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Malaysia offers one of the most attractive incentives packages in the ASEAN region. Tax incentives and other facilities for the manufacturing sector are provided for in the Promotion of Investment Act 1986, Income Tax Act 1967, Custom Act 1967, Sales Tax Act 1972 and Excise Act 1976.
Aside from the Federal Government’s incentives, Sarawak itself offers a number of special investment incentives. These include the competitive pricing and generous rebate on the price of industrial land, and flexible terms with low initial down payment. Foreign companies may also own industrial land. For any enquiries contact the Ministry of Industrial Development.
A company with Pioneer Status will be granted partial exemption from income tax, only having to pay tax on 30% of its statutory income. The period of tax exemption is 5 years, commencing from the production date, as determined by the Ministry of International Trade and Industry.
For strategic projects in hi-tech industries with heavy capital investment, high R&D content or intensive linkages a 100% exemption may be granted.
A company given an Investment Tax Allowance will be granted an allowance of 60% in respect of qualifying capital expenditure incurred within 5 years of the date of approval of the project. The ITA can be offset against 70% of the statutory income in the year of assessment. Unused allowance can be carried forward to subsequent years until the whole amount has been used up. 30% of statutory income will be taxed at the prevailing company tax rate.
However, companies in Sarawak will be granted an allowance of 100% in respect of qualifying capital expenditure incurred. The allowance can be offset against 100% of statutory income in the year of assessment.
Reinvestment Allowance (RA) is granted to manufacturing companies which have been in operation for at least 12 months and are incurring qualifying capital expenditure for the expansion of production capacity, modernisation and upgrading of production facilities, diversification into related products and automation of production facilities. The allowance can be offset against 70% of statutory income in the year of assessment.
• Companies eligible for Pioneer Status in Sarawak will be granted tax exemption of 100% (normally 70%) of their statutory income.
• For companies eligible for Investment Tax Allowance, rate of allowance will be increased to a maximum 100% (normally 75%) of the statutory income.
• Second round of pioneer status for existing and new companies.
• Selected industries located in Sarawak can be granted incentives (Pioneer Status or Investment Tax Allowance), which are no longer offered for products manufactured in other parts of Malaysia.
• Infrastructure allowance of 100% of qualifying expenditure.
• Manufacturing projects in Sarawak catering for domestic market are also entitled to full import duty exemption on any raw material, components or parts which are not available in Sarawak.
• Eligibility for double deduction on freight charges incurred in the export of rattan and wood-based products (except plywood, sawn timber and veneer).
• Cheap industrial land. Current price from RM2.50.* - per what?
• Minimal down payment for the purchase of industrial land.
• Flexible terms of payment for the purchase of industrial land.*
For more detailed information on manufacturing incentives and applications, please contact MID, Sarawak or MIDA office.
High technology companies are defined as companies engaged in promoted activities or in the production of promoted products in areas of new and emerging technologies. High technology companies are eligible for the following incentives:
• Pioneer Status with full tax exemption at statutory income level for a period of five years
• Investment Tax Allowance of 60% on qualifying capital expenditure incurred within a period of five years. The allowance can be offset against 100% of statutory income for each assessment year.
High technology companies must fulfill the following criteria:
• Local research and development (R&D) expenditure to gross sales should be at least 1% on an annual basis. However, companies are allowed a period of three years from the commencement of operations to comply with this requirement.
• The percentage of science and technical graduates to total workforce should be at least 7%.
Strategic projects are generally defined as projects involving products/activities of national importance. They involve heavy capital investments with long gestation periods; are integrated with high levels of technology; generate extensive linkages; and generally have a significant impact on the economy. Such projects are eligible for the following incentives:
• Pioneer Status with full tax exemption at statutory income level for a period of 10 years
• Investment Tax Allowance of 100% on qualifying capital expenditure incurred within a period of five years. The allowance can be offset against 100% of statutory income for each assessment year.
The definition of R&D in the Promotion of Investment Act 1986 is as follows:
"Research and development means any systematic or intensive study carried out in the field of science or technology with the object of using the results of the study for the production or improvement of materials, devices, products, produce or processes but does not include:
• Quality control of products or routine testing of materials, devices, products or produce
• Research in social sciences or humanities
• Routine data collection
• Efficiency surveys or management studies
• Market research or sales promotion
To strengthen further the foundation for more integrated R&D in the future, companies which carry out designing or prototyping as an independent activity are eligible for incentives.
A contract R&D Company (a company that provides R&D services in Malaysia only to companies other than its related companies) is eligible to apply for Pioneer Status with full income tax exemption at statutory income level for five years or an Investment Tax Allowance (ITA) of 100% on qualifying capital expenditure incurred within 10 years. The ITA can be offset against 70% of the statutory income in the year of assessment.
A R&D company (a company which provides R&D services in Malaysia to any companies, related or otherwise) is eligible to apply for an ITA of 100% on qualifying capital expenditure incurred within 10 years. The ITA can be offset against 70% of the statutory income in the year of assessment. The related companies concerned will not enjoy double deduction for payments made to the R&D company for the use of its services, unless the R&D company opts not to avail itself of the ITA.
Contract R&D and R&D companies are eligible to apply for various incentives provided they fulfill the following criteria:
• Research undertaken should be in accordance with the needs of the country and bring benefit to the Malaysian economy
• At least 70% of the income of the company should be derived from research and development activities
• For manufacturing-based R&D, at least 50% of the workforce of the company must be appropriately qualified personnel performing research and technical functions
• For agricultural-based R&D, at least 5% of the workforce of the company must be appropriately qualified personnel performing research and technical functions
Companies that carry out in-house research in Malaysia (i.e. R&D carried out within a company for the purpose of its own business) are eligible to apply for an ITA of 50% on qualifying capital expenditure incurred within 10 years. The ITA can be offset against 70% of statutory income in the year of assessment.
Double deduction is allowed on revenue expenditure incurred by a person on research directly undertaken by him or on his behalf that is approved by the Minister of Finance. Double deduction is allowed on payment for the use of services of approved research institutes, R&D companies or contract R&D companies, as well as on cash contributions made to approved research institutes.
• Industrial Building allowance in the form of an initial allowance of 10% and an annual allowance of 3% is available for buildings used for the purposes of approved R&D.
• Capital allowance on capital expenditure incurred in the provision of plant and machinery used for R & D.
• Machinery/equipment, materials, raw materials/component parts and samples used for R&D purposes are eligible for exemption from import duties, sales tax and excise duties.
Companies in operation before 31 December 1990 in the wood-based, textile, machinery and engineering sectors are eligible for certain incentives when undertaking or participating in approved industrial adjustment programmes.
For the purposes of these incentives, industrial adjustment has been defined as any activity proposed to be undertaken by a particular sector in the manufacturing industry to restructure by way of reorganisation, reconstruction or amalgamation within that particular sector with a view to strengthening the basis for industrial self-efficiency, improving industrial technology, increasing productivity, and enhancing the efficient use of natural resources and the efficient management of manpower.
Companies undertaking approved industrial adjustment programmes are eligible for the Industrial Adjustment Allowance (IAA). The IAA provides for an allowance of up to 100% in respect of qualifying capital expenditure incurred by a manufacturing company in its efforts at undertaking industrial adjustment. The features of the IAA are:
• The industrial adjustment programme must be approved by the Minister of International Trade and Industry and the Minister of Finance.
• The IAA is offered for qualifying capital expenditure incurred within five years from the date of approval of the incentive.
• Companies enjoying Investment Tax Allowance (ITA) will only be eligible to apply for IAA in respect of the capital expenditure on which ITA has not been granted.
• Companies granted IAA would not be eligible for Reinvestment Allowance in respect of the same expenditure.
Small-scale manufacturing companies incorporated in Malaysia with shareholders’ funds not exceeding RM500,000 and having Malaysian equity of at least 60% are eligible for a pioneer status incentive with an income tax exemption of 100% of statutory income for a period of 5 years; or an investment tax allowance of 60% on the qualifying capital expenditure incurred within five years that can be offset against 100% of the statutory income for each year of assessment.
Incentives are available to encourage the establishment of proper facilities for the storage, treatment and disposal of toxic and hazardous wastes.
The Pioneer Status incentive for 5 years will be available to companies which are directly involved in the storage, treatment and disposal of toxic and hazardous wastes in an integrated manner.
Those companies which are themselves waste generators and wish to establish facilities to store, treat and dispose of their wastes, either on- or off-site, would be eligible for a special allowance at an initial rate of 40% and an annual rate of 20% for all capital expenditure.
As a further incentive to both categories of companies, the Government will also extend to them the current import duty and sales tax exemption scheme for machinery, equipment, raw materials and components for the storage, treatment and disposal of toxic and hazardous wastes.
There are in addition special incentives for the Tourism Industry and Multimedia Super Corridor (MSC) as well as:
• Agriculture Sector
• Software Development
• Computers and Information Technology Assets
• Acquiring Proprietary Rights
• Operational Headquarters (OHQs)
• International Procurement Centres
• Approved Service Projects
• Shipping Industry
• Tariff Related Incentives
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