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Incentives in Manufacturing Sector

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 are in the form of exemptions from import duty, sales tax and excise duty.

1 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 and the Investment Tax Allowance.

Eligibility for Pioneer Status and Investment Tax Allowance is based on certain priorities, including the level of value-added, technology used and industrial linkages. Eligible activities and products are termed as "promoted activities" or "promoted products". (See List of Promoted Activities and Products - General)

  1. Pioneer Status
  2. A company granted Pioneer Status enjoys a five 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).

    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.

    Applications for Pioneer Status should be submitted to the Malaysian Investment Development Authority (MIDA).

    * Statutory Income is derived after deducting revenue expenditure and capital allowances from the gross income.

  3. Investment Tax Allowance
  4. As an alternative to Pioneer Status, a company may apply for Investment Tax Allowance (ITA). A company granted ITA is entitled to an allowance of 60% on its qualifying capital expenditure (factory, plant, machinery or other equipment used for the approved project) incurred within five years from the date 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.

    Applications should be submitted to MIDA.

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. (See List of Promoted Activities and Products - High Technology Companies)

A high technology company qualifies for:

  1. Pioneer Status with income tax exemption of 100% of the statutory income for a period of 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
  2. Investment Tax Allowance of 60% on the qualifying capital expenditure incurred within five years from the date the first qualifying capital expenditure is incurred. The allowance can be utilised to offset against 100% of the 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.

The high technology company must fulfil the following criteria:

  1. 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.
  2. Scientific and technical staff having degrees or diplomas with a minimum of 5 years experience in related fields should comprise at least 15% of the company's total workforce.
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, are integrated, generate extensive linkages, and have significant impact on the economy. Such projects qualify for:

  1. Pioneer Status with income tax exemption of 100% of the statutory income for a period of 10 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
  2. 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. Any unutilised allowances can be carried forward to subsequent years until fully utilised.

Applications should be submitted to MIDA.

Incentives for Small and Medium Enterprises

Small and Medium Enterprises(SMEs)

Effective from the Year Assessment 2009, for the purpose of imposition of income tax and tax incentives, the definition of SMEs is reviewed as a company resident in Malaysia with a paid up capital of ordinary shares of RM2.5 million or less at the beginning of the basis period of a year of assessment whereby such company cannot be controlled by another company with a paid up capital exceeding RM2.5 million.

SMEs are eligible for a reduced corporate tax of 20% on chargeable incomes of up to RM500,000. The tax rate on the remaining chargeable income is maintained at 25%.

Small Scale Companies

Currently, small scale companies incorporated in Malaysia with shareholders’ fund not exceeding RM500,000 and having at least 60% Malaysian equity are eligible for tax incentives for small scale companies under the Promotion of Investments Act (PIA), 1986. Effective from 3 July 2012, small scale companies are redefined as companies incorporated in Malaysia with shareholders’ fund not exceeding RM2.5 million and having 60% to 100% Malaysian equity.

The small scale company must fulfil the following criteria:-

i.Incorporated under the Companies Act, 1965.

ii.Shareholders’ funds not exceeding RM2.5 million with the following Malaysian equity ownership:

  • Companies with shareholders’ fund of up to RM500,000 with at least 60% Malaysian equity
  • Companies with shareholders’ fund of above RM500,000 and not exceeding RM2.5 million with 100% Malaysian equity.

A small scale company are eligible for the following incentives:

i. Pioneer Status with income tax exemption of 100% of the statutory income for a period of 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

ii. 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. Any unutilised allowances can be carried forward to subsequent years until fully utilised.

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.

A. For small scale companies with shareholders’ fund of RM500,000 and less and engaged in promoted activities or producing promoted products in the small company promoted list (See Appendix III: Small Scale Companies) or in the General List (See Appendix I: List of Promoted Activities and Products – General) must fulfil the following condition :

  • The company shall achieve at least 25% value added in its activity or product;
  • The company shall employ at least 20% of their workers at the managerial, technical and supervisory staff level (MTS Index); and
  • Not more than 20% of the paid-up capital in respect of ordinary shares of the company is directly or indirectly owned by a related company having shareholders’ funds of more than RM500,000.

B. For small scale companies with shareholders’ fund of above RM500,000 and not exceedingRM2.5 million and engaged in promoted activities or producing promoted products in the small company promoted list (See Appendix III: Small Scale Companies):

  • The company shall achieve at least 25% value added in its activity or product;
  • The company shall employ at least 20% of their workers at the managerial, technical and supervisory staff level (MTS Index); and
  • Not more than 20% of the paid-up capital in respect of ordinary shares of the company is directly or indirectly owned by a related company having shareholders’ funds of more than RM2.5 million.

C. For small scale companies with shareholders’ fund of above RM500,000 and not exceeding RM2.5 million and engaged in promoted activities or producing promoted products in the general promoted list (See Appendix I: List of Promoted Activities and Products – General):

  • The prevailing rates on Value Added index under the general promoted list will be applicable;
  • The prevailing rates on Managerial, Technical and Supervisory Staff index (MTS Index) under the general promoted list will be applicable; and
  • Not more than 20% of the paid-up capital in respect of ordinary shares of the company is directly or indirectly owned by a related company having shareholders’ funds of more than RM2.5 million.

Applications should be submitted to MIDA.

Incentives for Investment in Selected Industries

Machinery and Equipment

Machine tools, material handling equipment, robotic and factory automation equipment and modules and components for machine tools, material handling equipment and robotic and factory automation equipment.

Specialised Machinery and Equipment

Specialised process machinery or equipment for specific industries, packaging machinery and modules and components for specialised process machinery or equipment for specific industry and packaging machinery.

Companies undertaking activities in the production of selected machinery and equipment are eligible for:

i. Pioneer Status with income tax exemption of 100% of the statutory income for a period of 10 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

ii. 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. Any unutilised allowances can be carried forward to subsequent years until fully utilised.

To qualify for the above incentive, company has to comply with the following criteria:

  • a)Value added must be at least 40%; and
  • b)Percentage of Managerial, Technical and Supervisory staff (MTS Index) to total workforce must be at least 25%.

Applications should be submitted to MIDA. (See Appendix IV: List of Promoted Activities and Products for Selected Industries)

Incentives for the Automotive Industry

I. Better Incentives for Critical and High Value-added Parts and Components and Production

Promoting the production of critical and high value-added parts and components is a crucial scheme to increase the country's human and technological capital and contribute to long-term development goals. Companies manufacturing transmission systems, brake systems, airbag systems and steering systems are eligible for better fiscal incentives i.e Pioneer Status (PS) of 100 per cent fiscal deduction for 10 years or Investment Tax Allowance (ITA) of 100 per cent for five years.

II. Promotion Hybrid and Electric Vehicles and Development of Related Infrastructure

Investing in the development of hybrid and electric vehicles bears the benefits of the acquisition of new, high end technology and the promotion of a more sustainable energy policy. A comprehensive mix of fiscal incentives, duty exemptions and customised training and R&D grants was included in the NAP Review to maximise returns on investment.

Investments in the assembly or manufacture of hybrid and electric vehicles will be granted:

  • 100 per cent ITA or PS for a period of 10 years;
  • customised training and R&D grants in addition to the existing grants;
  • 50 per cent exemption on excise duty for locally assembled/manufactured vehicles or provision of grant under the Industrial Adjustment Fund (IAF);
  • PS of 100 per cent for 10 years or ITA of 100 per cent for 5 years for the manufacture of selected critical components supporting hybrid and electric vehicles, such as:

-electric motors;

-electric batteries;

-Battery Management System;

-inverters;

-electric air conditioning;

-air compressors;

  • additional attractive, customised incentives will be considered based on proposed activities.
  • The Ministry of Energy, Green Technology and Water will draw up a roadmap to develop the infrastructure for electric vehicles.

Applications should be submitted to MIDA.

Incentives for the Utilisation of Oil Palm Biomass

Companies that utilise oil palm biomass to produce value-added products such as particleboard, medium density fibreboard; plywood; and pulp and paper are eligible for the following incentives:

(i) New Companies

a. Pioneer Status with income tax exemption of 100% of the statutory income for a period of 10 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

b. Investment Tax Allowance of 100% on the qualifying capital expenditure incurred within a period of five years. The allowance can be offset against 100% of the statutory income for each year of assessment. Any unutilised allowances can be carried forward to subsequent years until fully utilised.


(ii) Incentive for Existing Companies that Reinvest

a. Pioneer Status with income tax exemption of 100% of the increased statutory income arising from the reinvestment for a period of 10 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

b. Investment Tax Allowance of 100% on the additional qualifying capital expenditure incurred within a period of five years. The allowance can be offset against 100% of the statutory income for each year of assessment. Any unutilised allowances can be carried forward to subsequent years until fully utilised.

(See Appendix V: List of Promoted Activities and Products – Reinvestment)

To qualify for the above incentive, company has to comply with the following criteria:

  • i.The value-added must be at least 60%; and

ii. The managerial, technical and supervisory (MTS) ratio must be at least 25%.

Applications should be submitted to MIDA.

Additional Incentives for the Manufacturing Sector
  1. Reinvestment Allowance
  2. Reinvestment Allowance (RA) is given to existing companies engaged in manufacturing, and selected agricultural activities that reinvest for the purposes of expansion, automation. modernisation or diversification of its existing business into any related products within the same industry on condition that such companies have been in operation for at least 36 months effective from the Year of Assessment 2009.

    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 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

    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. With effect from the Year of Assessment 2009, company purchasing an asset from a related company within the same group where RA has been claimed on that asset is not allowed to claim RA on the same asset.

    Assets acquired for the reinvestment cannot be disposed off within a period of five years from the time of the reinvestment and effective from the Year of Assessment 2009.

    Companies that intend to reinvest before the expiry of its tax relief period, can surrender their Pioneer Status or Pioneer Certificate for the purpose of 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 or Pioneer Certificate for RA should be submitted to MIDA.

  3. Accelerated Capital Allowance 
  4. a. Reinvestment for promoted activities or products

    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 provides a special allowance, where the capital expenditure is written off 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 activities or products.

    Applications for ACA should be submitted to the IRB.

    b. Waste Recycling

    Effective from the Year of Assessment 2001, a manufacturing company which has incurred on Qualifying Expenditure for the purpose of its business may claim ACA on the plant and machinery which are:-

    Used exclusively or otherwise for the recycling of wastes, or

    Used for the further processing of the wastes into a finished products.

    A company that fulfils the above criteria is eligible to claim ACA of 20% for the initial allowance (IA) and 40% for the annual allowance (AA).

    A company is not eligible for ACA under the above mentioned Rules for the period during which the company:-

    Has been given incentives except for deduction for promotion of exports under the PIA Act, 1986, or

    Has claimed RA under Schedule 7A, ITA, 1967.

    Applications should be submitted to IRB.

    c. Conservation of Energy

    Effective from the Year of Assessment 2003, ACA is given to a company which has incurred capital expenditure in the basis period for a year of assessment on the -

    Provision of plant or machinery as certified by the Ministry of Energy, Green Technology and Water, or

    Machinery used exclusively for the conservation of energy of its business.

    ACA is fully given within one year with IA of 40% and AA of 60%.

    If the company has been granted an AA under the Income Tax (Accelerated Capital Allowance) (Conservation of Energy) Rules 2001 [P.U.(A) 82/2001], the AA for the Year of Assessment 2003 is the amount of qualifying plant expenditure less the amount of the allowance that has been permitted under P.U.(A) 82/2001.

    Applications should be submitted to IRB.

    d. Equipment to Maintain Quality of Power Supply

    In order to reduce the costs of doing business , effective from year of assessment 2005, companies which incur capital expenditure on equipment to ensure the quality of power supply, are eligible for ACA for a period of two years which allows the companies to write off the capital expenditure within two years, i.e. an initial allowance of 20% and an annual allowance of 40%.

    Only equipment determined by the Ministry of Energy, Green Technology and Water is eligible for the ACA.

    These Rules do not apply to a company which -

    Has been granted any incentive except for deduction for promotion of exports under the PIA 1986, or

    Has made a claim for RA under Schedule 7A of the ITA, 1967.

    Applications should be submitted to the IRB

    e. Equipment for Information and Communications Technology

    Effective from the Year of Assessment 2009 to Year of Assessment 2015, capital expenditure incurred in the basis period for a year of assessment in relation to the purchase of any information and communications technology equipment used for the purpose of a business are eligible for ACA.

    ACA is given at 20% for IA and 80% for AA. This means the qualifying expenditure is written off in one year.

    Applications should be submitted to IRB.

    f. Equipment for Security Control

    ACA is given on security control equipment installed in the factory premises of companies licensed under the Industrial Coordination Act 1975. This allowance is eligible to be claimed within one year. Effective from the Year of Assessment 2009, this allowance is extended to all business premises. Security control equipment which is eligible for the allowance is:

    • anti-theft alarm system;
    • infra-red motion detection system;
    • siren;
    • access control system;closed circuit television;
    • video surveillance system;
    • security camera;
    • wireless camera transmitter; and
    • time lapse recording and video motion detection equipment.

    Applications submitted to the IRB from the Year of Assessment 2009 to 2015 are eligible for this allowance.

  5. Incentive for Industrial Building System
  6. Industrial Building System (IBS) will enhance the quality of construction, create a safer and cleaner working environment as well as reduce the dependence on foreign workers. Companies which incur expenses on the purchase of moulds used in the production of IBS components are eligible for Accelerated Capital Allowance (ACA) with effect from year of assessment 2006 at rate of 40% for Initial Allowance and 20% for Annual Allowance

          

    Applications should be submitted to the IRB.

  7. Group Relief
  8. Group relief is provided under the Income Tax Act 1967 to all locally incorporated resident companies. Effective from the Year of Assessment 2009, group relief is increased from 50% to 70% of the current year’s unabsorbed losses to be offset against the income of another company within the same group (including new companies undertaking activities in approved food production, forest plantation, biotechnology, nanotechnology, optics and photonics) subject to the following conditions:

    a) The claimant and the surrendering companies each have a paid-up capital of ordinary shares exceeding RM2.5 million;

    b) Both the claimant and the surrendering companies must have the same accounting period;

    c) The shareholding, whether direct or indirect, of the claimant and the surrendering companies in the group must not be less than 70%;

    d) The 70% shareholding must be on a continuous basis during the preceding year and the relevant year;

    e) Losses resulting from the acquisition of proprietary rights or a foreign-owned company should be disregarded for the purpose of group relief; and

    f) Companies currently enjoying the following incentives are not eligible for group relief:

    - Pioneer Status

    - Investment Tax Allowance/Investment Allowance

    - Reinvestment Allowance

    - Exemption of Shipping Profits

    - Exemption of Income Tax under section 127 of the Income Tax Act 1967; and

    - Incentive Investment Company

    With the introduction of the above incentive, the existing group relief incentive for approved food production, forest plantation, biotechnology, nanotechnology, optics and photonics will be discontinued. However, companies granted group relief incentive for the above activities shall continue to offset their income against 100% of the losses incurred by their subsidiaries.

    Claims should be submitted to IRB. 

2 Incentives for the Agricultural Sector

The Promotion of Investments Act 1986 states that the term "company" in relation to agriculture includes:

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

Companies producing promoted products or engaged in promoted activities (See List of Promoted Activities and Products - General) the agricultural sector qualify for the following incentives:

Main Incentives for the Agricultural Sector
  1. 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 a partial exemption from income tax. It pays tax on 30% of its statutory income for five years, commencing from its Production Day (defined as the day of first sale of the agriculture produce).

    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.

    Applications should be submitted to MIDA.

  2. Investment Tax Allowance
  3. As an alternative to Pioneer Status, companies producing promoted products or engaged in promoted activities can apply for Investment Tax Allowance (ITA). A company granted ITA is eligible for an allowance of 60% on its qualifying capital expenditure incurred within five years from the date the first qualifying capital expenditure is incurred.

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

    To increase the benefits to agricultural projects, qualifying capital expenditure is defined to include expenditure incurred on:

    • Clearing and preparation of land
    • Planting of crops
    • Provision of plant and machinery used in Malaysia for the purpose of crop cultivation; and
    • Construction of access roads including bridges, construction or purchase of buildings (including those provided for the welfare of people or as living accommodation), and structural improvements on land or other structures which are used for crop cultivation. 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.

    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.

  4. Incentives for Food Production
    1. Incentives for New Projects
    2. Specific incentives are introduced to attract investment into food projects both at the farm level as well as at the production/processing level. These will enhance the supply of the raw material for the food processing sector and thus reducing reliance on imports of such raw material.

      Tax incentives are given to both company which invests in a subsidiary company engaged in an approved food production project and its subsidiary company undertaking the food production activities. The tax incentives given are as follows:

      1. A company which invests in its subsidiary company engaged in food production activities can be considered for tax deduction equivalent to the amount of investment made in that subsidiary; and
      2. The subsidiary company undertaking food production activities can be considered for a full tax exemption on its statutory income for 10 years of assessment for new project or five years of assessment for expansion project. The exemption period commences from the first year the company derived statutory income, in which;
        • losses incurred before the exemption period are allowed to be brought forward after the exemption period;
        • losses incurred during the exemption period are also allowed to be brought forward after the exemption period.
      3. The incentives can be granted on the following conditions:
        • the equity condition for a company which invests at least 70% in the subsidiary company that undertakes food production activities;
        • the approved food production activities by the Minister of Finance are cultivation of kenaf; vegetables; fruits;herbs; spices; aquaculture; rearing of cattle; goats; sheep; and deep sea fishing; and
        • the food production project should commence within a period of one year from the date the incentive is approved.
    3. Incentives for Existing Companies which Reinvest
    4. An existing company that reinvests in the production of the above food products qualifies for the same incentives for a period of five years.

      The food production project for both new (a)and existing companies (b)should commence within a year from the date the incentive is approved.

      Applications should be submitted to the Ministry of Agriculture and Agro-based Industry.

Incentives for 'Halal' Products
  1. Incentives for Production of Halal Food
  2. To encourage new investments in halal food production for the export market and to increase the use of modern and state-of-the-art machinery and equipment in producing high quality halal food that comply with the international standards, companies which invest in halal food production and have already obtained halal certification from JAKIM are eligible for the Investment Tax Allowance (ITA) of 100% of qualifying capital expenditure incurred within a period of five years.

    The allowance can be set-off against 100% of statutory income in the year of assessment. Any unutilised allowance can be carried forward to subsequent years until the whole amount has been fully utilised.

    For further information on obtaining halal certification from JAKIM, please visit www.halal.gov.my

    Applications should be submitted to MIDA

  3. Halal Industry Development Corporation (HDC) Incentives
    1. Incentive for Halal Park Operator
    2. In an effort to promote the attractiveness of the Halal Parks, halal park operators are eligible for the following incentives:

      • Pioneer Status with income tax exemption of 100% of the statutory income for a period of 10 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 of 100% on the qualifying capital expenditure incurred within a period of five years. The allowance can be offset against 100% of the statutory income for each year of assessment. Any unutilised allowances can be carried forward to subsequent years until fully utilised.
    3. Incentives for Halal Industry Players
    4. Companies proposing to undertake projects in the designated Halal Parks are eligible for:

      • Investment Tax Allowance of 100% on the qualifying capital expenditure incurred within a period of 10 years. The allowance can be offset against 100% of the statutory income for each year of assessment. Any unutilised allowances can be carried forward to subsequent years until fully utilised; or
      • Exemption from import duty and sales tax on raw materials used for the development and production of halal promoted products.
      • Double deduction on expenses incurred in obtaining international quality standards such as HACCP, GMP, Codex Alimentarius (food standard guidelines of FAO & WHO), Sanitation Standard Operating Procedure and regulations for compliance for export markets such as Food Tracebility from farm pork.
      • The qualifying criteria for halal industry players are:-
      • 1. The activities must be in following four industry sectors:-
      • Specialty processed food;
      • Pharmaceuticals, cosmetics and personal care products;
      • Livestock and meat products; and
      • Halal ingredients
      • 2. The employment of high valued knowledge workers with minimum of 15% of the total workforce including at least three (3) Halal Compliance Officers;
      • 3. Located in HDC Designated Halal Parks and logistic Cold Hubs approved by HDC;
      • 4. Must not be involved in any distribution and consultancy activities;
      • 5. Must always comply with prescribed quality, hygiene and environmental guidelines;
      • 6. Must always comply with all laws, regulations and licensing requirements where applicable;
      • 7. Must always comply with HDC’s halal integrity criteria with tests from accredited laboratories in determining the credibility of the promoted halal products; and
      • 8. Must be involved in new business activities related to Halal and must incorporate a new legal entity in Malaysia.
    5. Incentives for Halal Logistics Operators
    6. In an effort to promote halal industry and halal supply chain in Malaysia, the following incentives are granted to the following halal operator.

      • Income tax exemption of 100% of the statutory income for a period of 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 of 100% on the qualifying capital expenditure incurred within a period of five years. The allowance can be offset against 100% of the statutory income for each year of assessment. Any unutilised allowances can be carried forward to subsequent years until fully utilised;or
      • Services provided by halal logistic operators must be integrated which comprises of the three (3) principal activities:

        • Forwarding
        • Warehousing
        • Transportation

        And at least one of the following activities:-

        • Distribution
        • Other related and value-added services/activities (e.g.: palletising, product assembly/installation, bulk breaking, consolidation, packaging/re-packaging, procurement, quality control, labelling /re-labelling, testing, etc.)
        • Supply chain management

        The Halal Logistics Operator must own minimum infrastructure as follows:-

        • Commercial vehicle – 20 units
        • Warehouse facilities – 5,000 sq. metres

        Applications should be submitted to Halal Industry Development Corporation (HDC).

        Applications should be submitted to Halal Industry Development Corporation (HDC).

        For further information, please visit www.hdcglobal.com

Additional Incentives for the Agricultural Sector
  1. Reinvestment Allowance
  2. Companies engaged for at least 36 months in the production of essential food such as rice, maize, vegetables, tubers, livestock, aquatic products, and any other activities approved by the Minister of Finance are eligible for Reinvestment Allowance (RA). (See List of Promoted Activities and Products – Reinvestment)

    The RA is in the form of an allowance of 60% of the qualifying capital expenditure incurred within a period of 15 years beginning from the year the first reinvestment is made. The allowance can be offset against 70% of the statutory income in the year of assessment. Unutilised allowances can be carried forward to the following years until fully utilised.

    The qualifying capital expenditure includes expenditure incurred on:

    • Clearing and preparation of land
    • Planting of crops
    • Breeder stock for aquaculture
    • Breeder stock for animal farming
    • Provision of plant and machinery used in Malaysia for the purpose of crop cultivation, animal farming, aquaculture, inland fishing or deep-sea fishing, and other agricultural or pastoral pursuits; and
    • Construction of access roads including bridges, construction or purchase of buildings (including those provided for the welfare of people or as living accommodation), and structural improvements on 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

    Claims should be submitted to the IRB.

  3. Incentives for Reinvestment in Resource-Based Industries
  4. These incentives are offered to companies that are at least 51% Malaysian-owned and are in the rubber, oil palm and wood-based industries producing products which have export potential. Companies in these industries (See List of Promoted Activities and Products – Reinvestment) reinvesting for expansion purposes are eligible for :

    1. Pioneer Status with income tax exemption of 70% of statutory income for a period of 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
    2. Investment Tax Allowance of 60% on the additional qualifying capital expenditure incurred within a period of five 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.

    Applications should be submitted to MIDA.

  5. Incentives for Reinvestment in Food Processing Activities
  6. A locally-owned manufacturing company with Malaysian equity of at least 60% that reinvests in promoted food processing activities (See List of Promoted Activities and Products – Reinvestment) is eligible for:

    1. Pioneer Status with income tax exemption of 70% of statutory income for a period of 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
    2. Investment Tax Allowance of 60% on the additional qualifying capital expenditure incurred within a period of five 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.
  7. Accelerated Capital Allowance
  8. Upon the expiry of the Reinvestment Allowance (RA), companies that reinvest in promoted agricultural activities and food products are eligible to apply for the Accelerated Capital Allowance (ACA). These activities include the cultivation of rice, maize, vegetables, tubers, livestock, aquatic products and any other activities approved by the Minister of Finance.

    The ACA provides a special allowance to write off the capital expenditure within two years, i.e. an initial allowance of 20% in the first year and an annual allowance of 40%.

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

  9. Agricultural Allowance
  10. 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 qualifies includes expenditure incurred on:

    • Clearing and preparation of land
    • Planting of crops
    • Breeder stock for aquaculture
    • Breeder stock for animal farming
    • Provision of plant and machinery used in Malaysia for the purpose of crop cultivation, animal farming, aquaculture, inland fishing or deep-sea fishing, and other agricultural or pastoral pursuits
    • Construction of access roads including bridges, construction or purchase of buildings (including those provided for the welfare of people or as living accommodation), and structural improvements on 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

    A company continues to get the allowance for as long as it incurs the expenditure, regardless of whether it already enjoys Pioneer Status or ITA.

    Claims should be submitted to the IRB.

  11. 100% Allowance on Capital Expenditure for Approved Agricultural Projects
  12. Schedule 4A of the Income Tax Act 1967 provides for 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 those for the 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, and off-shore marine cage culture); cockles, oysters, mussels, and seaweed culture; shrimp, prawn and fish hatchery; and certain species of forest plantations.

    The incentive enables a person carrying on such a project 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 includes expenditure incurred on:

    • Clearing and preparation of land
    • Planting of crops
    • Breeder stock for aquaculture
    • Breeder stock for animal farming
    • Provision of plant and machinery used in Malaysia for the purpose of crop cultivation, animal farming, aquaculture, inland fishing or deep-sea fishing, and other agricultural or pastoral pursuits; and
    • Construction of access roads including bridges, construction or purchase of buildings (including those provided for the welfare of people or as living accommodation), and structural improvements on 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

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

    Claims should be submitted to the IRB.

  13. Incentives for Companies providing Cold Chain Facilities and Services for Food Products
  14. Companies providing cold room and refrigerated truck facilities and related services such as the collection and treatment of locally produced perishable food products qualify for Pioneer Status or Investment Tax Allowance (ITA).

    1. Incentives for New Companies
    2. New companies that provide cold chain facilities and services for perishable agricultural produce are eligible for:

      • Pioneer Status with income tax exemption of 70% of the statutory income for a period of 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 of 60% on the additional qualifying capital expenditure incurred within a period of five 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.
    3. Incentives for Existing Companies that Reinvest
    4. Existing locally owned companies that reinvest in cold chain facilities and services for perishable agricultural produce (See List of Promoted Activities and Products – Reinvestment) are eligible for the following incentives:

      • Pioneer Status with a tax exemption of 70% on the increased statutory income arising from the reinvestment for a period of 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 of 60% on the additional qualifying capital expenditure incurred within a period of five years. The allowance can be offset against 70% of the statutory income in each year of assessment. Any unutilised allowances can be carried forward to subsequent years until fully utilised.

      Applications should be submitted to MIDA.

3 Incentives for the Biotechnology Industry
INCENTIVES FOR THE BIOTECHNOLOGY INDUSTRY

3.1 Main Incentives for the Biotechnology Industry

A company undertaking biotechnology activity and has been approved with BioNexus Status* by the Malaysian Biotechnology Corporation Sdn. Bhd. (BiotechCorp) may be eligible for the following incentives:

i. An exemption from tax on 100% statutory income:

for a period of 10 consecutive years of assessment from the first year the company derives statutory income from the new business; or

for a period of five consecutive years of assessment from the first year the company derives statutory income from the existing business and expansion project; or

ii. An exemption from tax on statutory income derived from a new business or an expansion project that is equivalent to an allowance of 100% of qualifying capital expenditure incurred within a period of five years.

iii. A BioNexus Status company is entitled to a concessionary tax rate of 20% on statutory income from qualifying activities for 10 years upon the expiry of the tax exemption period.

iv. Tax exemption on dividends distributed by a BioNexus Status company.

v. Double deduction on expenditure incurred for R&D.

vi. Double deduction on expenditure incurred for the promotion of exports.

vii. With effect from 2 September 2006, buildings used solely for the purpose of biotechnology activities will be eligible for Industrial Building Allowance to be claimed over a period of 10 years.

viii. A company or an individual (that carry on business) investing in a BioNexus Status company is eligible for a tax deduction equivalent to the total investment made in financing the initial commercialization stage.

*Applications for BioNexus Status should be submitted to BiotechCorp.

3.2 Biotechnology Funding for BioNexus Status Companies

BiotechCorp provides funding to BioNexus Status companies under its Biotechnology Commercialisation Fund (BCF) Facility. The objectives of the BCF Facility are to facilitate on-going commercialisation of biotechnology products and services as well as provide assistance in expanding the applicant’s existing biotechnology business.

A maximum of 90% funding assistance of up to RM3 million per company is provided under the funding initiative to cover the following expenditures:

a. Commercialisation expansion project;

b. Commercialisation or Expansion of existing biotechnology products or services;

c. Commercialisation or Expansion of new biotechnology products or services; and

d. Activities for commercialisation or expansion into new markets (geographical or segmental).

Eligibility criteria for the BCF facility includes the following:

i. applicant must be a BioNexus Status company;

ii. majority Malaysian owned i.e. at least 51% of the equity is owned by Malaysians; and

iii. minimum paid-up capital of RM250,000.

3.3 R&D Incentives

Recognising the importance of research and development (R&D), the Government will provide the following R&D incentives for viable projects which will be assessed by BiotechCorp:

1. Tax deduction for companies that invest to acquire technology platform in bio-based industry;

2. Import duty exemption on R&D equipment for companies investing in pilot plants for the purpose of pre-commercialisation activities in Malaysia;

3. Special incentive for companies to partially cover the operational expenses for human capital development for Centre of Excellence for R&D.

For further information, please visit www.biotechcorp.com.my

4 Principal Hub
Definition Of Principal Hub

A locally incorporated company that uses Malaysia as a base for conducting its regional and global businesses and operations to manage, control, and support its key functions including management of risks, decision making, strategic business activities, trading, finance, management and human resource.

An approved Principal Hub company is eligible for a 3-tiered corporate taxation rate as follows:

3-tier Incentive Tier 3 Tier 2 Tier 1
Blocks

(years)

5 + 5 5 +5 5 +5
•Tax rate 10% 5% 0%
Eligibility Criteria For Principal Hub Incentive

a. Local incorporation under the Companies Act 1965

b. Paid-up capital of more than RM2.5 million.

c. Minimum annual sales of RM 300 million (Additional requirement for goods-based applicant company).

d. Serves and control network companies in at least 3 countries outside Malaysia

Network companies “related companies or any entity within the group including subsidiaries, branches, joint ventures, franchises or any other company related to applicants’ supply chain and business with contractual agreements”.

e. Carry out at least three qualifying services, of which one of the qualifying services must be from the strategic services cluster as follows:

(i) Strategic Services

  • Regional P&L/ Business Unit Management
  • P&L Management focuses on the growth of the company with direct influence on how company resources are allocated - determining the regional/ global direction, monitoring budget expenditure and net income, and ensuring every program generates a positive ROI
  • Strategic Business Planning and Corporate Development
  • Corporate Finance Advisory Services
  • Brand Management
  • IP Management
  • Senior-level Talent Acquisition and Management

(ii) Business Services

  • Bid and Tender Management
  • Treasury and Fund Management
  • Research, Development & Innovation
  • Project Management
  • Sales and Marketing
  • Business Development
  • Technical Support and Consultancy
  • Information Management and Processing
  • Economic/ Investment Research Analysis
  • Strategic Sourcing, Procurement and Distribution
  • Logistics Services

(iii) Shared Services

  • Corporate Training and Human Resource Management
  • Finance & Accounting (Transactions, Internal Audit)
  • General Administration
  • IT Services

f. Employment Requirement

  • i.Tier 3: 15 high value jobs, including 3 key strategic/management positions
  • ii.Tier 2: 30 high value jobs, including 4 key strategic/management positions
  • iii.Tier 1: 50 high value jobs, including 5 key strategic/management positions
    • Minimum monthly salary for high value jobs is at least RM5,000.00.
    • Minimum monthly salary of key strategic/management positions is at least RM25,000.00.

Definition of High Value Jobs

Jobs that require higher and more diverse set of managerial/ technical/ professional skills such as management, analytics, communication, problem-solving, and proficiency in information technology

  • iv.At least 50% of the high value jobs must be Malaysian by end of year 3.

g. Annual Business Spending

  • i.Tier 3: RM 3 Million
  • ii.Tier 2: RM 5 Million
  • iii.Tier 1: RM10 Million

h. Must have HR training and development plan for Malaysians.

i. The applicant should be the planning, control and reporting centre for the qualifying services.

j. Malaysian-owned and incorporated businesses are encouraged to provide headquarters-related services and expertise to their overseas companies.

k. Significant use of Malaysia’s banking and financial services and other
ancillary services and facilities (e.g trade and logistics services, legal and
arbitration services, finance and treasury services).

  • l. Income tax exemption threshold received from services/goods-based company inside and outside of Malaysia is based on the ratio of 30 : 70 (inside:outside).

Note: Each tier (Tier 1 – Tier 3) can be considered for an extension up to 5 years within the tiers subject to fulfilling the above criteria and:

  • i. Jobs: 20% incremental of the base commitment; and
  • ii. Business spending: 30% incremental of the base commitment

24.4.3 Facilities Accorded to Principal Hub

An approved Principal Hub company will enjoy the following facilities:

  • a.Bring in raw materials, components or finished products with customs duty exemption into free industrial zones, LMW, free commercial zones and bonded warehouses for production or re-packaging, cargo consolidation and integration before distribution to its final consumers for goods-based companies.
  • b.No local equity / ownership condition.
  • c.Expatriate posts based on requirements of applicant’s business plan subject to current policy on expatriates.
  • d.Use foreign professional services only when locally-owned services are not available.
  • e.A foreign-owned company is allowed to acquire fixed assets so long as it is for the purpose of carrying out the operations of its business plan.
  • f.Foreign Exchange Administration flexibilities will be accorded in support of business efficiency and competitiveness of companies under the Principal Hub. 
Specific immigration Procedures

Companies applying for Principal Hub incentive can apply for expatriate posts, including key posts. The approval will be granted according to the company’s requirement subject to the condition that the company has a paid up capital of more than RM2.5 million. Upon approval of the expatriate posts by MIDA, the company must submit an application to the Immigration Department for endorsement of the employment Pass. The expatriate can be hired once the Employment Pass has been endorsed.

Other Incentives.

Companies applying for Principal Hub incentive can apply for expatriate posts, including key posts. The approval will be granted according to the company’s requirement subject to the condition that the company has a paid up capital of more than RM2.5 million. Upon approval of the expatriate posts by MIDA, the company must submit an application to the Immigration Department for endorsement of the employment Pass. The expatriate can be hired once the Employment Pass has been endorsed.

Other Incentives.

This section covers other incentives not mentioned elsewhere and may be applicable to the following sectors: manufacturing, agriculture, aerospace, tourism, environmental management, research and development, training, information and communication technology, Approved Service Projects and manufacturing related services.

Industrial Building Allowance

An Industrial Building Allowance (IBA) is granted to companies incurring capital expenditure on the construction or purchase of a building that is used for specific purposes, including manufacturing, agriculture, mining, infrastructure facilities, research, Approved Service Projects and hotels that are registered with the Ministry of Tourism. Such companies are eligible for an initial allowance of 10% and an annual allowance of 3%. As such, the expenditure can be written off in 30 years.

Claims should be submitted to IRB.

Industrial Building Allowance for Buildings in MSC Malaysia

To encourage the construction of more buildings in Cyberjaya for use by MSC Malaysia status companies, IBA for a period of 10 years will be given to owners of new buildings occupied by MSC Malaysia status companies in Cyberjaya. Such new buildings include completed buildings but are yet to be occupied by MSC Malaysia status companies.
Claims should be submitted to IRB. Deduction of Audit Fees To reduce the cost of doing business and enhance corporate compliance, expenses incurred on audit fees by companies are deemed as allowable expenses for deduction in the computation of income tax. Claims should be submitted to IRB. Tax Incentive for Angle Investor An angle investor who invests in a venture company at seed capital financing, start-up financing and early stage financing is eligible to claim deduction on the total value of investment. To attract more angle investor to provide funding to venture companies, effective from 1 January 2013 the total investment by angle investor in a venture company is allowed as a deduction against all income. Among the qualifying criteria for the incentive are as follows:- I. Angle investor
An individual is not associated to the venture company prior to investing;

A tax resident with an annual income not less than RM180,000;

Holds at least 30% of the shares in the venture company for period of at least 2 years, and

All his shares in the venture company must be paid in cash.



II. Venture Company



51% shares in the company is owned by Malaysian;

Qualifying activities of venture company are approved by Minister of Finance; and

Accumulated profit is not more than RM5 million and has a track record of less than three years (based on the latest financial report at the time of application).

Effective for applications received from 1 January 2013 until 31 December 2017 by Ministry of Finance. Tax Incentive on Costs of Dismantling and Removing Assets Costs of dismantling and removing assets including plant and machinery as well as restoring the site where the asset was located do not qualify for allowance under the Schedule 3, Income Tax Act 1967 since this expenditure is not deemed as cost of the asset. However, Financial Reporting Standards 116 (FRS 116) stipulates that the cost of an asset includes the estimated cost required to be incurred relating to the obligation to dismantle and remove the asset and to restore the site on which the asset was located.

Therefore, to streamline the tax treatment under the Income Tax Act 1967 and FRS 116, a special provision is introduced in Schedule 3, Income Tax Act 1967 to provide for balancing allowance* on the cost of dismantling and removing asset including plant and machinery as well as restoring the site where the asset was located, subject to the following conditions:

The eligibility of such treatment only applies where the obligation to carry out works on dismantling and removing the plant and machinery as well as restoring the site is provided under the written law or agreement; and

Such plant and machinery is not allowed to be used by that person in another business or the business of another person.

Applications are eligible for the incentive with effect from the Year of Assessment 2009.

Claims should be submitted to IRB.

* The total balancing allowance is determined by adding the cost of dismantling and removing the plant and machinery as well as restoring the site to the balance of expenditure on plant and machinery at the time of the disposable of the asset.

Incentive for Acquiring Proprietary Rights

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

Claims should be submitted to IRB.

Tariff Related Incentives

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

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

Where the finished products are for the export market, full exemption from import duty on raw materials/components 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.

Where the finished products are for the domestic market, full exemption from import duty on raw materials/components that are not produced locally can be considered. Full exemption can also be considered if the finished products made from dutiable raw materials/ components are not subject to any import duty.

Hotel and tourism projects qualify for full exemption of import duty and sales tax on identified imported materials.

Applications should be submitted to MIDA.



(ii) Self-Declaration Mechanism for Import Duty and/or Sales Tax Exemption on Machinery, Equipment, Spare Parts, Consumables through the Customs Duties (Exemption) Order 2013 and Sales Tax (Exemption) Order 2013

Manufacturers in the Principal Customs Area (PCA) can benefit from these facilities by claiming the exemption on import duty and/or sales tax on machinery, equipment, spare parts, and consumables under these Orders through a self-declaration process.

Under this new self-declaration mechanism, a company is required to submit a confirmation letter issued by MIDA together with the list of machinery, equipment, spare parts and consumables, to be imported or purchased to Customs for permission to claim the exemption. Companies would be able to obtain the permission within a period of two (2) weeks from the date of complete submission received by Customs.

Prior to the introduction of this new mechanism, an application to MIDA for import duty and/or sales tax exemption on machinery, equipment, spare parts and consumables under the provisions of Section 14(2), Custom Act, 1967 and/or Section 10, Sales Tax Act, 1972 would require a processing period of four (4) weeks from the date of complete information received.

The implementation of the Customs Duties (Exemption) Order 2013 and Sales Tax (Exemption) Order 2013 took effect on 2nd May 2014.

The key areas of the exemptions are for Manufacturers in the PCA:

(a) Import duty exemption on machinery and equipment excluding spare parts and consumables imported or purchased from a Licensed Manufacturing Warehouse, Bonded Warehouse or Free Zone under item 115 Customs Duties (Exemption) Order 2013;

(b) Sales tax exemption on machinery, equipment, spare parts and consumables imported or purchased from a Licensed Manufacturing Warehouse, Bonded Warehouse or Free Zone under item 106 Sales Tax (Exemption) Order 2013; and

(c) Sales tax exemption on machinery, equipment, spare parts and consumables purchased from a manufacturer (licensed under the Sales Tax Act, 1972) under item 106 Sales Tax (Exemption) Order 2013

The application must be submitted prior to the importation or purchase of the machinery, equipment, spare parts and consumables. As such, companies are advised to take into consideration the duration needed for the whole process to claim the exemption. This new mechanism with a self-declaration and self-regulatory environment; and time saving measures would be able to reduce the costs of doing business without the necessity of obtaining bank guarantee facilities for the clearance of goods.

MIDA provides online applications facilities for the application of the Self Declaration Mechanism for Tax Exemption. With this facility, users will be able to use the e-filing digital certificate (from LHDN) or download the digital certificate from MIDA to digitally sign the application form prior to the submission to MIDA.

(iii) Exemption from Import Duty and Sales Tax for Outsourcing Manufacturing Activities

To reduce the cost of doing business and enhance competitiveness, owners of Malaysian brands with at least 60% Malaysian equity ownership who outsource manufacturing activities are eligible for:

a. Import duty and sales tax exemptions on raw materials and components used in the manufacturing of finished products by their contract manufacturers locally or abroad
b. Import duty and sales tax exemptions on semi-finished goods from their contract manufacturers abroad, to be used by their local contract manufacturers to manufacture the finished products.

Applications should be submitted to MIDA.

(iv)Exemption from Import Duty and Sales Tax for Maintenance, Repair and Overhaul (MRO) Activities



Aerospace companies undertaking maintenance, repair and overhaul activities, qualify for import duty and sales tax exemption on raw materials, components, machinery and equipment, spares and consumables. These are subject to each importation to be accompanied by certificates of parts and components issued by one of the following original equipment manufacturers (OEM):

  • a. FAA Form 8130-3 from the United States of America
  • b. EASA Form 1 from the European Union
  • c. Certificate of Compliance
  • d. Certificate of Conformance
  • e. Certificate from vendors
  • f. Distributor certificate

Applications should be submitted to the Ministry of Finance.

(vii) Double Deduction on Freight Charges

Manufacturers who ship their goods from Sabah or Sarawak to any port in Peninsular Malaysia qualify for double deduction on freight charges.

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

To promote Malaysian brand names, a company who is a registered proprietor of a Malaysian brand, or a company within the same group is eligible for double deduction on expenditure incurred in advertising the brand, subject to the following conditions:

the company must be owned more than 50% by the registered proprietor of the Malaysian brand name;

b. the deduction can only be claimed by one company in a year of assessment; and
c. the products meet export quality standard.

Claims should be submitted to IRB.

(ix) 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, the 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.

The eligible expenditure and contributions are those on equipment (computers and servers) and salaries for full-time employees seconded to RosettaNet Malaysia; contribution of software, sharing of software and programming, as well as the training of the staff of local small and medium-scale companies to use RosettaNet.

Claims should be submitted to IRB.



Donations for Environmental Protection



Donations to an approved organisation exclusively for the protection and conservation of the environment qualify for single deduction.



Claims should be submitted to IRB.



Incentive for Employees' Accommodation



Buildings used for employees for the purpose of living accommodation in a manufacturing operation, an Approved Service Project, hotel or tourism business, are eligible for special Industrial Building Allowance of 10% of the expenditure incurred on the construction/purchase of the building for 10 years.



Claims should be submitted to IRB.

5 Other Incentives

This section covers other incentives not mentioned elsewhere and may be applicable to the following sectors: manufacturing, agriculture, aerospace, tourism, environmental management, research and development, training, information and communication technology, Approved Service Projects and manufacturing related services.

Industrial Building Allowance

An Industrial Building Allowance (IBA) is granted to companies incurring capital expenditure on the construction or purchase of a building that is used for specific purposes, including manufacturing, agriculture, mining, infrastructure facilities, research, Approved Service Projects and hotels that are registered with the Ministry of Tourism. Such companies are eligible for an initial allowance of 10% and an annual allowance of 3%. As such, the expenditure can be written off in 30 years.

Claims should be submitted to IRB.

Industrial Building Allowance for Buildings in MSC Malaysia

To encourage the construction of more buildings in Cyberjaya for use by MSC Malaysia status companies, IBA for a period of 10 years will be given to owners of new buildings occupied by MSC Malaysia status companies in Cyberjaya. Such new buildings include completed buildings but are yet to be occupied by MSC Malaysia status companies.

Claims should be submitted to IRB.

Deduction of Audit Fees

To reduce the cost of doing business and enhance corporate compliance, expenses incurred on audit fees by companies are deemed as allowable expenses for deduction in the computation of income tax.

Claims should be submitted to IRB.

Tax Incentives for Venture Capital Industry

Generally, venture capital companies (VCC) is eligible for income tax exemption for 10 years subject to the investment condition as follows:

  1. at least 50% of funds invested in venture companies must be in seed capital; or
  2. at least 70% of funds invested in venture companies must be in start-up or early stage financing.

To stimulate and further promote the funding of venture companies, VCCs investing in venture companies with at least 30% of its funds in seed capital, start-up or early stage financing are eligible for income tax exemption for five years. This incentive is effective for applications received by the Securities Commission from 30 August 2008 until 31 December 2013.

Claims should be submitted to IRB.

Tax Incentive on Costs of Dismantling and Removing Assets

Costs of dismantling and removing assets including plant and machinery as well as restoring the site where the asset was located do not qualify for allowance under the Schedule 3, Income Tax Act 1967 since this expenditure is not deemed as cost of the asset. However, Financial Reporting Standards 116 stipulates that the cost of an asset includes the estimated cost required to be incurred relating to the obligation to dismantle and remove the asset and to restore the site on which the asset was located.

Therefore, to streamline the tax treatment under the Income Tax Act 1967 and FRS 116, a special provision is introduced in Schedule 3, Income Tax Act 1967 to provide for balancing allowance* on the cost of dismantling and removing asset including plant and machinery as well as restoring the site where the asset was located, subject to the following conditions:

  • The eligibility of such treatment only applies where the obligation to carry out works on dismantling and removing the plant and machinery as well as restoring the site is provided under the written law or agreement; and
  • Such plant and machinery is not allowed to be used by that person in another business or the business of another person.

Applications are eligible for the incentive with effect from the Year of Assessment 2009.

Claims should be submitted to IRB.

* The total balancing allowance is determined by adding the cost of dismantling and removing the plant and machinery as well as restoring the site to the balance of expenditure on plant and machinery at the time of the disposal of the asset.

Incentive 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 a deduction in the computation of income tax. This deduction is given in the form of an annual deduction of 20% over a period of five years.

Claims should be submitted to IRB.

Tax Incentives for Small and Medium Enterprises to Register Patents and Trademarks

In line with the Government’s objective to promote innovation and intellectual property development among small and medium enterprises (SME), expenses incurred in the registration of patents and trademarks in the country will be allowed as a deduction for the purpose of income tax computation.

Such registration expenses include fees or payment made to patent and trade marks agents registered under the Patents Act 1983 and the Trade Marks Act 1976.

The definitions for the purpose of this tax incentive are as follows:

  1. Companies as defined under paragraph 2A and 2B, Schedule 1, Income Tax Act 1967
  2. Manufacturing industries, manufacturing related services industries and agro-based industries
    • Enterprise with full-time employees not exceeding 150 persons; or with annual sales turnover not exceeding RM25 million
  3. Services industries, primary agriculture and information & communication technology (ICT)
    • Enterprise with full-time employees not exceeding 50 persons; or with annual sales turnover not exceeding RM5 million

This is effective from the year of assessment 2010 until the year of assessment 2014.

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Last Updated : Friday 17th November 2017