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Principal Hub – the hybrid model for economic gains

Principal Hub – the hybrid model for economic gains

There are
many companies involved in off-shoring activities and services.

These companies
have deployed their business worldwide.

As these
changes occur, Malaysian Investment Development Authority (MIDA) believes in
stepping up its game by keeping abreast with the developments in the business

To this end, MIDA is fine tuning and innovating its policies and
incentives to promote the manufacturing and services sectors in Malaysia.

Principal Hub incentive is one of the latest measures by MIDA to enhance the
business environment.

According to MIDA’s CEO, Datuk Azman Mahmud, MIDA is
responsive towards global business changes and incentives are reviewed to
ensure Malaysia’s competitive advantages are sustained in attracting

Principal Hub incentive, effectively implemented on May 1, replaces the existing
International Procurement Centres (IPC), Regional Distribution Centres (RDC)
and Operational Headquarters (OHQ) incentive schemes.

“It (the Principal Hub
incentive) is a hybrid of all these (IPC, RDC and OHQ),” explains Azman.

The establishment
of this incentive scheme complements the increasing trend of global off-shoring
activities by encouraging foreign companies to leverage on Malaysia’s
competitive position in Asean and the Asia Pacific.

complements the manufacturing sector because once you produce the goods, there
are a lot of other things (that can be done and needs to be done).

The whole
ecosystem needs to be in place in Malaysia, not only for managing the supply
chain in Malaysia but in the region.

“It is also
in-line with the objectives of Malaysia’s Economic Transformation Plan to encourage
manufacturing activities to move up the value chain and undertake more value added
activities in the services sector,” he adds.

looking at encouraging Malaysian-owned and incorporated businesses to provide
services related to the function of the headquarters and expertise to overseas

It will also boost the growth of the services sector and position
Malaysia as part of the integrated global supply chain in sectors where
Malaysia has the comparative edge.

Aside from
that, Malaysia offers a cost competitive location for investors intending to
set up offshore operations for services and manufacturing activities, including
in the areas of resource-based industries, high-technology industries,
knowledge-based and advanced technology industries for regional and international

For this
scheme, the agency is targeting multinational companies (MNCs) and large local
companies (manufacturing and services companies) that have regional or global
presence and networking.

They are also looking at MNCs which have a
manufacturing base in Malaysia or Asean that intend to move-up the value chain
into services activities and with supply chain connectivity within the region.

Azman points
out that through the incentive, there are a number of economic gains that can
be achieved, such as high value job creation, transfer of knowledge and skill,
making Malaysia the regional operation and trading hub, an increase in business
spending and even high utilisation of the country as a logistics hub.

“If we do
not create a conducive environment for multinational companies and
Malaysian-companies to take advantage of the economic growth and business opportunities
in various countries, then we will be left behind.

“We have to
be innovative in our policies and strategies to attract investments so that
Malaysia will be strongly integrated into the region as well as other
(markets),” says Azman.

This is where
the Principal Hub incentive scheme will play a big role.

It allows MNCs and
local companies to enjoy the benefits of customs duty exemptions in free
industrial zones, licensed manufacturing warehouses, and free commercial zones.

Aside from
that, companies can take advantage of relaxed equity ownership guidelines and
MNCs can hire expatriates based on their business requirements.

Form a tax
perspective, Principal Hub companies are placed in a 3-tier tax scheme based on
their level value of creation.

Under this
scheme, they pay tax rates of 0% up to 10% over a 5-year period that may be

However, these are all subjected to the number of skilled jobs
created and annual business spending of the company.

Each tier
differs in terms of the number of countries served. As a company moves from
Tier-3 to Tier-1, it must serve an increasing number of countries, from three
countries up to five. And this is excluding Malaysia.

Aside from
some of the above, in order for companies to qualify for this scheme, it must
possess a paid-up capital of more than RM2.5 million and for companies that
involve in trade in goods activities minimum annual sales of RM300 million is
required throughout the incentive period.

The companies must carry out at least
three qualifying services, of which one of the services must be in the
strategic services cluster.

services include brand management, corporate finance advisory services, IP
management and strategic business planning and corporate development.

For those
who are interested in the incentive, further details can be found on MIDA’s
website under the link for forms and guidelines on the new incentives under
2015 budget.

All applications received by MIDA from Maya 1, 2015 until April
30, 2018 are eligible to be considered for the Principal Hub incentive.

Source : The
Edge Malaysia

25 May 2015