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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.

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, 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 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)

The company must submit its application to MIDA before commencing operation/production.

i.   Pioneer Status 

A company granted Pioneer Status (PS) 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 incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company. Accumulated losses incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company for a period of seven consecutive years.

Applications for Pioneer Status should be submitted to MIDA.

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

ii.   Investment Tax Allowance 

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 Appendix II: List of Promoted Activities and Products – High Technology Companies). A high technology company qualifies for:

i.   Pioneer Status with income tax exemption of 100% of the statutory income for a period of five years. Unabsorbed capital allowances incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company. 

Accumulated losses incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company for a period of seven consecutive years.

; or

ii.  Investment Tax Allowance of 60% on the qualifying capital expenditure incurred within five years from the date the first qualifying capital expenditure is incurred. 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.

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:

i.   Pioneer Status with income tax exemption of 100% of the statutory income for a period of ten years; Unabsorbed capital allowances incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company. 

Accumulated losses incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company for a period of seven consecutive years.

; 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.

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 17% on chargeable incomes of up to RM500,000. The tax rate on the remaining chargeable income is maintained at 24%.

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 is 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 incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company.

Accumulated losses incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company for a period of seven consecutive years.

; or

Investment Tax Allowance of 60% on the qualifying capital expenditure incurred within five years. This allowance can be offset against 100% of the statutory income for each year of assessment. 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. 

i.   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). 

ii.  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 small company promoted list (See Appendix III: Small Scale Companies).

iii. 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).:

Applications should be submitted to MIDA. 

Incentives for Investments 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 ten years. Unabsorbed capital allowances incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company. 

Accumulated losses incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company for a period of seven consecutive years.

; 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.

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

Incentives for the Automotive Industry

Promoting the assembly and manufacturing of Energy Efficient Vehicles and its criticalcomponents/systems is crucial to enhance the development of Malaysia’s automotive industry. 

MIDA provides incentives in the form of income tax exemption or income tax exemption equivalent of Investment Tax Allowance (ITA) for a period of five or ten years to companies which have plans to undertake the following activities:-

i.   Assembly of Energy Efficient Vehicles;

ii.  Manufacturing of Critical Components/Systems for Energy Efficient Vehicles or Non- Energy Efficient Vehicles such as transmission, engines, airbag & components, handling & control mechanism and brake mechanism; and

iii. Manufacturing of components for Hybrid and Electric Vehicles such as electric motors, electric batteries and battery management systems.

The incentives are effective for applications received by MIDA from 1 January 2017 until 31 December 2020.  

Incentives for the Aerospace Industry

Aerospace industry development was one of the strategic and high technology areas identified by the Government. It includes activities that directly and indirectly contribute to the Maintenance, Repair & Overhaul (MRO), Aero-Manufacturing, Systems Integration and Engineering & Design.

MIDA provides incentives in the form of income tax exemption or income tax exemption equivalent to Investment Tax Allowance (ITA) for a period of five or ten years to companies which have plans to undertake the following activities:-

i.   Aerospace manufacturing;

ii.  System integration;

iii. Maintenance, repair and overhaul (MRO);

iv.  Aero related services

The incentives are effective for applications received by MIDA from 1 November 2016 until 31 December 2020.

Incentives for the Utilisation of Oil Palm Biomass to Produce Value-Added Products

Companies that utilise oil palm biomass to produce value-added products such as bio-based chemicals, biofuel, 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 ten years. Unabsorbed capital allowances incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company. 

Accumulated losses incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company for a period of seven consecutive years.

; 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 ten years. Unabsorbed capital allowances incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company.

Accumulated losses incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company for a period of seven consecutive years.

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.

Applications should be submitted to MIDA.

Incentives for Industrialised Building System (IBS)

Basic components/products and systems

Columns, beams, slabs, wall, roof trusses, precast concrete system, formwork system, steel framing system, blockwork system, timber framing system, innovative system. Companies undertaking activities in the manufacturing of Industrialised Building System (IBS) are eligible for:

i.   Income tax exemption between 70% - 100% of the statutory income for a period of five years. 

; or

ii.  Income tax exemption equivalent to Investment Tax Allowance of 60% 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 70% - 100% of the statutory income for each year of assessment. 

Applications should be submitted to MIDA.

Incentive Definition of Desirous for the Granting of Tax Incentives under the Promotion of Investments Act, 1986 for Malaysian-Owned Companies

Under the Promotion of Investments Act (PIA), 1986, the main criterion for a company to enjoy tax incentives is that the company must be ‘desirous’ in establishing or participating in a promoted activity or producing a promoted product which has not started production. 

i.   Definition of production: 

a)  Manufacturing Company - Company has started to produce products (including trial production). 

b)  Services Company - Company has issued first invoice for the services rendered.

ii.  Companies in Production

Malaysian-owned manufacturing and services companies that are already in production do not comply with the 'desirous' clause under the PIA, 1986.  However, effective from 3 July 2012, Malaysian-owned companies that have commenced its production within one year from the date of application to MIDA are eligible to be considered for tax incentives.

iii. Incentives 

Tax exemptions equivalent to Pioneer Status or Investment Tax Allowance based on the prevailing rates and eligibility criteria under the PIA, 1986. 

Additional Incentives for the Manufacturing Sector

i.   Reinvestment Allowance

Reinvestment Allowance (RA) is available for existing companies engaged in manufacturing and selected agricultural activities that reinvest for the purposes of expansion, automation, modernisation or diversification into any related products within the same industry on condition that such companies have been in operation for at least 36 months.

  • 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 maximum period of seven consecutive years of assessments and the period commences immediately after the end of fifteen year. 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 (see Useful Addresses – Relevant Organisations). 
The RA will be given for a period of fifteen 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 within a period of five years from the time of the reinvestment 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 IRB while applications for the surrender of Pioneer Status or Pioneer Certificate for RA should be submitted to MIDA.

ii.  Accelerated Capital Allowance

a)  Reinvestment for promoted activities or products

After the fifteen 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 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. 

Applications should be submitted to IRB.

iii.  Incentive for Industrial Building System

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 Allowances (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 IRB.

iv.  Group Relief

Group relief is provided under the Income Tax Act 1967 to all locally incorporated resident companies. Effective from year 2019, a company that qualifies for group relief may surrender a maximum of 70% of its adjusted losses to be offset against the income of another company within the same group for three consecutive years of assessment. The following conditions must be met by both the claimant and surrendering companies:

a)  The claimant and the surrendering companies each has paid-up capital of ordinary shares exceeding MYR 2.5 million at the beginning of the basis period;

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 foreign-owned companies should be disregarded for the purpose of group relief;

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

-  Pioneer Status

-  Investment Tax Allowances/Investment Allowance

-  Reinvestment Allowance

-  Exemption of shipping profits

-  Exemption of Income Tax under Section 127 of the Income Tax Act 1967

Claims should be submitted to IRB.

v.   Automation Capital Allowance (Automation CA) 

Manufacturing company (labour and non-labour intensive industry) operating at least 36 months in Malaysia is eligible for:

Category 1: High labour intensive industries (rubber products, plastics, wood, furniture and textiles).

i.   Automation Capital Allowance of 200% on the first RM4 million expenditure incurred within five (5) year of assessment from 2015 to 2020; and

Category 2: Other industries

ii.  Automation Capital Allowance of 200% will be provided on the first RM2 million expenditure incurred within five (5) year of assessment from 2015 to 2020.

  • Applications should be submitted to MIDA.
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 Appendix I: List of Promoted Activities and Products – General and Appendix III: Small Scale Companies) in the agricultural sector qualify for the following incentives:

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 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 incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company.

Accumulated losses incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company for a period of seven consecutive years.

Applications should be submitted to MIDA.

ii.  Investment Tax Allowance 

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.

Applications should be submitted to MIDA.

Incentives for Food Production

Incentives for New Projects

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:

i.   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 for that year of assessment; and

ii.  The subsidiary company undertaking food production activities can be considered for a full tax exemption on its statutory income for ten years of assessment for new project or five years of assessment for expansion project. 

Application received by Ministry of Agriculture & Agro-Based Industry from 1 Jan 2016 to 31 December 2020.

Incentives for Halal Products

i.   Incentives for Production of Halal Food

To encourage new investments in halal food production 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 in compliance with MS 1500:2004, 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% 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.

b)  Incentives for Halal Industry Players

Companies proposing to undertake projects in the designated Halal Parks are eligible for:-

i.   Investment Tax Allowance of 100% on the qualifying capital expenditure incurred within a period of ten 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 they are fully utilised; or

ii.  Exemption from import duty and sales tax on raw materials used for the development and production of halal promoted products.

iii.  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.

c)   Incentives for Halal Logistics Operators

In an effort to promote halal industry and halal supply chain in Malaysia, the following incentives are granted to halal logistics operators:

i.   Income tax exemption of 100% of the statutory income for a period of five years. Unabsorbed capital allowances incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company. Accumulated losses incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company for a period of seven consecutive years

; or

ii.  Investment Tax Allowance of 100% on the qualifying capital expenditure incurred within 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 they are fully utilised.

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

For further information, please visit www.hdcglobal.com.

Additional Incentives for the Agricultural Sector 

i.   Reinvestment Allowance

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).

The RA is in the form of an allowance of 60% of the qualifying capital expenditure incurred within a period fifteen 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. Any unutilised allowance can be carried forward to a maximum period of seven consecutive years of assessments and the period commences immediately after the end of the fifteen year.

Claims should be submitted to IRB.

ii.  Incentives for Reinvestment in Resource-Based Industries

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 reinvesting for expansion purposes are eligible for:

a)  Pioneer Status with income tax exemption of 70% of statutory income for a period of five years. Unabsorbed capital allowances incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company.

Accumulated losses incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company for a period of seven consecutive years

; or

b)  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.

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

Applications should be submitted to MIDA.

iii.  Incentives for Reinvestment in Food Processing Activities

A locally-owned manufacturing company with Malaysian equity of at least 60% that reinvests in promoted food processing activities is eligible for:

a)  Pioneer Status with income tax exemption of 70% of statutory income for a period of five years. Unabsorbed capital allowances incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company. 

Accumulated losses incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company for a period of seven consecutive years.

; or 

b)  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.

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

iv.  Accelerated Capital Allowance

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.

v.   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.

Claims should be submitted to IRB.

vi. 100% Allowance on Capital Expenditure for Approved Agricultural Projects

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.

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 IRB. 

3 Incentives for the Biotechnology Industry

Main Incentives for the Biotechnology Industry

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

i.   For IP income, an exemption from tax up to 100% of statutory income**:

a)  For a period of ten (10) consecutive years of assessment from the first year the company derived statutory income from a new business; or 

b)  For a period of five (5) consecutive years of assessment from the first year the company derived statutory income from an existing business and expansion project; 

ii.  For non-IP income, an exemption from tax up to 70% of statutory income**:

a)  For a period of ten (10) consecutive years of assessment from the first year the company derived statutory income from a new business; or 

b)  For a period of five (5) consecutive years of assessment from the first year the company derived statutory income from an existing business and expansion project; 

iii.  An exemption of 100% statutory income derived from a new business or an expansion project that is equivalent to an allowance of 100% of qualifying capital expenditure incurred for a period of 5 years**.

iv.  Concessionary tax rate of 20% on statutory income from qualifying activities for 10 years upon expiry of the tax exemption period;

v.   Exemption from import duty and sales tax on raw materials/ components/ machineries/ equipment.

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

vii.  Double deduction on expenditure incurred for promotion of exports.

viii. Qualifying buildings used solely for the purpose of biotechnology activities are eligible for Industrial Building Allowance (IBA) to be claimed over a period of 10 years.

ix.   A company or an individual (with business income source) investing in a BioNexus Status company is eligible for a tax deduction equivalent to the total investment made at the initiation of commercialization stage.

* Application for BioNexus Status must be submitted to Bioeconomy Corporation. 

**Information as at 22 April 2019 which subject to finalisation by Ministry of Finance.

Biotechnology Funding for BioNexus Status Companies

Bioeconomy Corporation provides funding to BioNexus Status companies under its Biotechnology Commercialisation Fund (BCF) 2.0 Programme. 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.

There are essentially two (2) varying financing schemes under the BCF Programme. They are namely the Bioeconomy Development Scheme (“BDS”), a term financing facility and the Business Sustenance Scheme (“BSS”) which serves to address the working capital financing requirements of the applicant.

The BDS is a financing scheme with a limit of up to RM2,700,000 per applicant (excluding Zero Entry Financing Cost) and covers the following expenditures:

a)  Purchase of ready built building/ land for construction of building or land for business operation purposes; 

b)  Purchase of new/ used machinery and equipment, laboratory or any other production equipment;

c)  Operating expenditure with exception of payroll/ human capital emolument expenses; and

d)  Any other operating expenditure expenses subject to MIDF’s approval.

The margin of financing under BDS varies as follows:

a)  Up to 90% financing for purchase of ready built building/land for construction of building or land, for business operation purposes;

b)  Up to 90% for purchase of new machinery and equipment, laboratory or any other production equipment;

c)  Up to 65% for purchase of used machinery and equipment, laboratory or any other production equipment; and/or

d)  Up to 90% for operating expenditure and shall not exceed 20% of the facility amount.

All of which the margin of financing and subject to MIDF’s approval.

The BSS is a financing facility of up to RM600,000 offered to successful applicants in either of the following forms:

a)  Purchase Revolving Credit/ Sales Revolving Credit

A financing facility with flexible feature that may be disburse, fully repaid and the cycle re-currently executed. The facility is disbursable on an advance basis in several tranches up to the facility limit and is reusable as the advances are repaid. The facility is renewable on an annual basis and shall be in accordance with the terms and conditions applicable.

b)  Term Working Capital Financing

A financing facility with regular scheduled repayments over a certain period in accordance with the terms and conditions applicable.

c)  Factoring

Financing procured from the sale of receivables at a discount in accordance with the terms and conditions applicable.

The typical expenditure allowable under the BSS facility includes as follows:

a)  Raw materials, consumables/ livestock;

b)  Expenses directly related to R&D activities towards improving existing products/ services with the exception of payroll/ human capital emolument expenses;

c)  Expenses directly related to business expansion activities to introduce products/ services into the global market such as advertisement, participation in overseas exhibition i.e. opening up booth, air ticket etc. excluding payroll/ human capital emolument expenses;

d)  Overhead expenses directly related to specific R&D/ international business development stages;

e)  Intellectual Property (IP) filing and registration;

f)   Clinical/ Field trials costs;

g)  Compliance and regulatory cost;

h)  Initial cost for recruitment of knowledge workers;

i)   Professional/ Technical consultancy fees;

j)   Expenses that are working capital in nature with the exception of payroll/ human capital emolument expenses; and

k)  Any other working capital expenses subject to MIDF’s approval.

The margin of financing for the BSS offered varies as follows:

a)  Up to 100% financing for Purchase Revolving Credit;

b)  Up to 90% for Sales Revolving Credit;

c)  Up to 90% for Term Working Capital Financing; or

d)  Up to 80% for Factoring.

Eligibility criteria for either of the BCF Programme mentioned above includes the following: 

a)  applicant must be a BioNexus Status company; 

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

c)  minimum paid-up capital of RM250,000. 

For further information, please visit www.bioeconomycorporation.my.

4 Incentives for Environmental Management

Incentives for Forest Plantation Projects

Companies that undertake forest plantation projects are eligible for the following incentives under the Promotion of Investments Acts, 1986:

i.   Pioneer Status with income tax exemption of 100% of the statutory income for ten years. Unabsorbed capital allowances incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company; or

ii.  Investment Tax Allowance (ITA) of 100% on the qualifying capital expenditure incurred within 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.

Incentives for Waste  Recycling Activities

Companies undertaking waste recycling activities that are high value-added and use high technology are eligible for Pioneer Status or ITA. These activities which include the recycling of agricultural wastes or agricultural by-products, recycling of chemicals and the production of reconstituted wood-based panel boards or products are eligible for: 

i.   Pioneer Status, with income tax exemption of 70% of the statutory income for a period of five years. Unabsorbed capital allowances incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company. 

Accumulated losses incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company for a period of seven consecutive years.

; or

ii.   Investment Tax Allowance of 60% on the 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.

Companies are only allowed to recycle wastes/scraps obtained within Malaysia including Free Industrial Zones/Licenced Manufacturing Warehouse (FIZs/LMWs). Companies are not allowed to import scraps/wastes from overseas.

Applications should be submitted to MIDA.

Green Technology Incentive

In Budget 2014, the Government had announced the provision of investment tax allowance for the purchase of green technology assets and income tax exemption on the use of green technology services and system to further strengthen the development of green technology (GT). 

Green Technology Project

Companies undertaking activities in the Green Technology projects are eligible for:

Income tax exemption equivalent to Investment Tax Allowance of 100% on the qualifying capital expenditure incurred on a green technology project for a maximum period of five years or until 31 December 2020 from the date of first qualifying capital expenditure incurred. This 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.

Incentive expires on 31 December 2020.

Applications should be submitted to MIDA.

Green Services

Companies undertaking activities in the Green Services projects are eligible for:

Income tax exemption of 100% of the statutory income for a period of five years or until year of assessment of 2020. Unabsorbed income losses after the end of exemption period are allowed to be carried forward for seven consecutive year of assessments.

Incentive expires on 31 December 2020.

Applications should be submitted to MIDA.

Incentives for Waste Eco Park (WEP)

Waste Eco Park is defined as a place for waste recycling, recovery and treatment activities to be carried out and approved by relevant authorities. The park has to incorporate basic infrastructure such as road, drainage, utilities and sewerage, building and facility for waste receipt and separation, waste water treatment facility, waste recycling/recovery/treatment facilities and building for education/awareness center.

Malaysian incorporated companies involved as developer, operator, or manager are eligible for tax incentive as below:

i-WEP Developer

Companies undertaking development of infrastructure within the WEP are eligible for:

Income tax exemption of 70% of the statutory income from year of assessment 2016 until year of assessment 2025. Unabsorbed income losses after the end of exemption period are allowed to be carried forward for seven consecutive years of assessments.

Applications received by MIDA from 1 January 2016 until 31 December 2020 are eligible to be considered for the incentive.

ii-WEP Manager

Companies managing, maintaining, supervising and marketing the WEP to ensure effective and efficient coordination/ implementation are eligible for:

Income tax exemption of 70% of the statutory income from year of assessment 2016 until year of assessment 2025. Unabsorbed income losses after the end of exemption period are allowed to be carried forward for seven consecutive years of assessments.

Applications received by MIDA from 1 January 2016 until 31 December 2020 are eligible to be considered for the incentive.

iii-WEP Operator

Companies undertaking waste treatment/recovery/recycling in the WEP are eligible for:

i.   Income tax exemption of 100% of the statutory income for a period of 5 years. Unabsorbed income losses after the end of exemption period are allowed to be carried forward for seven consecutive years of assessments.

ii.  Income tax exemption equivalent to 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 70% of the statutory income for each year of assessment. 

Applications received by MIDA from 1 January 2016 until 31 December 2020 are eligible to be considered for the incentive.

Accelerated Capital Allowance

i.   Waste Recycling Activities

Effective from the Year of Assessment 2001, a manufacturing company which has incurred 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 further processing of the wastes into finished products. 

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

Applications should be submitted to IRB.

ii.  Equipment to Maintain Quality of Power Supply

In order to reduce the costs of doing business effective from the Year of Assessment 2005, companies which incur capital expenditure on equipment to ensure the quality of power supply, are eligible for an 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, Science, Technology, Environment & Climate Change is eligible for the ACA.

Applications should be submitted to the IRB.

   

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Last Updated : Thursday 22nd October 2020