Tax incentive for commercializing R&D findings

Tax incentive for commercializing research & development (R&D) findings

Following Budget 2013, the Income Tax (Exemption) (No. 13) Order 2013 was gazetted on 24 September 2013 (see Tax Alert No. 21/2013). The Order provides a 100% tax exemption on the statutory income (as determined under the Order) derived by a qualifying resident company from the business of commercializing R&D findings for non-resource-based activities or products listed in the Schedule of the Order (i.e. electrical and electronics, medical devices, technical or functional textiles, machinery and equipment, metals and transport equipment) and wholly owned by a public research institute or public institute of higher learning in Malaysia. The exemption is for a period of 10 consecutive YAs.

In Budget 2021, it was proposed that the tax incentives for the commercialization of R&D findings by public research institutions be extended to private higher education institutions.

To legislate the above, the Income Tax (Exemption) (No. 13) 2021 (Amendment) Order 2021 [P.U.(A) 448] was gazetted on 9 December 2021. The Amendment Order provides that the income tax exemption would now also apply on the statutory income derived by a qualifying resident company from the business of commercializing R&D findings for non-resource-based activities or products (as defined) and wholly owned by a private institution of higher learning in Malaysia, i.e., the exemption is no longer limited to R&D findings owned by public research institutes or public institutes of higher learning.

The Amendment Order also provide that an “investor company” and “qualifying company” as defined in the Order are to be companies incorporated under the Companies Act 2016 (previously Companies Act 1965).

The Order is effective from YA 2021.