Tax incentives in Asia-Pacific

Malaysia

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Over the past few decades, Malaysia has transformed into a manufacturing- and service-based, export-driven economy spurred by high-tech, knowledge-based and capital-intensive industries. To continue moving the country forward, the Malaysian Government unveiled a new game changer in early 2015, with the new principal hub incentive (PHI) aimed at supporting Malaysia’s continuous growth as a preferred regional investment destination.

The Malaysian Government remains committed to introducing new tax incentives and extending selected existing tax incentives that will steer investment into specific sectors and regions in Malaysia. For example, the Government has introduced tax incentives for green technology to further strengthen and develop the green technology industry.

The current incentives regime represents the Government’s pragmatic approach toward Malaysia’s aim of achieving a developed nation status by 2020. Going forward, it is expected that the Government will lay down specific measures to assess the long-term qualitative and quantitative costs and benefits of the various types of projects that are eligible for incentives. This is to provide a holistic and realistic assessment of the net worth of a project’s contribution toward the Malaysian economy.

Malaysia incentive regime overview

There are two broad categories of incentives in Malaysia – statutory and discretionary.

Statutory incentives:

Overview

Statutory incentives, such as the Reinvestment Allowance incentive for manufacturing companies that reinvest for purposes of expansion, modernisation or automation or diversification are available under the Income Tax Act, 1967 (Act).

Additionally, double deductions for promotion of exports, insurance premiums paid for export or import of cargo, R&D expenditure etc., are also available under the Act.

Incentive administering body

Such incentives do not require prior approval or submission to the Inland Revenue Board (IRB). Depending on the incentive, the application forms and relevant supporting documents should either be submitted to the IRB or be retained on file for IRB examination during a tax audit.

Discretionary incentives:

Overview

Discretionary incentives are available to encourage certain products and activities identified by the Malaysian government. A list of “promoted products and activities” and their standard qualifying conditions for different manufacturing and service sectors are available at the Malaysian Investment Development Authority (MIDA) website.

Incentive administering body

MIDA and other relevant authorities

General application process

The application process involves:

  • Preparing the application submission package.
  • Clarifying information with authorities.
  • The relevant agency (such as MIDA) will then table the report to the National Committee of Incentives for evaluation and approval.

It is important to note that incentive applications should be submitted before the project commences.

Timeline

Between three to six months

Special incentive schemes are available for projects that the Malaysian government considers to be of national and strategic importance, beyond what is currently specified under the statutory and discretionary incentives. There are no standard eligibility criteria for such special incentives, although factors such as investment value, introduction of new technology, development and employment of highly skilled staff and introduction or increase in the level of value-added activities (such as R&D activities) are typically taken into consideration in the negotiations with the authorities.

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