure on infrastructure such as reconstruction, extension or improvement of any permanent structure including bridges, jetties, ports and roads.

These companies can offset the allowance against 85% of their statutory income in the year of assessment. The remaining statutory income will be taxed at the prevailing company tax rate. Any unutilised allowance can be carried forward to the subsequent years until it is fully utilised.

This incentive applies to all applications received by 31 December 2005.

Claims should be submitted to the IRB.

14.3  TARIFF RELATED INCENTIVES

(i)  Exemption from Import Duty on Raw Materials/Components

Full exemption from import duty can be considered on raw materials/components, regardless whether the finished products are meant for the export or domestic market.

Products for the export market - Full exemption from import duty on raw materials is normally granted, provided the raw materials/components are not produced locally or, where they are produced locally, are not of acceptable quality and price.

Products for the domestic market - Full exemption from import duty on raw materials and components that are not produced locally can be considered. Full exemption can also be considered if the finished product made from dutiable raw materials/components is not subject to any import duty.

Applications should be submitted to MIDA

Hotel and tourism projects qualify for full exemption of import duty and sales tax on identified imported materials/equipment and exemption of sales tax and excise duty on identified locally purchased equipment. For these projects, application should be submitted to the Ministry of Finance.

(ii)   Exemption from Import Duty and Sales Tax on Machinery and Equipment

Import duty and sales tax are not imposed on most machinery and equipment not produced locally. Where import duty and sales tax applies, exemption can be obtained for machinery and equipment used :

• directly in the manufacturing or agricultural processes, approved services projects, film and music production houses or manufacturing related services
• for environmental protection, energy conservation, biomass energy, waste recycling, storage,  treatment  and disposal of toxic and hazardous waste
• for maintenance and quality control
• for approved R & D activities
• in approved training programmes
• in the plantation sector

Companies can also obtain sales tax exemption for machinery and equipment that are produced locally.

Applications should be submitted to MIDA.

(iii)   Exemption from Import Duty and Sales Tax on Spares and Consumables

Manufacturing companies qualify for import duty and sales tax exemptions on spares anconsumables that are not produced locally. Exemption is selective based on that :

• the level of exports should be at least 80% of production, or 
• such spares and consumables have limited demand and do not have potential for domestic production, or
• import duty on such items exceed 5%.

This incentive holds for all applications to MIDA received by 31st December 2003

(iv)  Drawback of Import Duty and Sales Tax

Under the Custom Act 1967, Sales Tax Act 1972 and Excise Act 1976, a drawback of import duty and sales tax that have been paid may be claimed by a manufacturer if such parts, raw materials or packaging materials are used in the manufacture of goods for export within a year.

Movement of goods from the Principal Customs Area or licensed premises (for goods subject to excise duty) for use in the manufacture of other products by a factory in a Free Zone (FZ) or Licensed Manufacturing Warehouse (LMW) or the islands of Langkawi or Labuan are considered as exports from Malaysia.

Companies can apply to the Royal Customs  Department.

(v)  Sales Tax Exemption

Manufacturers licensed under the Sales Tax Act 1972 qualify for sales tax exemption on inputs. Manufacturers with annual sales turnover of less than RM100,000 are exempted from licensing, thus exempted from paying sales tax on their output. However these manufacturers can opt to be licensed and obtain sales tax exemption on inputs instead.

Certain categories of goods are exempted from sales tax at both the input and output stages. This includes all goods (inclusive of packaging materials) used in the manufacturing of controlled articles, pharmaceutical products, milk products, batik fabrics, perfumes, beauty or make up preparations, photographic cameras, wrist-watches, pens;,computers and computer peripherals, parts and accessories; carton boxes/cases, products in the printing industry, agricultural or horticultural sprayers, plywood, re-treaded tyres, uninterruptible power systems,  machinery, and manufactured goods for export.  

Applications can be made to the Royal Customs Department.

14.4  INCENTIVES FOR EXPORT

(i)  Double Deduction for the Promotion of Exports

Certain expenses incurred by resident companies in looking for opportunities to export Malaysian manufactured and agricultural products and services qualify for double deduction. Eligible expenses are:

• overseas advertising, publicity and public relations work
• supply of samples abroad, including delivery costs
•  export market research
• preparation of tenders for supply of goods overseas
• supply of technical information abroad
• exhibits and participation costs in trade/industrial exhibitions, virtual trade shows and
  e portals
• fares for overseas travel by company employees for business
• accommodation expenses up to RM300 per day and sustenance expenses up to
  RM150 per day for company representatives who travel overseas for business
• cost of maintaining sales offices and warehouses overseas to promote exports
• professional fees incurred in packaging design for exports, subject to the company
  using local professional services
• feasibility studies for overseas projects identified for the purpose of tender
• participation in trade or industrial exhibitions in the country or overseas
• participation in exhibition held in Malaysian Permanent Trade and Exhibition Centres
  overseas.

For pioneer companies, the deduction is accumulated and allowed against the post-pioneer income.

(ii) Single Deduction for the Promotion of Exports

Certain expenses incurred by resident companies in looking for opportunities to export Malaysian manufactured and agricultural products and services qualify for single deduction. Eligible expenses are: 

• registration of patents, trade marks and product licensing overseas 
• hotel accommodation for a maximum of three nights to companies providing hospitality
  to potential importers invited to Malaysia.

(iii) Double Deduction on Export Credit Insurance Premiums

Premium payments on export credit insurance qualify for double deduction.

(iv) Special Industrial Building Allowance for Warehouses 

An annual allowance of 10% of qualifying capital expenditure applies to buildings used as warehouses for storing goods for export and re-export.

(v) Double Deduction on Freight Charges

• Manufacturers in Sabah and Sarawak who export rattan and wood-based products (excluding sawn timber and veneer) qualify for double deduction on freight charges.
• Manufacturers who ship their goods from Sabah and Sarawak to Peninsular Malaysia via ports in Peninsular Malaysia qualify for double deduction on freight charges.

(vi) Incentive for the Implementation of RosettaNet

RosettaNet is an open Internet-based common business messaging standard for supply chain management link-ups with global suppliers.

To encourage local small and medium-scale companies to adopt RosettaNet in order to become more competitive in the global market,  expenditure and contributions incurred by companies in the management and operation of RosettaNet Malaysia and in assisting local small and medium scale-companies to adopt RosettaNet, are eligible for income tax deduction.

Expenditure and contributions which have been identified are contribution of equipment (computer and server) and salaries for full time employees seconded to RosettaNet Malaysia; contribution of equipment and software, sharing of software and programming, as well as training of staff of local small and medium-scale companies to use RosettaNet.     

Claims should be submitted to the IRB.

(vii) Double Deduction for the Promotion of Malaysian Brand Names

To promote Malaysian brand names, expenditure incurred within the country for advertising and professional fees paid to promotion companies qualify for double deduction provided that:

• the company owning the brand name is at least 70% Malaysian-owned
• the brand is registered in Malaysia or overseas, and
• the product meets export quality standards.

Claims should be submitted to the IRB.

14.5  TRAINING INCENTIVES

(i)  Double Deduction for Approved Training

Manufacturing and non-manufacturing companies which do not contribute to the Human Resource Development Fund (HRDF) qualify for double deduction on expenses incurred for approved training.

For the manufacturing sector, the training could be undertaken in-house or at approved training institutions. However, for the non-manufacturing sector, the training should be held only at approved training institutions. Approval is automatic when the training is at approved institutions.

As for the hotel and tour operation business, the training programme (in-house or at approved training institutions) to upgrade the level of skills and professionalism in the tourism industry should be approved by the Ministry of Culture, Arts and Tourism.

Applications should be submitted to MIDA.

(ii) Deduction for Pre-Employment Training

Training expenses incurred before commencement of business qualify for a single deduction. Nevertheless, companies must prove that the trainees will be employed as their employees.

Claims should be submitted to the IRB

(iii) Deduction for Non-Employee Training

Expenses incurred in providing practical training to residents who are not employees of the company can be considered for single deduction.

Claims should be submitted to the IRB

(iv) Deduction for Cash Contributions

Contributions in cash to technical or vocational training institutions which are not operating primarily for profit and those established and maintained by a statutory body qualify for single deduction.

Claims should be submitted to the IRB

(v) Special Industrial Building Allowance for Training

Companies which incur expenditure on buildings used for approved industrial, technical or vocational training can claim a special  Industrial Building Allowance (IBA) of 10% on qualifying capital expenditure for the construction or purchase of a building for 10 years.

Claims should be submitted to the IRB.

14.6  INCENTIVES FOR RESEARCH AND DEVELOPMENT(R & D)

(i)  In-house Research

A company which undertakes research and development in-house to further its business can apply for 50% ITA on qualifying capital expenditure incurred within 10 years. The company can offset the ITA against 70% of the statutory income in the year of assessment.

Applications can be submitted to MIDA.

(ii)  Double Deduction for Research & Development

• A company can enjoy double deduction on revenue (non-capital) expenditure for research which is directly undertaken and approved by the Minister of Finance
• Double deduction applies to payment for the use of services of approved research institutes, R&D companies or contract R&D companies
• Also applies to cash contributions to approved research  institutes.

Claims should be submitted to the IRB.

14.7  INCENTIVES FOR ACQUIRING PROPRIETARY RIGHTS

Capital expenditure incurred in acquiring patents, designs, models, plans, trade marks or brands and other similar rights from foreigners qualify as deduction in the computation of income tax. This deduction is given in the form of annual deduction of 20% for a period of five years.

Claims should be submitted to the IRB.

14.8 INCENTIVES FOR THE USE OF INFORMATION TECHNOLOGY (IT)

(i)  Special Capital Allowance

For computers and information technology assets including software, companies receive an initial allowance of 20% and an annual allowance of 40%. Thus, the full amount can be written off within two years.

(ii)  Other IT Incentives

Companies enjoy a single deduction on:

• operating expenditure including payments to consultants, related to IT usage, in improving management and production processes in the manufacturing, agriculture and services sectors
• contributions in cash and kind for ICT acculturation projects at local community levels effective until Year of Assessment 2003
• Computers given by employers to their employees are not deemed as income until Year of Assessment 2003

Claims should be submitted to the IRB.

14.9  INCENTIVE FOR THE USE OF ENVIROMENTAL PROTECTION EQUIPMENT

Companies using environmental protection equipment receive an initial allowance of 40% and an annual allowance of 20% on the capital expenditure incurred on such equipment. Thus, the full amount can be written off within three years.

Claims should be submitted to the IRB.

14.10  DONATION TO APPROVED ORGANISATION

Donation to an approved organisation exclusively for the protection and conservation of the environment qualify for single deductions.

Claims should be submitted to the IRB.

14.11   INCENTIVES FOR EMPLOYEES' ACCOMODATION

When a building is used for employees in manufacturing, an Approved Services Project and hotel or tourism business for the purpose of living accommodation, a special industrial building allowance of 10% of the expenditure incurred on the construction/purchase of the building is given for 10 years.

Claims should be submitted to the IRB.

14.12 INCENTIVES FOR EMPLOYEES' CHILD CARE FACILITIES

Expenditure incurred for the construction/purchase of the buildings for the purpose of the provision of child care facilities for employees are eligible for a special industrial building allowance of 10% for 10 years.

A single deduction also applies to gifts in kind and cash to provide and maintain a child care centre for the benefit of employees.

Claims should be submitted to the IRB.