Tax incentives in Asia-Pacific

Malaysia

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Malaysia continues to welcome quality investments into the country. Focus will be given to strengthen the fundamentals of the economy based on innovation and creativity towards enhancing productivity and industry competitiveness. In order to stay at the forefront of technology, the National Policy on Industry 4.0, known as Industry4WRD was launched in 2018 in embracing the intensification of the digital revolution of companies in the manufacturing sector and related services. This is part of the New Malaysia Government’s initiatives to support sustainable economic growth and induction of technology which will accelerate companies into adopting the latest technology and automation.

Apart from that, the Malaysian Government is committed in the implementation of the Organization for Economic Cooperation and Development (OECD)’s Base Erosion and Profit Shifting (BEPS) initiative. One of the recent changes were the issuances of the various regulations and guidelines to outline the amendments and new legislation for the inclusion of “substantive requirements” of the relevant tax incentives. It is expected that Malaysia’s tax regime will continue to be updated and refined in adherence to international tax standards.

Going forward, it is also 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, modernization 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.

Standard incentive available is either the Pioneer Status (PS) (tax exemption) or Investment Tax Allowance (ITA) on qualifying capital expenditure.

In addition to the standard incentives, 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.

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

Typically between 2 – 3 months upon submission of complete information to authorities.

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