Malaysia

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. Where incentives are given by way of allowances, any unutilised allowances may be carried forward indefinitely to be utilised against future statutory income, except for certain incentives, such as reinvestment allowance and investment allowance for approved service projects, where a seven-year limitation applies.

In compliance with the Forum on Harmful Tax Practices (FHTP) criteria under the Base Erosion and Profit Shifting (BEPS) Action 5 (Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance), Malaysia has amended the legislation in relation to the tax incentives to:

• remove ring-fencing features
• exclude IP income from the incentives, and 
• stipulate the substantial activities requirements.

The following are the major types of incentives available in Malaysia.

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

Companies in the manufacturing, agricultural, and 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 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. ITA is granted on 60% qualifying capital expenditure incurred for a period of five years and is 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:

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.
• The allowance is computed at 60% of QCE incurred and can be utilised against 70% of statutory income. 
• The 70% restriction does not apply to projects that have 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 of 60% of QCE will be given for years of assessment 2020 to 2024 for companies that have exhausted their existing 15-year reinvestment allowance period and special reinvestment allowance granted for years of assessment 2016 to 2018.

Incentives for relocating to Malaysia

The following incentives are given to encourage investment and relocation of manufacturing operations into Malaysia:

• 0% tax rate for 10 or 15 years for new companies that invest a minimum of MYR 300 million or MYR 500 million, respectively, in the manufacturing sector in Malaysia.
• ITA of 100% for five years for existing companies in Malaysia to relocate their overseas manufacturing facility for a new business segment to Malaysia with a minimum investment of MYR 300 million.

Applications must be received by 31 December 2024.

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% of statutory income, or 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 value of increased exports (subject to satisfying prescribed conditions), which is deductible at up to 70% of statutory income.

Regional operations

International trading company

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

• Incorporated in Malaysia, with 60% Malaysian ownership.
• Achieve minimum annual sales of MYR 10 million, of which not more than 20% of its annual sales 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 fund management

Income tax exemption of up to 60% of statutory income is available for management fees received by resident fund management companies for managing funds of foreign and local investors established under Syariah principles (until year of assessment 2027). Such funds must be approved by the Securities Commission.

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

The TRX is an integrated 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:

• Income tax exemption of 70% of statutory income from the disposal of any building or rights over a building, or part thereof, for five years up to year of assessment 2025, for property developers in TRX.
• Income tax exemption of 70% of statutory income from the rental of any building, or part thereof, for five years up to year of assessment 2027, 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.
• 10% industrial building allowance for TRX Marquee status companies for qualifying building expenditure that is incurred up to 31 December 2025.
• Accelerated capital allowance incentive for renovation costs incurred by TRX Marquee status companies up to 31 December 2025.
• Single deduction for prescribed relocation costs incurred by TRX Marquee status companies for relocation that takes place not later than 31 December 2025.

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. 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:

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.

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 until 31 December 2026. 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:

Petroleum sector

The following incentives are provided for petroleum operations:

• Accelerated capital allowance on QCE 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.
• Investments in late-life asset upstream projects (until 31 December 2029):
  • Petroleum income tax rate at 25%.
  • Accelerated capital allowance within two years.
  • Carryback of losses from decommissioning activities to two consecutive preceding years of assessment.
  • Export duty exemption on petroleum products.

Special economic regions

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

Various incentives are provided for these special economic regions. The following are some of the incentives available for specific sectors of the special economic region.

Iskandar Malaysia

The following incentives are provided in this economic region:

• An Iskandar Development Region (IDR) status company is given income tax exemption on statutory income for ten years from the provision of qualifying services to a person situated within designated nodes in the IDR. Operations must commence on or before 31 December 2024.
• Approved development managers are given income tax exemption on statutory income from the provision of management, supervisory, or marketing services to approved developers in the IDR until the year of assessment 2024.
• An IDR status company engaged in a qualifying activity is given ITA equivalent to 100% of QCE for five consecutive years. 

Northern Corridor Economic Region

The following are the priority sectors in the region:

• Manufacturing.
• Agribusiness.
• Services.
• Petrochemical.
• Green economy.
• Sustainable mining.

The incentives available are:

• Income tax exemption up to 100% for up to 15 years.
• Investment tax allowance up to 100% of QCE for up to ten years. 
• Import duty exemption on raw materials, components, machinery, and equipment.
• Stamp duty exemption of 50% on instrument of transfer or lease of land. 

East Coast Economic Region

Sabah Development Corridor (SDC)

The competitive sectors in the region are tourism, manufacturing, agri-processing, and logistics. The following incentives are available for qualifying companies operating in the SDC (applications by 31 December 2024):

• 100% income tax exemption for ten years of assessment. 
• Income tax exemption equivalent to 100% of QCE incurred for five years.
• Stamp duty exemption for land acquired for development (selected sectors).

Malaysia Digital (MD)

Malaysia Digital (MD) 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 information and communication technology (ICT) hub equipped with high-capacity global telecommunications and logistics networks. MD is also supported by secured 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 MD status.

MD status is awarded to companies that develop or use multimedia technologies to produce or enhance their products and services as well as for process development. The tax incentives (applications by 31 December 2027) in the table below are available for MD companies proposing to undertake qualifying activities by leveraging any of the following promoted tech enablers:

• Artificial intelligence (AI) and/or big data analytics (BDA).
• Internet of things (IoT).
• Cybersecurity.
• Cloud.
• Blockchain.
• Drone technology.
• Creative media technology, including extended reality (XR) and/or mixed reality (MR).
• Integrated circuit (IC) design with embedded software.
• Robotics and/or automation.
• Advanced network connectivity and/or telecommunication technology.

* The reduced tax rate and ITA incentives are mutually exclusive.

Green incentives

Green technology assets for own consumption

Companies that undertake any of the following green technology projects for own consumption will be eligible for the following incentives (applications to be received by 31 December 2026):

• Tier 1: ITA of 100% of QCE against 70% statutory income for QCE incurred during the period 1 January 2024 to 31 December 2026 in the following qualifying activities:
  • Electric vehicles (EV) for commercial / industrial use.
  • EV infrastructure.
  • Battery energy storage system.
  • Green building.

• Tier 2: ITA of 60% of QCE against 70% statutory income for QCE incurred during the period 1 January 2024 to 31 December 2026 in the following qualifying activities:
  • Renewable energy project for own consumption.
  • Energy efficiency.
  • Waste and water recycling.

Green technology projects for business

The following incentives have been proposed for green technology projects undertaken for business purposes (applications to be received by 31 December 2026):

• Tier 1: ITA of 100% of QCE against 100%/70% statutory income for QCE incurred for a period of up to ten years in relation to green hydrogen.
• Tier 2: ITA of 100% of QCE against 100% statutory income for QCE incurred for a period of five years in the following qualifying activities:
  • Integrated waste management.
  • Electric vehicle charging station.
• Tier 3: ITA of 100% of QCE against 70% statutory income for QCE incurred for a period of five years in the following qualifying activities:
  • Biomass.
  • Biogas.
  • Mini hydro.
  • Geothermal.
  • Solar.
  • Wind energy.

Solar leasing

Companies engaged in solar leasing are eligible for income tax exemption of 70% of statutory income for five or ten years based on the energy production capacity (applications period is to be extended to 31 December 2026). 

Manufacture of electric vehicle (EV) charging equipment

The following incentives are available for new and existing companies undertaking expansion and/or diversification for manufacturing of EV charging equipment (applications by 31 December 2025): 

• Income tax exemption of 100% statutory income for years of assessment 2023 to 2032.  

• ITA of 100% on QCE incurred within five years to be set-off against 100% of statutory income.

Research and development (R&D)

Contract R&D company

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

• PS of 100% of statutory income for 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

ITA of 100% of QCE for a period of ten years (extendable by ten years) to be utilised against 70% of statutory income.

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 R&D findings (which is wholly owned by a public research institute or public or private 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

Aerospace industry

The following incentives are available for the companies undertaking high-value activities in manufacturing or assembly; repair, maintenance, or overhaul; and related engineering and design in the aerospace industry (applications to be received by 31 December 2025).

A new company is eligible for:

• income tax exemption of 70% or 100% on statutory income for a period of five or ten years, or 
• ITA of 60% or 100% of QCE incurred within five years to be set-off against 70% or 100% of statutory income. 

An existing company undertaking an expansion and diversification project is eligible for ITA of 60% of QCE incurred within five years to be set-off against 70% of statutory income.

Shipbuilding and repairing (SBSR)

The following incentives are available for SBSR (applications to be received by 31 December 2027):

• Tax exemption of 70% of statutory income for five years, or ITA of 60% of QCE incurred within five years to be set off against 70% statutory income, for new companies.
• ITA of 60% of QCE incurred within five years to be set off against 70% statutory income for existing companies that have not enjoyed the SBSR incentive.

Incentives for Mines Wellness City (MWC)

The following incentives are available for MWC:

Automation Capital Allowance

Companies that have engaged in manufacturing / services activities for at least 36 months are eligible for the Automation Capital Allowance incentive of 200% on expenditure up to MYR 10 million incurred within the years of assessment 2023 to 2027. The expenditure incurred must be on more technologically advanced automation machinery / equipment used directly in the manufacturing / services activities and which results in reduced man hours and increased productivity. The machinery, equipment, software, or systems must have an adaptation of at least one of the Industry 4.0 elements such as big data analytics, cloud computing, augmented reality, cybersecurity, artificial intelligence, additive manufacturing, system integration, simulation, internet of things, autonomous robots, and advanced materials.

Foreign tax credit

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