In Malaysia, tax incentives, both direct and indirect, are provided for in the Promotion of Investments Act 1986, Income Tax Act 1967, Customs Act 1967, Excise Act 1976 and Free Zones Act 1990. These Acts cover investments in the manufacturing, agriculture, tourism (including hotel) and approved services sectors as well as R&D, training and environmental protection activities.
The direct tax incentives grant partial or total relief from income tax payment for a specified period, while indirect tax incentives are in the form of exemptions from import duty and excise duty. Main Incentives for Manufacturing Companies The major tax incentives for companies investing in the manufacturing sector are the Pioneer Status and the Investment Tax Allowance. Eligibility for Pioneer Status and Investment Tax Allowance is based on certain priorities, including the level of value-added, technology used and industrial linkages. Eligible activities and products are termed as “promoted activities” or “promoted products”.
(See Appendix I: List of Promoted Activities and Products – General) The company must submit its application to MIDA before commencing operation/production.
(i) Pioneer Status
Income tax exemption of 70% - 100% of statutory income for 5 to 10 years. Unabsorbed capital allowances and accumulated losses incurred during the pioneer period can be carried forward and deducted from the post pioneer status of the company.
A company granted Pioneer Status (PS) enjoys a five year partial exemption from the payment of income tax. It pays tax on 30% of its statutory income*, with the exemption period commencing from its Production Day (defined as the day its production level reaches 30% of its capacity). Unabsorbed capital allowances incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company. Accumulated losses incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company for a period of seven consecutive years.
Applications for Pioneer Status should be submitted to MIDA.
(ii) Investment Tax Allowance
An allowance of 60% - 100% on qualifying capital expenditure (factory, plant, machinery or other equipment used for the approved project) incurred within 5 to 10 years from the date the first qualifying capital expenditure is incurred.
As an alternative to Pioneer Status, a company may apply for Investment Tax Allowance (ITA). A company granted ITA is entitled to an allowance of 60% on its qualifying capital expenditure (factory, plant, machinery or other equipment used for the approved project) incurred within five years from the date the first qualifying capital expenditure is incurred. The company can offset this allowance against 70% of its statutory income for each year of assessment. Any unutilised allowance can be carried forward to subsequent years until fully utilised. The remaining 30% of its statutory income will be taxed at the prevailing company tax rate.
A company approved with a Pioneer Status certificate can enjoy income tax exemption between 70% - 100% of statutory income for 5 to 10 years, whereas for Investment Tax Allowance, a company can get allowances between 60% - 100% on qualifying capital expenditure incurred within a period of 5 to 10 years.
For projects with longer gestation period and high capital expenditure, it would be more beneficial to opt for Investment Tax Allowance. Companies should study the options before applying either for Pioneer Status or Investment Tax Allowance.
Please check you List of Promoted Activity and Products here.
PROMOTED PRODUCT AND ACTIVITY
There are 5 types of categories promoted activity and products for incentive which stated as below:
List of Promoted Activity and Products - General Activities
List of Promoted Activity and Products - High Technology Companies
List of Promoted Activity and Products - Small Scale Companies
List of Promoted Activity and Products - Selected Industries
List of Promoted Activity and Products - Reinvestment
Please find your products or activity in the list above. Please do not hesitate to contact us if you have any difficulties in finding your categories.
Document needed for application of Tax Incentive
10. Valid Business License from Local Authority (Majlis Perbandaran)
11. SSM Company Profile
12. Latest Audited Report / Management Account
13. Company Profile
14. List of Machinery and Function
15. List of Raw Material, Quantity and Name of Supplier
16. List of Product, Quantity and Name of Customer
17. List of Manpower Divide into Management, Technical, Clerical, Admin and Factory Worker
18. Factory Layout Plan