Updated Guideline for application of R and D status and tax incentives for R and D services

Updated Guideline for application of research and development (R&D) status and tax incentives for R&D services

The Malaysian Investment Development Authority (MIDA) has recently published on its website the “Guideline for application by Contract R&D companies or R&D companies for (i) R&D status company; or (ii) tax incentive for R&D services, under the Promotion of Investments Act 1986 (PIA)” (Guideline), which is effective from 1 January 2022. This new Guideline updates the earlier Guideline dated 31 March 2021.

Some of the key changes are outlined below.

• Pursuant to the Finance Act 2021, with effect from 1 January 2022, an “R&D company” or a “Contract R&D company” under the PIA is required to apply for and obtain approval from the Minister of International Trade & Industry (MITI) to qualify as a company approved as an ‘R&D status company’. The approval, if granted, will be for a period of five years, and is extendable for a further five years (subject to approval).

Under the savings and transitional rules, a grace period of six months (i.e., from 1 January 2022 to 30 June 2022) is given to existing R&D companies and Contract R&D companies. If the companies intend to retain their R&D status after the grace period, they are required to notify MITI of such intention within the grace period, for MITI’s consideration.

Following the above, MIDA issued a media release on 3 February 2022 to state that the notification by the existing R&D companies and Contract R&D companies are to be submitted to MIDA for consideration (see Tax Alert No. 4/2022).

The Guideline has now been updated to reflect the abovementioned changes and provide further guidance on the application procedures, notification requirements and forms to be submitted (where necessary).

• The updated Guideline stipulates the conditions for an existing R&D company or Contract R&D company to be eligible for a second round of tax incentives (i.e., pioneer status or investment tax allowance).
• The updated Guideline clarifies that one of the eligibility criteria is for an R&D company or Contract R&D company to hire a minimum number of full-time employees in Malaysia with a degree in science and technical fields, or diploma in science and technical field with a minimum of five years’ experience in the relevant field.

The earlier Guideline stated that the employees were to hold a degree or diploma in technical fields with relevant experience.

The Guideline is available at the following link: Guideline for application of R&D status and tax incentives for R&D services