Date: Thursday 17-Apr-14


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Invest in Malaysia

Incentives for Investments

7. Incentives for 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 objective 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;
research in the social sciences or humanities;
routine data collection;
efficiency surveys or management studies;and
market research or sales promotion."

To further strengthen Malaysia's foundation for more integrated R&D, companies which carry out design, development and prototyping as independent activities are also eligible for incentives.

7.1 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 for:

Pioneer Status with income tax exemption of 100% of the statutory income for five years. Unabsorbed capital allowances as well as accumulated losses incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company; or
Investment Tax Allowance (ITA) of 100% on the qualifying capital expenditure incurred within 10 years. The allowance can be offset against 70% of the statutory income for each year of assessment. Any unutilised capital allowances can be carried forward to subsequent years until fully utilised.

Applications should be submitted to MIDA.

(ii) R&D Company

A R&D company, i.e. a company that provides R&D services in Malaysia to its related company or to any other company, is eligible for an ITA of 100% on the qualifying capital expenditure incurred within 10 years. The allowance can be offset against 70% of the statutory income for each year of assessment. Any unutilised allowances can be carried forward to subsequent years until fully utilised.

Should the R&D company opt not to avail itself of the allowance, its related companies can enjoy double deduction for payments made to the R&D company for services rendered.

Applications should be submitted to MIDA.

Eligibility:

Contract R&D and R&D companies that fulfil the following criteria can apply for the various incentives:

a.
Research undertaken should be in accordance with the needs of the country and bring benefit to the economy;
b.
At least 70% of the income of the company should be derived from R&D activities;
c.
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
d.
For agriculture-based 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 that undertakes in-house R&D to further its business can apply for an ITA of 50% of the qualifying capital expenditure incurred within 10 years. The company can offset the allowance against 70%  of its statutory income for each year of assessment. Any unutilised allowances can be carried forward to subsequent years until fully utilised.

Applications should be submitted to MIDA.

(iv) Incentives for Reinvestment in R&D Activities

R&D companies/activities mentioned in categories (i) - (iii) are eligible for a second round of Pioneer Status for another five years, or ITA for a further 10 years, where applicable.(See List of Promoted Activities and Products - Reinvestment)

Applications should be submitted to MIDA.

(v) Incentives for Commercialisation of Public Sector R&D

To encourage commercialisation of resource-based R&D findings of public research institutes, the following incentives are given:

a.
A company that invests in its subsidiary company engaged in the commercialisation of the R&D findings is eligible for a tax deduction equivalent to the amount of investment made in the subsidiary company; and
b.
The subsidiary company that undertakes the commercialisation of the R&D findings is eligible for Pioneer Status with income tax exemption of 100% of statutory income for 10 years.

The incentive is provided on the following conditions:

a.
At least 70% of the investing company (holding company) and the company undertaking the commercialisation projects are owned by Malaysians;
b.
The company which invests should own at least 70% of the equity of the company that commercialises the R&D findings;
c.
The commercialisation of the R&D findings should be implemented within one year from the date of approval of the incentive

7.2 Additional Incentives for Research and Development

(i) Double Deduction for Research and Development

A company can enjoy a double deduction on its revenue (non-capital) expenditure for research which is directly undertaken and approved by the Minister of Finance.

Double deduction can also be claimed for cash contributions or donations to approved research institutes, and payments for the use of the services of approved research institutes, approved research companies, R&D companies or contract R&D companies.

Approved R&D expenditure incurred during the tax relief period for companies granted Pioneer Status can be accumulated and deducted after the tax relief period.

Expenditure on R&D activities undertaken overseas, including the training of Malaysian staff, will be considered for double deduction on a case-by-case basis.

Claims should be submitted to IRB.

(ii) Incentives for Researchers to Commercialise Research Findings

Researchers who undertake research focused on value creation will be given a 50% tax exemption for five years on the income that they receive from the commercialisation of their research findings. The undertaking has to be verified by the Ministry of Science, Technology and Innovation.

Claims should be submitted to IRB.

Click this link for other incentives related to R&D.



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