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Malaysia Corporate - Tax credits and incentives

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Malaysia has a wide variety of incentives covering the major industry sectors. Tax incentives can be granted through income exemption or by way of allowances. Generally, when income is exempted, any dividends paid out of such exempt income are not taxable in the hands of the shareholders. Where incentives are given by way of allowances, any unutilised allowances generally may be carried forward indefinitely to be utilised against future statutory income. The following are the major types of incentives available in Malaysia.

Pioneer status (PS) and investment tax allowance (ITA)

Companies in the manufacturing, agricultural, hotel, and tourism sectors, or any other industrial or commercial sector, that participate in a promoted activity or produce a promoted product may be eligible for either PS or an ITA.

PS is given by way of exemption from CIT on 70% of the statutory income for five years and the remaining 30% is taxed at the prevailing CIT rate. An ITA is granted on 60% qualifying capital expenditure incurred for a period of five years to be utilised against 70% of the statutory income, while the 30% balance is taxed at the prevailing CIT rate.

A company that intends to undertake reinvestment before expiration of its PS or ITA status may opt for reinvestment allowance, provided it surrenders its PS or ITA status.

The PS and ITA incentives are enhanced for the following types of projects:

Qualifying industry Pioneer status Investment tax allowance
Incentive TRP (1) Incentive TRP (1)
Projects of national and strategic importance involving heavy capital investment and high technology. 100% of SI (2) 5 + 5 100% QCE (3) against 100% SI 5
High-technology companies engaged in areas of new and emerging technologies. 100% of SI 5 60% QCE against 100% SI 5
Companies manufacturing specialised machinery and equipment. 100% of SI 10 100% QCE against 100% SI 5
Existing locally owned companies reinvesting in production of heavy machinery, specialised machinery, and equipment. 70% of increased SI 5 60% new QCE against 70% SI 5
Companies providing technical and vocational training, and private higher education institution providing qualifying science courses. - - 100% QCE against 70% SI 10
New companies investing and existing companies reinvesting in utilising oil palm biomass to produce value-added products. 100% of SI 10 100% QCE against 100% SI 5
Small scale companies (defined) that meet with specified conditions. 100% of SI 5 60% QCE against 100% SI 5
Hotel operators undertaking new investments in 4 and 5 star hotels in Sabah/Sarawak (for applications until 31 December 2018). 100% of SI 5 100% QCE against 100% SI 5
Hotel operators undertaking new investments in 4 and 5 star hotels in Peninsular Malaysia (for applications until 31 December 2018). 70% of SI 5 60% QCE against 70% SI 5

Notes

  1. Tax relief period (in terms of years).
  2. Statutory income.
  3. Qualifying capital expenditure.

Special incentive schemes

Reinvestment allowance

A resident company in operation for not less than 36 months that incurs capital expenditure to expand, modernise, automate, or diversify its existing manufacturing business or approved agricultural project is entitled to reinvestment allowance as follows:

  • The allowance is given for 15 years from the first year of claim.
  • An allowance of 60% of QCE incurred to be utilised against 70% of statutory income. The remaining 30% is taxed as the prevailing CIT rate.
  • The 70% restriction does not apply to projects that achieved the level of productivity as prescribed by the Minister of Finance.
  • The allowance will be withdrawn if the asset for which the allowance is granted is disposed of within five years.

A special reinvestment allowance is provided by extending the existing incentive period for up to three years, from year of assessment 2016 to 2018.

Approved service projects

A resident company undertaking a project approved by the Minister of Finance in the transportation, communications, utilities, and services subsectors may enjoy the following incentives:

  • Investment allowance of 60% of QCE incurred within five years to be utilised against 70% statutory income.
  • Alternatively, income tax exemption of 70% of statutory income for a period of five years.
  • Buildings used solely for the purposes of such projects qualify for an industrial building allowance.

Export incentives

A resident company engaged in manufacturing or agriculture that exports manufactured products, agricultural produce, or services is entitled to allowances between 10% and 100% of increased exports (subject to satisfying prescribed conditions), which is deductible at up to 70% of statutory income.

Incentive for industrial area management

Newly established or existing companies, incorporated under the Companies Act 1956 and approved by a local authority for management of industrial estates, are given 100% income tax exemption of statutory income for five years, commencing from the date the company commences its specified activities (for applications from 1 January 2015 to 31 December 2017).

The company must undertake specified management, upgrading, and maintenance activities that comprise at least 70% of their annual income.

Regional operations

Principal hub

A principal hub is a locally incorporated company that uses Malaysia as a base for conducting its regional and global businesses and operations through management, control, and support of key functions, such as management of risk, strategic decisions, finance, and human resources. CIT at tiered rates (0%, 5%, or 10%) is given for a period of up to ten years, subject to conditions being met (for applications from 1 May 2015 to 30 April 2018).

Other available non-fiscal incentives available include:

  • No equity/ownership conditions.
  • Foreign exchange administration flexibilities and expatriate positions.
  • Customs duty exemption for raw materials, components, or finished products brought into free zones, licensed and bonded warehouses for production or repackaging, cargo consolidation, and integration before distribution to its final customers for goods-based companies.

International trading company

International trading companies are exempt for five years on income equivalent to 20% of increased export value, up to a maximum of 70% of statutory income. To qualify for the incentive, the company must meet the following three conditions:

  • Be incorporated in Malaysia, with 60% Malaysian ownership.
  • Achieve minimum annual sales of MYR 10 million, not more than 20% of which may be derived from the trading of commodities.
  • Use local services (banking, finance, and insurance) and infrastructure (local ports and airports) in its operations.

Financial services sector

Islamic banking and takaful business

Effective from year of assessment 2007 until year of assessment 2016, full income tax exemption for ten years is granted to:

  • Islamic banks licensed under the Islamic Financial Services Act 2013, on income from Islamic banking business conducted in international currencies.
  • Takaful (Islamic insurance) companies licensed under the Islamic Financial Services Act 2013, on income from takaful business conducted in international currencies.

The above incentive will be extended until year of assessment 2020 when the gazette order is issued.

Stamp duty exemption is also provided on instruments executed (from 1 January 2017 to 31 December 2020) pertaining to Islamic banking and takaful business transacted in international currencies.

Islamic fund management

Full income tax exemption is available on statutory income on management fees received by resident fund management companies for managing funds of foreign and local investors established under Syariah principles (until year of assessment 2020). Such funds must be approved by the Securities Commission.

Special purpose vehicle (SPV) for Islamic financing

An SPV established solely for the purpose of issuance of Islamic securities under the Syariah principles (approved by the Securities Commission or established under the Labuan Companies Act 1990) is not subject to income tax and is not required to comply with administrative procedures under the income tax law. The company that establishes the approved SPV is deemed to be the recipient of the SPV’s income and will be taxed accordingly, but that company will be allowed a deduction for the cost of issuance of Islamic securities.

Tun Razak Exchange (TRX) (formerly known as Kuala Lumpur International Financial District)

The TRX is a joint property development comprising office towers for finance and banking, residences, and retail spaces in Kuala Lumpur. To accelerate the development of the TRX, the following incentives have been given:

  • Stamp duty exemption on loan and service agreements for TRX Marquee status companies.
  • Industrial building allowance and accelerated capital allowance for TRX Marquee status companies.
  • Income tax exemption of 70% of statutory income for five years for property developers in TRX.
  • Additional 50% tax deduction of rental payment incurred by TRX Marquee status companies for buildings used for business in TRX.
  • Deduction of relocation cost incurred by TRX Marquee status companies to relocate to TRX.

Business Trust (BT)

BT is established under the Capital Market and Services Act 2007 and is a hybrid structure that combines elements of a company with elements of a unit trust. The BT is given income tax treatment similar to that of a company. The following incentives are given on a one-off basis at the initial stage of establishment of the BT:

  • Stamp duty exemption on instruments of transfer of businesses, assets, or real properties acquired for instruments executed from 1 January 2013 but not later than 31 December 2017.
  • The disposer of real properties or shares in RPCs to BT is given RPGT exemption for disposal of real properties or shares in RPCs from 1 January 2013 but not later than 31 December 2017.

Real estate investment trusts (REIT)/Property trust fund (PTF)

REIT/PTFs are vehicles that mobilise funds from unit holders comprising individuals and companies for investments in the property sector and related assets. REIT/PTFs are exempted from tax on all income, provided that at least 90% of their total income is distributed to unit holders. With effect from year of assessment 2017, this exemption only applies to REIT/PTFs that are listed on the Bursa Malaysia. If the 90% distribution condition is not complied with, all income will be taxed at the prevailing income tax rate at the REIT/PTF level and tax credit will be claimed by the unit holders on distributions received from the REIT/PTF.

Unit holders are taxed as follows:

Unit holders WHT rate
Individuals (whether resident or non-resident), body of persons, or other unincorporated persons 10% (until 31 December 2019)
Non-resident company 24%
Resident company None (income to be included in annual tax return)
Institutional investor (pension fund, collective investment scheme, or other person approved by the Minister of Finance) 10% (until 31 December 2019)

Other incentives available are:

  • RPGT and stamp duty exemptions on disposal/transfer of real property to an REIT/PTF.
  • Tax deduction given for consultancy, legal, and valuation service fees incurred on the establishment of an REIT.

Foreign fund management company

A foreign fund management company providing fund management services to foreign clients is taxed at a concessionary rate of 10% in respect of income derived from the management of foreign funds, while income arising from services rendered to clients in Malaysia is taxed at the prevailing CIT rate.

A foreign fund management company is a Malaysian incorporated company licensed under the Capital Markets and Services Act 2007. Its activities are regulated by the Securities Commission.

Venture capital company (VCC)

A VCC investing in a venture company (VC), which is not the VCC’s related company at the point of first investment, will be given a deduction on the value of investment made in a VC. Where the deduction is not claimed, the VCC is eligible for the following income tax exemption on income from all sources, other than interest income from savings or fixed deposits, and profits from Syariah-based deposits:

Conditions Exemption period
  • At least 70% of invested funds is invested in VC, or
  • At least 50% of invested funds is invested in VC in the form of seed capital.
10 years

Petroleum sector

The following incentives are provided for petroleum operations:

  • Accelerated capital allowance on qualifying capital expenditure incurred from year of assessment 2010 to 2024 for petroleum operations in marginal fields.
  • Investment allowance of 60% of qualifying capital expenditure to be utilised against 70% statutory income for a period of ten years.
  • Exemption for a portion of chargeable income from marginal fields resulting in a reduction of the effective tax rate from 38% to 25% for petroleum operations in marginal fields.

Special economic regions

The following special economic regions were launched as part of the Malaysian government’s plan for regional growth and development:

Economic region Location
Iskandar Malaysia (formerly known as Iskandar Development Region [IDR]) www.iskandarmalaysia.com.my Southern Johor
Northern Corridor Economic Region www.koridorutara.com.my States of Perlis, Kedah, Penang, and northern Perak
East Coast Economic Region www.ecerdc.com.my States of Kelantan, Terengganu, Pahang, and district of Mersing in Johor
Sabah Development Corridor www.sedia.com.my Western, central, and eastern regions of Sabah
Sarawak Corridor of Renewable Energy www.sarawakscore.com.my Central Sarawak

Special incentives, on top of the existing incentives given by the Malaysian government, will be customised for the purpose of each economic region. At present, special legislation has been enacted only in respect of Iskandar Malaysia (IM) and East Coast Economic Region (ECER).

Iskandar Malaysia

Entity Incentive
IDR-status company 10 years income tax exemption on statutory income from the provision of qualifying services to a person situated within designated nodes in the IDR or outside Malaysia. Operations commenced before 31 December 2015.
Developer Income tax exemption on rental or disposal of buildings in designated nodes (until year of assessment 2020).
Development manager Income tax exemption on statutory income from the provision of management, supervisory, and marketing services to an approved developer (until year of assessment 2020).
Non-resident service provider Income tax and WHT exemptions on income from technical fees or royalties received from IDR-status companies.
Individuals working in IDR A qualified knowledge worker is taxed at the rate of 15% on chargeable income from employment with a designated company engaged in a qualified activity (e.g. green technology, educational services, healthcare services, creative industries, financial advisory and consulting services, logistics services, tourism) in that specified region. Employment must have commenced between 24 October 2009 and 31 December 2015.

East Coast Economic Region

Entity Incentive
Qualifying person undertaking qualifying activity

Income tax exemption on SI for 10 years or income tax exemption equivalent to 100% of QCE incurred for 5 years (applications received from 13 June 2008 to 31 December 2020).

WHT exemption on fees for technical advice, assistance, or services, or royalty paid to non-residents (until 31 December 2020).

Stamp duty exemption on instruments of transfer of real property, or lease of land, or building used for the purpose of carrying on a qualifying activity (executed on or after 13 June 2008 but not later than 31 December 2020).

Qualifying person undertaking special qualifying activity

Income tax exemption at a rate of 70% to 100%, for a period as determined by the Minister (applications received from 13 June 2008 to 31 December 2020).

Income tax exemption equivalent to a rate of 60% to 100% of QCE incurred and within a period as determined by the Minister (applications received from 13 June 2008 to 31 December 2020).

WHT exemption on fees for technical advice, assistance, or services, or royalty paid to non-residents (until 31 December 2020).

Approved developer undertaking development in industrial park or free zone Income tax exemption for 10 years in respect of income derived from:
  • disposal of any right over any land, or disposal of a building, or rights over building, or part of building, or
  • rental of building or part of building.
Applications received from 13 June 2008 to 31 December 2020.
Approved park managers Income tax exemption, for 10 years, of SI derived from the provision of park management services in the industrial park or free zones (applications received from 13 June 2008 to 31 December 2020).
Approved development manager Income tax exemption, for 10 years, of SI derived from the provision of management, supervisory, or marketing services relating to the development of an industrial park or free zone (applications received from 13 June 2008 to 31 December 2020).
Investor investing in related company A deduction equivalent to the value of investment made into a related company carrying out qualifying activity or special qualifying activity (applications received from 13 June 2008 to 31 December 2020).
Qualifying person who sponsors a hallmark event A deduction for an amount not exceeding MYR 1 million per year of assessment (YA) in respect of cash contribution or contribution in kind for a hallmark event carried on in ECER from 13 June 2008 to 31 December 2020 (applications received from 13 June 2008 to 31 December 2020).

Incentive for less-developed areas

To enhance the special incentive package available in the economic corridors to include more less-developed areas, the following incentives are given to existing companies expanding to less-developed areas or newly established companies (for applications from 1 January 2015 to 31 December 2020):

  • 100% income tax exemption for up to 15 years of assessment (5+5+5) commencing from the first year of assessment statutory income is derived, or
  • income tax exemption of 100% of qualifying capital expenditure (ITA) that can be offset against 100% statutory income for ten years.

The company must undertake manufacturing or services activities in less-developed areas that create employment and rural development.

The other incentives available for less-developed areas are:

  • Stamp duty exemption on transfer or lease of land or building.
  • WHT exemption on fees for technical advice, assistance, or services, or royalty relating to manufacturing and services activities, up to 31 December 2020.
  • Import duty exemption on raw materials and components, machinery, and equipment that are not produced locally and used directly in the manufacturing or services activity.

Information and communication technology (ICT)

MSC Malaysia

MSC Malaysia is Malaysia’s initiative for the global information technology (IT) industry and is designed to be the research and development (R&D) centre for industries based on IT. It is an ICT hub equipped with high-capacity global telecommunications and logistics networks. MSC Malaysia is also supported by secure cyber laws, strategic policies, and a range of financial and non-financial incentives for investors. It is managed by the Multimedia Development Corporation (MDeC), a ‘one-stop shop’ that acts as the approving authority for companies applying for MSC Malaysia status.

MSC Malaysia status is awarded to both local and foreign companies that develop or use multimedia technologies to produce or enhance their products and services as well as for process development. MSC Malaysia companies are eligible for incentives, which include the following:

  • PS (five + extendable by five years) of 100% on statutory income or ITA of 100% for five years for a new company or existing company on its additional income.
  • Eligibility for R&D grants (for majority Malaysian-owned MSC Malaysia company).
  • Exemption from indirect taxes on multimedia equipment.
  • Unrestricted employment of local and foreign knowledge workers.
  • Freedom to source funds globally for investments.
  • Protection of intellectual property and cyber laws.
  • No censorship of the internet.
  • Globally competitive telecommunication tariffs and services guarantees, world-class physical and IT infrastructure, and excellent R&D facilities.

Green incentives

Green technology projects

Companies that undertake any of the following green technology projects will be eligible for an ITA of 100% of QCE against 70% statutory income for QCE incurred from 25 October 2013 to year of assessment 2020 (applications to be received by 31 December 2020):

  • Renewable energy.
  • Energy efficiency.
  • Green building.
  • Green data centre.
  • Waste management.

Green technology services

Companies that provides services, such as advisory, design, feasibility study, testing, and commission, in the following areas will be eligible for income tax exemption of 100% of statutory income from year of assessment 2013 to 2020 (applications to be received by 31 December 2020):

  • Renewable energy.
  • Energy efficiency.
  • Electric vehicle.
  • Green building.
  • Green data centre.
  • Green certification and verification.
  • Green township.

Green technology assets

Companies that purchase green technology assets listed on the MyHijau directory will be eligible for an ITA of 100% of QCE incurred from 25 October 2013 to year of assessment 2020 (applications to be received by 31 December 2020).

Waste eco parks (WEPs)

The following industry players in WEPs will be eligible for incentives for applications received from 1 January 2016 until 31 December 2020. The WEP incentive is to promote waste management in an integrated manner.

Entity Incentive Incentive period
Developer 70% income tax exemption of statutory income derived from rentals of buildings, fees from usage of waste collection and separation facilities, and fees from waste water treatment facilities located in the WEP. Year of assessment 2016 to 2025
Manager 70% income tax exemption of statutory income derived from services related to management, maintenance, supervision, and marketing of the WEP. Year of assessment 2016 to 2025
Operator
  • 100% income tax exemption for five years on statutory income derived from qualifying activities undertaken in the WEP, or
  • ITA of 100% of QCE incurred within five years, against 70% of statutory income.
Five years

Biotechnology industry

Companies undertaking biotechnology activity with approved bionexus status from Malaysian Biotechnology Corporation Sdn Bhd will be eligible for the following incentives:

  • Full income tax exemption on statutory income for ten years from the first year in which the company derives statutory income or ITA of 100% on QCE incurred for a period of five years.
  • Concessionary tax rate of 20% on statutory income from qualifying activities for ten years upon expiry of the tax exempt period.
  • Accelerated industrial building allowance (over ten years) for buildings used solely for the purpose of its new business or expansion project.
  • Exemption of import duty and sales tax on import of raw materials and machinery.

Research and development (R&D)

Contract R&D company

Companies that provide R&D services to third parties are eligible for:

  • full exemption of their statutory income for a period of five years (extendable by five years), or
  • ITA of 100% of QCE incurred within a period of ten (extendable by ten years) to be utilised against 70% of statutory income.

R&D company

The ITA incentive is also available to companies undertaking R&D services for their group and third parties.

In-house R&D

Companies undertaking in-house R&D projects are eligible for ITA at the rate of 50% of QCE incurred within a period of ten years (extendable by ten years) to be utilised against 70% of statutory income.

Commercialisation of resource-based R&D findings

A company that invests for the sole purpose of financing a project on commercialisation of resource-based and non-resource based (for applications until 31 December 2017) R&D findings (which is wholly owned by a public research institute or public institute of higher learning in Malaysia) is given a deduction equivalent to the value of that investment.

The subsidiary undertaking the commercialisation of R&D findings is granted 100% tax exemption on statutory income for ten years.

Other incentives

Shipping

A tax-resident person (including a partnership) carrying on shipping business using Malaysian ships is given income tax exemption of 70% of statutory income, determined on a per ship basis. The balance of 30% of statutory income is deemed to be total income chargeable to tax.

Incentives for Mines Wellness City (MWC)

The Malaysian Investment Development Authority has issued guidelines on incentives for MWC:

  Incentive Application period
Operator
  • PS of 70% of statutory income for five years for income from qualifying activities in MWC.
  • ITA of 60% on QCE incurred within five years, against 70% of statutory income.
Applications received on or after 1 January 2013 to 31 December 2026.
Development manager PS of 100% exemption on statutory income from management, consultancy, supervisory, or marketing services to MWC developer in MWC from the first year of assessment statutory income is derived until year of assessment 2023. Applications received on or after 1 January 2013.
Developer
  1. 100% exemption on statutory income from disposal of rights over land/building from the first year of assessment statutory income is derived until year of assessment 2023, or
  2. Income tax exemption on rental income from the first year of assessment statutory income is derived until year of assessment 2026, and
  3. Stamp duty exemption of 50% on instrument of transfer/lease of land/building.

1 and 2: Applications received on or after 1 January 2013.

3: Instruments executed from 1 January 2013 to 31 December 2023.

Capital allowance for increased automation

Manufacturing companies that have been in operation for at least 36 months are eligible for the following incentives, where they have incurred expenditure in automation equipment used directly in the manufacturing activities and resulting in reduced man hours and increased productivity:

  • For high labour intensive industries (rubber products, plastics, wood, furniture and textiles industries): 200% automation capital allowance on first MYR 4 million QCE (years of assessment 2015 to 2017).
  • Other industries: 200% automation capital allowance on first MYR 2 million QCE (years of assessment 2015 to 2020).

Foreign tax credit

See Foreign income in the Income determination section for a discussion of the foreign tax credit regime.


Last Reviewed - 24 May 2017

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