Tax Incentives in Malaysia
There are different types of tax incentives offered in Malaysia in the form of tax exemptions, allowances related to capital expenditure and enhanced tax deductions. Although the income is exempted from tax, tax will have to be paid on the dividends paid on tax exempted income. In the case of allowances, there is a provision to carry forward the unutilized allowances until it is utilized fully. The above mentioned tax incentives can be leveraged by tax resident companies.
A. Manufacturing / Services / Trading Sector
Pioneer Status (PS) and Investment Tax Allowance (ITA)
Companies that have generally started production less than a year and fall under the promoted activity or promoted product criteria in the manufacturing, food processing, agricultural, hotel, tourism or other industrial or commercial sectors will be eligible to avail benefits under ITA or PS.
Pioneer Status (PS): Tax will be exempted on 70% of the income for a period of 5 years from the date of start of production.
Investment Tax Allowance (ITA): From the date of approval up to a period of 5 years, 60% of the QCE, or Qualifying Capital Expenditure should be offset against 70% of the statutory income for every year up to hen YA will be fully utilized.
Companies can also opt for reinvestment allowance by surrendering its PS/ITA status, but this should be done before the expiry of its PS/ITA status.
Special Incentive Scheme
Companies that are incorporated in Malaysia and are generating revenues from an “approved business” from the Minister of Finance are eligible for this scheme.
Companies can enjoy tax exemption on 70% of statutory income (unless a rate is mentioned by the Minster) on the approved business or an income tax exemption on statutory income of the approved business on any allowances at a rate decided by the Minster.
Allowance for Increased Export
Companies that are based in Malaysia and have been operating in the manufacturing or agriculture industry and have exported produces from their respective industries are eligible for this allowance.
Approved Services Project (ASP)
Companies operating in sectors such as communication, utilities and transportation services or its subsectors who have incurred QCE on ASP or are a part of the approved service subsectors from the Minister of Finance fall under this category.
If a company invests in its subsidiary that has an approved license for food production, then it can claim a tax deduction that is equivalent to the amount the parent company has invested in its subsidiary.
Subsidiary companies that are into the food production industry approved by the Minster are eligible for 100% tax exemption on the statutory income for a period of up to 10 years on new projects and up to 5 years on expansion projects.
Reinvestment Allowance (RA)
Companies based in Malaysia that have been operating for 36 months and above and have spent on QCE of the factory, plant and machinery based in Malaysia for reasons to expand, modernize and automate their units or in the agricultural industry is eligible for this allowance.
Companies that are indulged in biotechnology related activities and have an approval as Bionexus Status Company from the Biotechnology Coporation Sdn Bhd, Malaysia are eligible.
- Up to 10 years for new companies and up to 5 years for expansion projects, 100% exemption is provided from the year they start generating statutory income. Also, 100% of the ITA on QCE has to be offset within 5 years against 1005 of the statutory income they earn.
- The tax rate is concessional at 20% of the statutory income derived for businesses that are approved after the tax exempt period is expired up to a period of 10 years.
- Buildings that are used with the sole purpose of approved business or expansion project as a BioNexus Company will get an industrial building allowance of 10% for a period of 10 years.
- The stamp duties and real property gains tax are exempted for BioNexus Company that enters into mergers or acquisitions with other biotechnology companies.
- Exemption is given on import duty for raw materials and components that are imported by the companies.
Also, in the initial stages, the total investment made towards seed capital of a BioNexus company is exempted from tax for all individuals and companies.
i) Private Higher Education Institutions (PHEI)
The expenses incurred towards development of new courses with compliance of regulatory requirements are exempt from tax.
The deduction in expense can be claimed for a period spreading over 3 years.
ii) Non-Profit Oriented School
To qualify under this criteria, the school has to be approved and recognized by the Ministry of Education (MOE ) as a non-profit oriented school.
There is a tax exemption provided on the income earned from this school.
iii) Profit Oriented Private or International School
Schools that are profit oriented or international schools registered with the Ministry of Education fall under this category.
- 100% tax exemption on QCE incurred within 5 years and this is to be used for a statutory income offset of 70% or 70% exemption on income tax for a period of 5 years.
- All educational equipment imported towards these schools is exempted from import duty.
- Expenses incurred towards promotional expenses overseas can be double deducted.
iv) Pre-School Education/ Kindergarten
All private pre-schools and kindergartens registered with the MOE are eligible.
- Up to a period of 5 years, there will be a tax exemption on the statutory income earned from the business of pre-school or kindergarten.
- For the building used as pre-school or kindergarten, an IBA at 10% per annum will be given.
D. Green Incentives
- If any green technology equipment has to be purchased, an investment tax allowance can be claimed.
- For the income generated from the usage of green technology and services, an income tax exemption is given.
E. Healthcare and Wellness
If any new or existing company plans to expand, modernize or refurbish to provide private healthcare facility which benefits a minimum of 5% of healthcare travelers out of all the patients, an exemption is provided.
An exemption of 100% of QCE incurred can be claimed on the statutory income for a period of up to 5 years.
F. Information and Communication Technology
Cost of Developing Websites
For e-commerce websites, the costs incurred towards the development of website is exempted with an annual exemption of 20% for a period of 5 years.
Offshore Trading via Website in Malaysia
For offshore trading companies that are approved and are operated by non-residents of Malaysia by using a website in Malaysia for sale of foreign goods outside Malaysia, an exemption is provided.
An incentive on income tax is given for 5 years which is calculated based on a formula.
Multimedia Super Corridor
MSC status companies that indulge in high capital intensive dealings can claim a 100% tax exemption on statutory income for 5+5 years or claim an ITA of 100% QCE against statutory income for 5 years.
If ICT companies relocate to the cybercities or cybercenters, they are eligible for a 100% tax exemption for 10 years on statutory income or 100% QCE against 100% statutory income for 5 years.
If companies have a MSC status but are located outside the designated areas, an exemption of 75% on the statutory income is given for a period of 5 years and a 100% tax exemption is given for an additional 5 years if they relocate to MSC designated areas.
G. Regional Operations
International Trading Company
The companies that are incorporated in Malaysia need to fulfill the below mentioned criteria:
- 60% Malaysian owned equity and should be registered with MATRADE.
- The annual sales should exceed RM10 Million.
- Trading of commodities should not account for more than 20% of the annual sales of the company.
- They should make use of local services for finance, insurance and transport.
There is a tax exemption provided equivalent to 20% of the increased export value which can be offset against 70% of the statutory income for a period of 5 years.
Global Incentive for Trading (GIFT) Program
A company based in Labuan can apply to Labuan FSA so that they are recognized as a Labuan International Commodity Trading Company and fall under the GIFT category so that they can trade in physical and derivative instruments in foreign currencies in the following sectors:
- Petroleum and products related to the petroleum industries
- Agricultural produce
- Refined Raw materials
- Based Minerals
- A corporate tax of 3% on chargeable profits is reflected in the audited accounts as per the Labuan Business Activity Tax Act of 1990 or
- If a company is purely trading in LNG, they can have a tax exemption for a period of the first three years after which, they will have to pay the above mentioned tax.
Companies based and incorporated in Malaysia and operate both regionally and internationally from Malaysia for all their operations fall under this category.
Companies that qualify under this fall under either of the 3 tier corporate tax rates of 0%, 5% or 10%.
Individuals of Malaysia who are carrying a transport business involving passengers or cargo by sea using Malaysian ships either owned or chartered fall under this category.
A tax exemption is given on 70% of the statutory income.
Integrated Logistics Services (ILS)
Either an individual or a company which is 60% owned and undertake activities such as freight forwarding, transportation and warehousing along with one more mandatory designated activity fall under this category.
- PS along with 70% exemption for a period of 5 years.
- ITA of 60% on QCE can be set off against 70% of the statutory income for a period of 5 years.
If you have any further queries regarding the tax incentives in Malaysia, feel free to get in touch with us at firstname.lastname@example.org and we will be glad to assist.