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The Government of Malaysia has been generous in giving a great number of tax incentives, aiming at attracting foreign direct investments (FDIs) to set up or relocate their operations in Malaysia. The tax incentives are available for various industry sectors, which include manufacturing and agricultural sectors, tourism sector, research and development (R&D) sector, education and healthcare sector, high technology and multimedia sector and service sector.
The main incentives are as follows:-
• Pioneer Status (PS)
Generally, PS incentive is a partial exemption of up to 70% of a company’s statutory income from the payment of income tax for a period of 5 years. The period of tax exemption commences from the “production date” determined by the Minister of International Trade and Industry (MITI). Some PS companies enjoy 100% tax exemption over a period of 5 or 10 years.
Companies engaged in promoted activities or producing promoted products are eligible for PS incentive. The Malaysian Investment Development Authority (MIDA) has identified a list of “promoted activities” and “promoted products”, which is available on MIDA’s website at http://www.mida.gov.my.
• Investment Tax Allowance (ITA)
The ITA is an allowance (in addition to capital allowance) on qualifying plant and equipment acquired by a company during the ITA period. Generally, ITA is 60% on the qualifying capital expenditure which can be set off against up to 70% of a company’s statutory income, for ITA period of 5 years. Some companies enjoy 100% ITA over a period of 5 or 10 years.
Similar to PS, Companies engaged in promoted activities or producing promoted products are eligible for ITA incentive. The list of “promoted activities” and “promoted products” is available on MIDA’s website.
The ITA incentive is an alternative incentive to PS. ITA and PS are mutually exclusive. The ITA incentive is preferred for companies engaging in projects which are capital intensive and not expected to generate large profits in a short time.
• Reinvestment Allowance (RA)
RA, is an allowance of 60% on the qualifying capital expenditure granted in addition to capital allowance, set off against up to 70% of statutory income of the company. A company can claim RA up to 100% of its statutory income in a particular year of assessment if it could demonstrate that the level of process efficiency ratio exceeds the industrial average for the year.
RA is available to manufacturing companies that reinvest their capital to embark on a project in expanding, modernizing or automating its existing business in respect of manufacturing of a product or any related product within the same industry or in diversifying its existing business into any related product within the same industry.
RA is also available to company which undertakes an agricultural project in expanding or modernizing or diversifying its cultivation and farming business, excluding the business of rearing chicken and ducks.
The incentive period for RA is 15 years from the first year of claim by a company. RA incentive cannot be claimed in the same basis period when a company is enjoying PS or ITA incentives.
Other incentives offered by Malaysia are allowance for increased exports, automation equipment allowance, group relief of adjusted losses, double deduction of expenses, special deduction of expenses, exemption of import duty and excise duty, etc.
