Pioneer Status - MICPA - The Malaysian Institute Of … B16 TAX INCENTIVES B16.1 MAJOR CHANGES Pioneer Status Salient points: – Pioneer status is granted for an initial period of

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B16 TAX INCENTIVES

B16.1 MAJOR CHANGES

Pioneer Status

Salient points:

– Pioneer status is granted for an initial period of 5 years commencing from the production day as determined by the Ministry of International Trade and Industry (MITI).

– Adjusted business income from a pioneer activity is fully exempted from tax. – Capital allowances are not deducted. The qualifying expenditure is deemed to be incurred on the first

day of the post-pioneer period. – Extension of the pioneer period (up to 5 years) is granted if specific criteria are met. – The amount of income exempt from tax is credited to a tax-exempt account from which exempt

dividends can be declared. – Unabsorbed business losses can be carried forward to the post-pioneer period if certain criteria are met.

Changes affecting applications received by Malaysian Industrial Development Authority (MIDA) on or after 1.1.1991 are as follows: – Only statutory business income is exempt from tax. As such, capital allowances must be deducted

from adjusted income. – Unabsorbed capital allowances cannot be carried forward to the post-pioneer period. – Unabsorbed pioneer losses cannot be carried forward to the post-pioneer period except for contract

research and development company.

Changes affecting applications received and approved by MIDA on or after 1.11.1991 are as follows: – Only 70% of statutory business income will be exempted from tax. The balance will be subject to

income tax. Tax exemption of 85% (increased to 100% of statutory income – 2004 Budget) of statutory income will be given to pioneer companies located in promoted areas, i.e. Sabah, Sarawak and Eastern Corridor of Peninsular Malaysia. As this incentive has expired on 31.12.00, extension of another 5 years until 31.12.05 will be given (2001 Budget).

– 70% (100% tax exemption for promoted areas – 2004 Budget) tax exemption on increased statutory income for 5 years arising from reinvestment will be given to existing pioneer companies undertaking activities in producing value added products using oil palm biomass (10 years), in heavy machinery, machinery and equipment including specialised machinery and equipment and machinery tools, and cold chain facilities and services for perishable agricultural produce.

– Pioneer status will not be granted to companies which have previously benefited directly or indirectly from pioneer status or investment tax allowance in respect of a similar product or activity.

– Unabsorbed pioneer losses and unabsorbed capital allowances can be carried forward to the post-pioneer period for companies with pioneer periods expiring on or after 1.10.05 (2006 Budget).

However, a 100% tax exemption of statutory income for 5 to 10 years could still be given for:

– Companies participating in promoted activity or producing promoted product of national and strategic importance to Malaysia. Pioneer period for this incentive is extendable to 10 years.

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B16.1 MAJOR CHANGES (CONT’D) – Companies participating in a promoted activity or producing a promoted product in areas of new and

emerging technologies or participating in a promoted activity or producing a promoted product in an industrial linkage programme or participating in an activity relating to contract research and development. This incentive is given for a period of 5 years.

– Vendor companies which produce intermediate goods for the international market in an approved scheme and capable of achieving world-class standard in terms of price, quality and capacity. This incentive is given to companies whose applications for pioneer status are received after 25.10.1996 and for a period of 10 years.

– Any new or existing company which is approved by the Multimedia Development Corporation (MDC) and complies with certain conditions to be imposed. In the case of an existing company, the tax exemption applies to the related additional statutory income. This incentive is given for a period of 10 years.

– Companies undertaking activities in the production of machine tools; plastic injection machines; material handling equipment; robotics and factory automation equipment; and parts and components of these machines and equipment. This incentive is granted for a period of 10 years (2002 Budget).

– The scope of machinery manufactured is extended to production of specialised/process machinery or equipment for specific industry; packaging machinery; plastic extrusion machinery; and parts and components of the above machinery and equipment (2003 Budget).

– Companies granted “Strategic Knowledge-based Status Company” and meet certain conditions are granted a tax exemption of 100% of statutory income for a period of 5 years (2003 Budget).

– Companies (new or existing) undertaking activities in design, research and development, and production of qualifying automotive component modules or systems. This incentive is granted for a period of 5 years and will be given to companies whose applications for pioneer status are received by MIDA from 21.9.02 (2003 Budget).

– Companies in the hotel and tourism industries in the promoted areas and investing in expansion, modernisation and renovation will be given another round of pioneer status with a tax exemption of 70% of statutory income for an extended period of five years for applications received by MIDA from 13.9.03 (2004 Budget).

– Existing companies which relocate their manufacturing activities to promoted areas. Extension (second round) of tax exemption of 100% of statutory income for a period of 5 years, is given to companies whose applications for pioneer status are received from 11.9.2004 (2005 Budget).

– Subsidiary companies that undertake the commercialisation of research and development (R&D) findings. This incentive which is for a period of 10 years, is given to companies whose applications for pioneer status are received from 11.9.2004 (2005 Budget).

– Companies generating energy from renewable sources such as biomass, hydro power and solar power. This incentive is given to companies whose applications for pioneer status are received by MIDA from 1.10.05. The incentive is for a period of 10 years (2006 Budget).

Changes proposed in Economic Stimulus Package 2003:

– Approved R&D expenditure incurred during pioneer period is allowed to be accumulated and claimed in post-pioneer period.

– R&D Companies granted pioneer status for a period of 5 years will be given a second round pioneer status for another 5 years.

– Companies under the pre-package scheme qualify for group relief at adjusted loss for food projects, rubber and forest plantations and selected manufacturing products.

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B16.1 MAJOR CHANGES (CONT’D) Investment Tax Allowance (ITA)

Salient points:

– ITA is given at a rate not exceeding 100% of the qualifying capital expenditure incurred for the purposes of the promoted activity or product.

– ITA is given in respect of capital expenditure incurred within 5 years from the date which the approval took effect except for Companies in R&D sector.

– ITA is deducted against adjusted income. – The amount of income exempted from tax is credited to a tax-exempt account from which exempt

dividends can be declared. – Unabsorbed ITA is carried forward and deducted against the adjusted income of subsequent years. Changes affecting applications received and approved by MIDA on or after 1.1.91 are as follows:

– ITA will be 60% of the qualifying capital expenditure. – ITA will be restricted to a maximum of 70% of the statutory income for each year of assessment. – No ITA will be given to companies which have previously benefited directly or indirectly from a

similar incentive in respect of a similar product or activity. – Restricts the backdating of ITA to 3 years from the date the application is received by the Minister and

not to 5 years as was previously allowed. Companies participating in an activity or producing a product of national and strategic importance to Malaysia will be allowed to backdate the incentive to 1.11.91 and enjoy ITA of 100% on capital expenditure incurred within 5 years from the date which the approval is to take effect even though application is made after 1.11.1991. Companies which are already operating in Malaysia may also apply for this tax relief if they fulfil such conditions as may be determined by the Minister.

An allowance of 80% on the qualifying capital expenditure incurred subject to a maximum of 85% of the statutory income will be given to companies that qualify for ITA located in promoted areas, i.e. Sabah, Sarawak and Eastern Corridor of Peninsular Malaysia. Certain research and development companies will be given ITA of 100% or 50% on capital expenditure incurred. As this incentive has expired on 31.12.00, extension of another 5 years until 31.12.05 has be given (2001 Budget). ITA granted to pioneer companies located in promoted areas has been increased from 80% to 100% on qualifying capital expenditure incurred for a period of 5 years and be allowed to set off against 100% of statutory income (2004 Budget).

Companies in the hotel and tourism industries and investing in expansion, modernisation and renovation will be given another round of ITA of 5 years at the rate of 100% and available for setoff against 100% of statutory income [for applications received by MIDA from 13.9.03 onwards (2004 Budget)].

An allowance of 60% on additional qualifying capital expenditure for existing companies that reinvest and which can be utilised to set off against 70% of statutory income for 5 years will be given to companies that undertake activities in producing value added products using oil palm biomass (10 years), in heavy machinery, machinery and equipment including specialised machinery and equipment and machinery tools, and cold chain facilities and services for perishable agricultural produce (100% ITA for set off against 100% of statutory income for promoted areas and biomass projects) – 2004 Budget.

An allowance of 100% on qualifying capital expenditure be given to private institutions of higher learning (IPTS) in the field of science. The allowance can be utilised to set-off against 70% of statutory income for 10 years [for applications received by MIDA from 1.10.05 (2006 Budget)].

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B16.1 MAJOR CHANGES (CONT’D) Tax exemption of 100% of statutory income from ITA computed at 60% on qualifying capital expenditure incurred within 5 years from the date which the approval is to take effect, is given to:

– companies participating in a promoted activity or producing a promoted product in areas of new and emerging technologies;

– participating in a promoted activity or producing a promoted product in an industrial linkage programme;

– companies (new or existing) undertaking activities in design, research and development, and production of qualifying automotive component modules or systems. This incentive is granted for a period of 5 years to ITA applications that are received by MIDA from 21.9.02 (2003 Budget);

– companies granted “Strategic Knowledge-based Status Company” and meet certain conditions (2003 Budget);

– small and medium scale enterprises (Economic Stimulus Package); – companies under the pre-package scheme qualify for group relief at adjusted loss for food projects,

rubber and forest plantations and selected manufacturing products. Tax exemption of 100% of statutory income from ITA computed at 100% on qualifying capital expenditure incurred within 5 years from the date which the approval is to take effect is given to: – companies undertaking activities in the production of machine tools; plastic injection machines;

material handling equipment; robotics and factory automation equipment; and parts and components of these machines and equipment (2002 Budget). The scope of machinery manufactured is extended to production of specialised/process machinery or equipment for specific industry; packaging machinery; plastic extrusion machinery; and parts and components of the above machinery and equipment (2003 Budget).

– new companies undertaking activities in utilising oil palm biomass to produce value added products (2004 Budget).

– companies producing halal food. This incentive is granted for a period of 5 years to ITA applications that are received by MIDA from 11.9.2004 (2005 Budget).

– existing companies which relocate their manufacturing activities. Extension (second round) of tax exemption of 100% on the qualifying capital expenditure can be used to set-off up to 100% of statutory income in each year of assessment for a period of 5 years to ITA applications that are received by MIDA from 11.9.2004 (2005 Budget).

– companies generating energy from renewable sources such as biomass, hydro power and solar power. This incentive is granted for a period of 5 years to ITA applications that are received by MIDA from 1.10.05 (2006 Budget).

Changes proposed in Economic Stimulus Package:

– R&D Companies granted ITA for a period of 10 years will be given a second round ITA for a further 10 years.

Abatement of Adjusted Income

The abatement for exports in respect of exports made on or after 1.1.1994 is abolished. Please refer to 2004 Budget Commentary & Tax Information for details.

Export Allowance

The export allowance in respect of exports made on or after 1.1.1994 is abolished. Please refer to 2004 Budget Commentary & Tax Information for details.

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B16.1 MAJOR CHANGES (CONT’D) Reinvestment Allowance (RA)

Salient points:

– RA is given on qualifying capital expenditure incurred on: (a) approved project for expansion of existing business up to 31.12.1990; and (b) qualifying project for expansion, modernisation or diversification from 1.1.1991 onwards. – The RA rates are as follows:

Up to Y/A 1988 – 25% Y/A 1989 to 31.12.93 – 40% Y/A 1990 onwards (for small scale companies only) – 50% 1.1.94 onwards (all companies) – 50%

– RA is deducted against adjusted income. – Unabsorbed RA is carried forward and deducted against the adjusted income of subsequent years. – The amount of income exempted from tax is credited to a tax exempt account from which exempt

dividends can be declared. – From Y/A 1991 onwards, no acknowledgement letter from MIDA is required. – From Y/A 2001 onwards, accelerated capital allowances on capital expenditure to be utilised within

3 years (initial allowance 40%, annual allowance 20%), will be given to companies manufacturing promoted products or producing promoted food items upon expiry of the RA [Income Tax (Accelerated Capital Allowances) (Reinvestment in a Qualifying Project) Rules 2000] subject to a letter from MIDA confirming the promoted activity/promoted product status.

With effect from 1.1.96, RA is extended to capital expenditure incurred on qualifying agricultural projects for cultivation of rice and maize, vegetables, tuber and roots and fruits, livestock farming, spawning, breeding or culturing of aquatic products, rearing of chicken and ducks (w.e.f. Y/A 2003), and any other activities approved by the Minister.

With effect from Y/A 1997, RA has been revised to include the following changes:

1. The rate of RA is increased from 50% to 60%. 2. RA is abated against the statutory income instead of adjusted income. 3. RA on qualifying projects located outside Sabah, Sarawak and the Eastern Corridor of Peninsular

Malaysia is restricted to 70% of statutory income for each year of assessment. Unabsorbed allowance is allowed to be carried forward to subsequent years until it is fully utilised.

With effect from Y/A 1997, RA is extended to agro-based co-operative societies, farmers’ associations and fishermen’s associations, in addition to companies.

Effective from Y/A 1998, tax exemption of 70% and 100% of statutory income for each year of assessment from RA computed at 60% on qualifying capital expenditure incurred in respect of approved reinvestment in equipment would be given.

Certain conditions have to be fulfilled for the granting of RA to companies with effect from Y/A 1998. RA will now only be given to a company which has been operating for not less than 12 months and incurs capital expenditure within 5 years from the date the expenditure was first incurred on a factory, plant and machinery used in Malaysia for the purposes of a qualifying project which includes a project involved in automation.

Where an asset included in the qualifying capital expenditure is disposed of within 2 years from the date of acquisition, RA given in respect of that asset is deemed to have not been given.

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B16.1 MAJOR CHANGES (CONT’D) Effective Y/A 1998, RA period is limited to 15 consecutive years commencing from the year the first RA is claimed.

With effect from 21.9.02, any Pioneer Status company which intends to undertake reinvestment before the expiry of its Pioneer Status, is eligible for RA provided the Pioneer Status is surrendered (2003 Budget).

Infrastructure Allowance (IA)

Salient points:

– IA is given on capital expenditure incurred on infrastructure in respect of a business or businesses in operation in a promoted area.

– Infrastructure means any construction, reconstruction, extension or improvement of any permanent structure including a bridge, jetty, port or road.

– IA is given at the rate of 100% on capital expenditure incurred within 5 years from 29.10.93. – IA is deducted against statutory income up to an amount not exceeding 85% of the statutory income

for a year of assessment. – Unabsorbed IA can be carried forward to subsequent years until it is fully utilised. – Capital expenditure of pioneer companies is deemed to have been incurred in the post pioneer period. With effect from Y/A 1997, capital expenditure is no longer restricted to the 5-year period from 29.10.93.

For those IA which has expired on 31.12.00, extension of another 5 years until 31.12.05 will be given (2001 Budget).

Investment Allowance for Service Sector (IASS)

Salient points:

– IASS is given on capital expenditure incurred for the purpose of an approved service project. – Approved service project means a project in the service sector in relation to transportation,

communications, utilities or any other sub-sector as approved by the Minister. – IASS is given at the rate of 60% on capital expenditure incurred within 5 years from the date which the

approval is to take effect. – IASS is deducted against statutory income at an amount not exceeding 70% of the statutory income for

each year of assessment. – Unabsorbed IASS can be carried forward to subsequent years until it is fully utilised. This incentive is effective from Y/A 1996. Group Relief Group relief of adjusted loss is available for food projects, rubber and forest plantations and selected manufacturing products (such as biotechnology, nanotechnology, optics and photonics) under the pre-package scheme (Economic Stimulus Package 2003). For further details, refer to “Agriculture Sector”.

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B16.2 MANUFACTURING SECTOR

Eligibility Tax Reliefs 1. Pioneer Status

Any company participating in a promoted activity or producing a promoted product which has applied for pioneer status before 1.11.91

Tax exemption of adjusted income (for applications received by MIDA before 1.11.91) or statutory income (for applications received by MIDA on or after 1.11.91) for 5 years (which may be extended to 10 years for selected activities or products)

Any company participating in a promoted

activity or producing a promoted product (not being an activity or a product where pioneer status or investment tax allowance has already been granted to the company) which applies for and is granted pioneer status on or after 1.11.91

An exemption of 70% of statutory income for 5 years with the balance of 30% of the statutory income taxable at current corporate tax rate An exemption of 85% (increased to 100% for applications received from 13.9.03 to 31.12.05 – 2004 Budget) of statutory income for 5 years will be given to pioneer companies located in promoted areas. For incentive which has expired on 31.12.00, extension of another 5 years until 31.12.05 will be given (2001 Budget) The application period for the enhanced incentive of 100% exemption for the promoted areas which expires on 31.12.05 has been extended for another 5 years until 31.12.10 (2006 Budget)

Any company participating in a promoted activity or producing a promoted product which relocates its manufacturing activities to promoted areas

Extension (second round) of tax exemption of 100% of statutory income for a period of 5 years [for applications received by MIDA from 11.9.04 (2005 Budget)]

Any company which reinvests in the

promoted food processing activity and applies for and is granted pioneer status on or after 1.11.91

An exemption of 70% of statutory income for 5 years with the balance of 30% of the statutory income taxable at the current corporate tax rate [for applications received by MIDA on or after 21.9.02 (2003 Budget)]

An exemption of 85% of statutory income for

5 years will be given to pioneer companies located in promoted areas [for applications received by MIDA on or after 21.9.02 (2003 Budget)]

Any company which reinvests for expansion

purposes in the rubber, oil palm and wood based industries for applications received by MIDA from 20.10.01 (2002 Budget)

An exemption of 70% of statutory income for 5 years An exemption of 85% of statutory income for 5 years will be given to pioneer companies located in promoted areas No other extension of pioneer period will be granted

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B16.2 MANUFACTURING SECTOR (CONT’D)

Eligibility Tax Reliefs Any company which reinvests in the

production of heavy machinery, machinery and equipment including specialised machinery and equipment, machinery tools, value added products by utilising oil palm biomass [for applications received by MIDA from 13.9.03 (2004 Budget)]

An exemption of 70% (100% for value added products and promoted areas) of increased statutory income for 5 years (10 years for value added products)


activity or producing a promoted product of national and strategic importance (as may be determined on a case-to-case basis) to Malaysia. A company which is already operating in Malaysia may also apply if it fulfils such conditions as may be determined by the Minister

Tax exemption of 100% of the statutory income for a period of 5 years which may be extended for another 5 years


activity or producing a promoted product in areas of new and emerging technologies

Tax exemption of 100% of statutory income for 5 years


activity or producing a promoted product in an industrial linkage programme (being an integrated programme undertaken by a Ministry or Government agency in which a small company or medium company which is a manufacturer and supplier is linked to a larger company or to another small company or medium company through the manufacture and supply of parts and components or through technology or research and development)


Vendor companies which produce

intermediate goods for international market in an approved scheme and capable of achieving world class standard in terms of price, quality and capacity and applied for pioneer status after 25.10.96 (1997 Budget)


Any company undertaking activities in the

production of the following machinery and equipment: (a) Machine tools; (b) Plastic injection machines; (c) Material handling equipment; (d) Robotics and factory automation

equipment; (e) Parts and components of the above

machines and equipment;


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Eligibility Tax Reliefs (f) Specialised/process machinery or

equipment for specific industry; (g) Packaging machinery; (h) Plastic extrusion machinery; and (i) Parts and components of the above

machinery and equipment For items (f) to (i), the applications have to be received by MIDA from 21.09.02 (2003 Budget)

Any company (new or existing) undertaking

activities in design, research and development, and production of qualifying automotive component modules or systems

Tax exemption of 100% of statutory income for 5 years for applications received by MIDA from 21.9.02 (2003 Budget)

Small and medium-scale enterprises Increased income tax exemption from 70% to

100% for each year of assessment (Economic Stimulus Package 2003)

Companies under the pre-package scheme Tax exemption extended from 10 years to 15 years

commencing on the first year the Company registers profit (Economic Stimulus Package 2003)

2. Investment Tax Allowance (ITA) Any company participating in a promoted activity or producing a promoted product which has applied for investment tax allowance before 1.11.91

Tax exemption of up to 100% of adjusted income for each year of assessment from ITA computed at 100% on qualifying capital expenditure incurred within 5 years from the date which the approval is to take effect


activity or producing a promoted product (not being an activity or a product where pioneer status or investment tax allowance has already been granted to the company) which applies for and is granted investment tax allowance on or after 1.11.91

Tax exemption of up to 70% of statutory income for each year of assessment from ITA computed at 60% on qualifying capital expenditure incurred within 5 years from the date which the approval is to take effect Tax exemption of up to 85% (increased to 100% for applications received from 13.9.03 to 31.12.05 - 2004 Budget) of statutory income for each year of assessment from ITA computed at 80% (increased to 100% – 2004 Budget) on qualifying capital expenditure incurred by companies located in Sabah, Sarawak and the Eastern Corridor of Peninsular Malaysia within 5 years from the date which the approval is to take effect. As this incentive has expired on 31.12.00, extension of another 5 years until 31.12.05 will be given (2001 Budget) The application period for the enhanced incentive of 100% ITA for the promoted areas which expires on 31.12.05 has been extended for another 5 years until 31.12.10 (2006 Budget)

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Eligibility Tax Reliefs Any company participating in a promoted

activity or producing a promoted product which relocates its manufacturing activities to promoted areas

Extension (second round) of tax exemption of 100% on the qualifying capital expenditure which can be used to set-off up to 100% of statutory income in each year of assessment for a period of 5 years [applications received by MIDA from 11.9.04 (2005 Budget)]


activity or producing a promoted product of national and strategic importance (as maybe determined on a case-to-case basis) to Malaysia. A company which is already operating in Malaysia may also apply if it fulfils such conditions as may be determined by the Minister

Tax exemption of up to 100% of statutory income for each year of assessment from ITA computed at 100% on qualifying capital expenditure incurred within 5 years from the date which the approval is to take effect

Any company undertaking activities in the

production of the following machinery and equipment: (a) Machine tools; (b) Plastic injection machines; (c) Material handling equipment; (d) Robotics and factory automation

equipment; (e) Parts and components of the above

machines and equipment;

Tax exemption of up to 100% of statutory income for each year of assessment from ITA computed at 100% on qualifying capital expenditure incurred within a period of 5 years

(f) Specialised/process machinery or equipment for specific industry;

(g) Packaging machinery; (h) Plastic extrusion machinery; and (i) Parts and components of the above

machinery and equipment

For items (f) to (i), the applications have to be received by MIDA from 21.09.02 (2003 Budget)


activity or producing a promoted product in areas of new and emerging technologies



activity or producing a promoted product in an industrial linkage programme (being an integrated programme undertaken by a Ministry or Government agency in which a small company or medium company which


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Eligibility Tax Reliefs is a manufacturer and supplier is linked to a

larger company or to another small company or medium company through the manufacture and supply of parts and components or through technology or research and development)

Vendor companies which produce intermediate goods for international market in an approved scheme and capable of achieving world class standard in terms of price, quality and capacity and applied for pioneer status after 25.10.96 (1997 Budget)


Any company participating in a promoted activity relating to contract research and development or providing research and development services in Malaysia only to a company other than a related company


Any company participating in an activity

relating to technical or vocational training Tax exemption of up to 70% of statutory income for each year of assessment from ITA computed at 100% on qualifying capital expenditure incurred within 10 years from the date which the approval is to take effect


relating to in-house research and development within the company in Malaysia for the purposes of its own business

Tax exemption of up to 70% of statutory income for each year of assessment from ITA computed at 50% on research capital expenditure incurred within 10 years from the date which the approval is to take effect

Any company which reinvests for expansion

purposes in the rubber, oil palm and wood based industries for applications received by MIDA from 20.10.01 (2002 Budget)

Tax exemption of up to 70% of statutory income for each year of assessment from ITA computed at 60% of qualifying capital expenditure incurred within 5 years Tax exemption of up to 85% of statutory income for each year of assessment from ITA computed at 80% of qualifying capital expenditure incurred in promoted areas

Any company which reinvests in the

production of heavy machinery, machinery and equipment including specialised machinery and equipment, machinery tools, value added products by utilising oil palm biomass [for applications received by MIDA from 13.09.03 (2004 Budget)]

Tax exemption of up to 70% (100% for value added products and promoted areas) of statutory income for each year of assessment from ITA computed at 60% (100% for value added products and promoted areas) of additional qualifying capital expenditure incurred within 5 years


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Eligibility Tax Reliefs Unutilised allowances for the above can be carried

forward to subsequent years Any company which reinvests in the

promoted food processing activity and applies for and is granted pioneer status on or after 1.11.91

Tax exemption of up to 70% of statutory income for each year of assessment from ITA computed at 60% on qualifying capital expenditure incurred within 5 years from the date which the approval is to take effect [for applications received by MIDA on or after 21.9.02 (2003 Budget)] Tax exemption of up to 85% of statutory income for each year of assessment from ITA computed at 80% on qualifying capital expenditure incurred by companies located in promoted areas [for applications received by MIDA on or after 21.9.02 (2003 Budget)]

Any company participating in producing

halal food that complies with international standards [for applications received by MIDA from 11.9.04] Conditions: (a) Halal certification has been obtained

from Jabatan Kemajuan Islam Malaysia (JAKIM); and

Tax exemption of up to 100% of statutory income for each year of assessment from ITA computed at 100% on qualifying capital expenditure incurred within 5 years from the date which the approval is to take effect (2005 Budget)

(b) Other quality certification has been obtained

Any company (new or existing) undertaking

activities in design, research and development, and production of qualifying automotive component modules or systems

Tax exemption of up to 100% of statutory income for each year of assessment from ITA computed at 60% on qualifying capital expenditure incurred within 5 years from the date which the approval is to take effect (2003 Budget)

Small- and medium-scale enterprises Increased income tax exemption from 70% to

100% for each year of assessment (Economic Stimulus Package 2003)

Companies under the pre-package scheme Tax exemption of up to 100% of statutory income

for each year of assessment for ITA computed at 100% on qualifying expenditure incurred within 5 years is extended to 10 years (Economic Stimulus Package 2003)

3. Abatement of Adjusted Income

Abolished w.e.f. 31.12.1991 Please refer to 2004 Budget Commentary & Tax Information for details

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Eligibility Tax Reliefs 4. Reinvestment Allowance (RA)

A company which incurs capital expenditure on a factory, plant or machinery for a qualifying project in Malaysia for expansion, automation (w.e.f. Y/A 1998), modernisation or diversification

From Y/A 1997, tax exemption of statutory income from RA is computed at 60% on qualifying capital expenditure. However, for qualifying projects located outside Sabah, Sarawak and the Eastern Corridor of Peninsular Malaysia, the tax exemption is restricted to 70% of statutory income for each year of assessment For Y/A 1996 and prior, tax exemption of adjusted income from RA is computed at 50% (40% for expenditure incurred prior to 1.1.94 by non-small scale companies) on qualifying capital expenditure

With effect from Y/A 1998, RA will only be

given to a company which has been operating for not less than 12 months and incurs capital expenditure on a factory, plant or machinery used in Malaysia for the purposes of a qualifying project

Tax exemption of up to 100% of statutory income for each year of assessment from RA computed at 60% on qualifying capital expenditure incurred in the basis periods for 5 consecutive years of assessment However, for qualifying projects located outside Sabah, Sarawak and the Eastern Corridor of Peninsular Malaysia, the tax exemption is restricted to 70% of the statutory income for each year of assessment

Where an asset included in the qualifying capital

expenditure is disposed of at any time within 2 years from the date of acquisition of that asset, RA given in respect of that asset shall be deemed to have not been given Unutilised allowances for the above can be carried forward to subsequent years until fully utilised

Companies manufacturing promoted

products upon expiry of RA Effective from Y/A 2001, accelerated capital allowance on capital expenditure to be utilised within 3 years (initial allowance 40%, annual allowance 20%) will be given upon expiry of the RA [Income Tax (Accelerated Capital Allowance) (Reinvestment in a Qualifying Project) Rules 2000]

Effective Y/A 1998, RA period is limited to

15 consecutive years commencing from the year the first RA is claimed

Company that intends to surrender its

Pioneer Status for cancellation and undertake reinvestment before the expiry of its Pioneer Status incentive

Can opt for Reinvestment Allowance with effect from 21.9.02 (2003 Budget)

5. Abatement of Adjusted Income for Exports

Abolished w.e.f. YA 2003 Please refer to 2004 Budget Commentary & Tax Information for details

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Eligibility Tax Reliefs 6. Abatement of Statutory Income for Exports


7. Industrial Adjustment Allowance (IAA)

Companies participating in approved industrial adjustment activities which incur capital expenditure in respect of their manufacturing activity or manufactured products

Tax exemption of up to 100% of adjusted income for each year of assessment from IAA computed at 100% on capital expenditure incurred within 5 years from the date which the approval is to take effect

8. Promotion of Exports

Companies engaged in the promotion of exports which incur approved outgoings and expenses

Double deduction of approved outgoings and expenses [Income Tax (Promotion of Exports) Rules 1986; Income Tax (Promotion of Exports) (Amendment) Rules 2001; Income Tax (Deduction For Promotion Of Exports) Rules 2002; and Income Tax (Promotion of Exports) (Amendment) Rules 2003]

Single deduction of outgoings and expenses in respect of registration of patents, trademarks and product licensing overseas [Income Tax (Deduction For Promotion Of Exports) (No. 2) Rules 2002]

Companies engaged in the promotion of

exports which incur outgoings and expenses provided to potential importers who have been invited to Malaysia

Single deduction of outgoings and expenses incurred in respect of hotel accommodation and sustenance up to a maximum of 3 nights, subject to a maximum of RM300 and RM150 per day respectively [Income Tax (Deduction For Promotion Of Exports) (No. 3) Rules 2002]

Companies which pay export credit

insurance premiums to approved company Double deduction of premiums paid [Income Tax (Deduction of Premiums for Export Credit Insurance) Rules 1985]

Companies which incur qualifying capital

expenditure on construction or purchase of warehouse buildings for storage of goods for export or for storage of imported goods to be processed and re-exported

Industrial building allowance of 10% for each Y/A w.e.f. Y/A 1998

Companies whose exported manufactured

goods attain at least 30% value added Tax exemption of statutory income equivalent to 10% of the value of increased exports of manufactured goods w.e.f. 1.1.98. Unabsorbed allowance can be carried forward to subsequent years [Income Tax (Allowance for Increased Exports) Rules 1999]

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Eligibility Tax Reliefs Companies whose exported manufactured

goods attain at least 50% value added

Tax exemption of statutory income equivalent to 15% of the value of increased exports of manufactured goods w.e.f. 1.1.98. [Income Tax (Allowance for Increased Exports) Rules 1999]

Unabsorbed allowance can be carried forward to subsequent years

Companies whose manufactured goods

achieve a significant increase in exports(ie at least 50%)

Tax exemption of statutory income (restricted to 70% in a year of assessment) equivalent to 30% of the value of increased exports of manufactured goods w.e.f. Y/A 2003 [Income Tax (Exemption) (No. 17) Order 2005]

Companies which succeed in penetrating

new export markets Tax exemption of statutory income (restricted to 70% in a year of assessment) equivalent to 50% of the value of increased exports of manufactured goods w.e.f. Y/A 2003 [Income Tax (Exemption) (No. 17) Order 2005]

Companies which have been awarded the

Export Excellence Award (given by MITI) Full tax exemption of statutory income on increased export value w.e.f. Y/A 2003 [Income Tax (Exemption) (No. 17) Order 2005]

9. Approved Industrial Adjustment

Companies participating in approved industrial adjustment activities and which incur qualifying expenditure on buildings for research or training within 10 years of the date of approval

Industrial building allowance of 10% (initial) and 2% (annual)

Companies participating in approved

industrial adjustment activities undertaking projects in expanding existing business or modernising production techniques or processes

Reinvestment allowance of 50% (40% prior to 1.1.94) on qualifying expenditure

Companies participating in approved

industrial adjustment activities and which incur research and development expenses of a revenue nature

Double deduction of approved training and R&D expenses [Income Tax (Deduction for Approved Training) Rules 1992]

10. Research And Development

Any company participating in an activity relating to in-house research and development within the company in Malaysia for the purposes of its own business

Tax exemption of up to 70% of statutory income for each Y/A from ITA computed at 50% on research capital expenditure incurred within 10 years from the date from which approval is to take effect

Companies which contribute in cash to

research institutes Double deduction of cash contributions

236


Eligibility Tax Reliefs Companies which contribute to or pay for

services of approved research institutes or companies

Double deduction of payments for services rendered

Companies which incur expenditure (not

being capital expenditure) on approved research

Double deduction of expenditure on approved research

Pioneer companies which incur approved

R&D expenditure Double deduction of approved R&D expenditure can be accumulated and claimed in post pioneer period [S. 34A(4A)]

Companies resident in Malaysia that invest in subsidiary that undertakes the commercialisation of R&D findings in resourced based industry

Effective from 11 September 2004, single deduction is given on the value of investment up to the year of assessment prior to the commencement of the commercialization of the project i.e. tax relief period of related company [Income Tax (Deduction for Investment in a Project of Commercialisation of Research and Development Findings) Rules 2005]

11. Companies which incur expenditure in

obtaining certification for recognised quality systems and standards, and halal certification, evidenced by a certificate issued by a certification body as determined by the Minister

Double deduction of expenditure incurred [S. 34(6)(ma)]

12. Training of Employees

Companies which incur expenses on approved training of employees for the purpose of upgrading and developing the employees’ craft, supervisory and technical skills or increasing the productivity or quality of its products

Double deduction of training expenses incurred [Income Tax (Deduction for Approved Training) Rules 1992]

Companies (other than those which have

contributed to Human Resource Development Fund) which before the commencement of its business, incur expenditure in training its employees for the acquisition of craft, supervisory or technical skills which will contribute directly to the future production of its products

Double deduction of training expenses incurred to be allowed in the year of assessment in which the gross income first arises [Income Tax (Deduction for Approved Training) Rules 1992]

Companies which incur expenses on training

of potential employees within one year prior to commencement of business

Single deduction of training expenses incurred [Income Tax (Deduction of Pre-Commencement of Business Training Expenses) (Rules) 1996]

13. Training of Non-Employees

Companies which incur expenses on practical training for non-employees who are residents S. 34(6)(n)

Single deduction of training expenses incurred

237


Eligibility Tax Reliefs 14. Training of Handicapped Persons

Companies which incur expenditure in training handicapped persons who are not their employees

Double deduction of training expenses incurred [Income Tax (Deduction for Approved Training) Rules 1992]

15. Technical Assistance to Small and Medium

Scale Industries (SMIs)

Large companies participating in anindustrial linkages scheme and incurring expenditure for the training of employees, product development and testing and factory auditing to ensure the quality of vendors’ products

Single deduction for the expenditure incurred effective from Y/A 1997. Previously, this expenditure was not deductible

16. Acquisition of Proprietary Rights

Companies (at least 70% owned by Malaysian citizens) which incur cost on acquisition of proprietary rights, i.e. patents, industrial design or trade marks which are granted or registered under the relevant written laws

Deduction of an amount equal to one-tenth of the cost incurred on payment for the purchase of the proprietary rights, inclusive of consultancy fees, legal fees and stamp duties but excluding royalty payments, will be given in determining the adjusted income for that year of assessment and for each of the nine following years of assessment. [Income Tax (Deduction for Cost of Acquisition of Proprietary Rights) Rules 1999]

No deduction will be given for a year of assessment in the basis period where the proprietary rights ceased to be used. When the proprietary rights are transferred from the holding company, amount claimed will be restricted to the remaining portion unallowed to the holding company With effect from Y/A 2002, deduction of an annual amount equal to 20% (for a period of 5 years) of cost incurred to acquire proprietary rights is given [Income Tax (Deduction for Cost of Acquisition of Proprietary Rights) Rules 2002]

17. Promotion of Malaysian Brand Name Goods

Companies (at least 70% Malaysian owned) which incur expenditure on advertising Malaysian brand name goods locally

Double deduction of advertising expenses incurred [Income Tax (Deduction for Advertising Expenditure on Malaysian Brand Name Goods) Rules 2002]

Expenses on advertising of Malaysian brand

names registered overseas Double deduction of expenses incurred [Income Tax (Deduction for Advertising Expenditure on Malaysian Brand Name Goods) Rules 2002]

238


Eligibility Tax Reliefs 18. Exemption of Import Duty and Sales Tax

Exemption of Import Duty and Sales Tax for Import of Spares and Consumables (2001 Budget)

Exemption of import duty and sales tax until 31.12.03

Owners of Malaysian brand names who

outsource their manufacturing activities Exemption of import duty and sales tax on raw materials which are not manufactured locally and on semi-finished goods imported from contract manufacturers abroad [for applications received by MIDA from 11.9.04 (2005 Budget)]

Local manufacturers of medical devices Full import duty exemption on imported medical

devices used for the purpose of kitting or producing complete procedural sets, provided that these medical devices are not manufactured locally [for applications received by MIDA from 11.9.04 (2005 Budget)]

Local vehicle assemblers/manufacturers Exemption of import duty on chassis fitted with

engines for NGV monogas buses and motor vehicles for transportation of goods [for applications received by Ministry of Finance from 1.10.05 (2006 Budget)]

Exemption of import duty on NGV monogas engines to replace diesel engines for buses and motor vehicles for transportation of goods [for applications received by Ministry of Finance from 1.10.05 (2006 Budget)]

19. Accelerated Capital Allowances

Companies which Incur Capital Expenditure for Conserving Their Own Energy Consumption

Effective Y/A 2001, accelerated capital allowances on related equipment to be fully written off within a period of 3 years (initial 40%; annual 20%) [Income Tax (Accelerated Capital Allowances) (Conservation of Energy) Rules 2001] Effective Y/A 2003, the write-off period on capital expenditure incurred on the related equipment be accelerated from 3 years to 1 year [Income Tax (Accelerated Capital Allowances) (Conservation of Energy) Rules 2003].

Import duty and sales tax exemption on equipment that is not produced locally. For equipment that is produced locally, sales tax exemption will be given

Companies which incur capital expenditure

on equipment (certified by the Ministry of Energy, Water and Communications) for generating energy for their own consumption from resources that are renewable and environment friendly such as biomass, hydropower and solar energy

Effective Y/A 2005, accelerated capital allowances on the related equipment be allowed in 1 year (initial allowance 20%; annual allowance 80%) [Income Tax (Accelerated Capital Allowance) (Renewable Energy) Rules 2005]

239


Eligibility Tax Reliefs Companies which incur capital expenditure

on purchase of moulds used in the production of Industrialised Building System (IBS) in the construction industry

Effective Y/A 2006, accelerated capital allowances on related equipment to be fully written off within a period of 3 years (2006 Budget)

20. Locally Owned Companies which Acquire a

Foreign Company to acquire high technology for production in Malaysia or to gain new export markets for local products

Deduction of an amount equal to one-fifth of the acquisition cost incurred for 5 years [Income Tax (Deduction for Cost of Acquisition of a Foreign Owned Company) Rules 2003]

21. Group relief of adjusted loss for selected

products (such as biotechnology, nano-technology, optics and photonics) under the pre-package scheme

For further details on group relief (Economic Stimulus Package 2003)

B16.3 TRADING SECTOR

22. Freight charges Manufacturers incurring freight charges for the shipment of their manufactured goods from Sabah or Sarawak to any port in Peninsular Malaysia

Double deduction of freight charges incurred w.e.f. Y/A 2000 (current year basis) [Income Tax (Deduction for Freight Charges from Sabah or Sarawak to Peninsular Malaysia) Rules 2000]

23. Export Allowance


24. Exemption of Statutory Income

International Trading Company which satisfies the following criteria: (i) Incorporated in Malaysia; (ii) Achieve an annual sales turnover of

more than RM25 million (reduced to RM10 million with effect from Y/A 2002) [Income Tax (Exemption) (No. 12) Order 2002];

(iii) 70% of its equity owned by Malaysians (reduced to 60%) [Income Tax (Exemption) (No. 12) Order 2002];

(iv) Market manufactured goods especially those from small and medium scale industries. Effective Y/A 2002, export of goods of related companies is allowed without any restriction [Income Tax (Exemption) (No. 12) Order 2002]; and

(v) Registered with MATRADE and fulfils the following conditions:

Tax exemption of 70% of the statutory income arising from increased export sales for 5 years Effective Y/A 2002, tax exemption of 10% of the increased export value for a period of 5 years will be given [Income Tax (Exemption) (No. 12) Order 2002] The exemption is increased to 20% of the value of increased exports with effect from Y/A 2003. [Income Tax (Exemption) (Amendment) Order 2003]

240

B16.3 TRADING SECTOR (CONT’D)

Eligibility Tax Reliefs (a) not more than 20% of annual

sales is derived from trading of commodities;

(b) not more than 20% of annual sales is derived from the sales of goods of related companies. Effective Y/A 2002, export to related companies is allowed without any restriction [Income Tax (Exemption) (No. 12) Order 2002]; and

(c) uses local services for banking, finance, insurance and uses local ports and airports

The incentive is extended to hypermarkets

and direct-selling companies (Economic Stimulus Package 2003)

25. Approved offshore trading company

Offshore trading means buying from and selling to non-residents through a website in Malaysia of foreign goods for consumption outside Malaysia including goods brought into Malaysia for the purpose of redistribution outside Malaysia. (for applications received by Ministry of Finance from 20.10.01)

Effective 20 October 2001, chargeable income in respect of an offshore trading is exempted from tax for a period of 5 consecutive YAs (commencing from YA in which the approval is granted) based on the following formula. Exempt chargeable income = A – [ (10/B x A) @ B ] Non-exempt chargeable income = 10/B x A Where: A is the chargeable income and B is the prevailing tax rate. Income Tax (Exemption) (No. 5) Order 2003

Companies which incurred the cost of

developing a website which is electronic commerce enabled for the basis period for a year of assessment

Annual deduction of 20% on cost of developing websites for 5 years [Income Tax (Deduction for Cost of Developing Website) Rules 2002]


Companies engaged in the promotion of exports which incur approved outgoings and expenses

Double deduction of approved outgoings and expenses [Income Tax (Promotion of Exports) Rules 1986; Income Tax (Promotion of Exports) (Amendment) Rules 2001; Income Tax (Deduction for Promotion of Exports) Rules 2002; and Income Tax (Promotion of Exports) (Amendment) Rules 2003] Single deduction of outgoings and expenses in respect of registration of patents, trademarks and product licensing overseas [Income Tax (Deduction For Promotion Of Exports) (No. 2) Rules 2002]

241

B16.3 TRADING SECTOR (CONT’D)

Eligibility Tax Reliefs Companies engaged in the promotion of


Single deduction of outgoings and expenses incurred in respect of hotel accommodation and sustenance up to a maximum of 3 nights, subject to a maximum of RM300 and RM150 per day respectively [Income Tax (Deduction for Promotion of Exports) (No. 3) Rules 2002]






27. Locally Owned Companies (60%) which

Acquire a Foreign Company to acquire high technology for production in Malaysia or to gain new export markets for local products


B16.4 AGRICULTURAL SECTOR

28. Pioneer Status Any company participating in a promoted activity or producing a promoted product which has applied for pioneer status before 1.11.91

Tax exemption of adjusted income (for applications received by MIDA before 1.11.91) or statutory income (for applications received by MIDA on or after 1.11.91) for 5 years (which may be extended to 10 years for selected activities or products)


activity or producing a promoted product (not being an activity or a product where pioneer status or investment tax allowance has already been granted to the company) which applies for and is granted pioneer status on or after 1.11.91

An exemption of 70% of statutory income for 5 years with the balance of 30% of the statutory income taxable at current corporate tax rate An exemption of 85% (increased to 100% for applications received from 13.9.03 to 31.12.05 – 2004 Budget) of statutory income for 5 years will be given to pioneer companies located in Sabah, Sarawak and the Eastern Corridor of Peninsular Malaysia. For incentives that have expired on 31.12.00, extension of another 5 years until 31.12.05 will be given (2001 Budget) The application period for the enhanced incentive of 100% exemption for the promoted areas which expires on 31.12.05 has been extended for another 5 years until 31.12.10 (2006 Budget)

242

B16.4 AGRICULTURAL SECTOR (CONT’D)

Eligibility Tax Reliefs Effective October 2001, rearing of chicken

and ducks in the Eastern Corridor of Peninsular Malaysia, Sabah and Sarawak is eligible for pioneer status with exemption of 85% of statutory income [Promotion of Investments (Promoted Activities and Promoted Products) (Amendment) Order 2002]

Any company that reinvests in the promoted

food processing activity Tax relief period may be extended for another 5 years (2003 Budget)


activity or producing a promoted product of national and strategic importance (as may be determined on a case-to-case basis) to Malaysia. A company which is already operating in Malaysia may also apply if it fulfils such conditions as may be determined by the Minister Any company establishing forest plantation

Tax exemption of 100% of the statutory income for a period of 5 years which may be extended for another 5 years Tax exemption of 100% of the statutory income for a period of 5 years which may be extended for another 5 years

29. Investment Tax Allowance (ITA)

Any company participating in a promoted activity or producing a promoted product which has applied for ITA before 1.11.91

Tax exemption of up to 100% of adjusted income for each year of assessment from ITA computed at 100% on qualifying capital expenditure incurred within 5 years from the date which the approval is to take effect


activity or producing a promoted product (not being an activity or a product where pioneer status or ITA has already been granted to the company) which applies for and is granted ITA on or after 1.11.91


Effective October 2001, the rearing of

chicken and ducks in the Eastern Corridor of Peninsular Malaysia, Sabah and Sarawak is eligible for ITA on 80% of qualifying expenditure [Promotion of Investments (Promoted Activities and Promoted Products) (Amendment) Order 2002]

Tax exemption of up to 85% (increased to 100% for applications received from 13.9.03 to 31.12.05 – 2004 Budget) of statutory income for each year of assessment from ITA computed at 80% (increased to 100% – 2004 Budget) on qualifying capital expenditure incurred by companies located in Sabah, Sarawak and the Eastern Corridor of Peninsular Malaysia within 5 years from the date from which approval is to take effect. For incentives that have expired on 31.12.00, extension of another 5 years will be given (2001 Budget) The application period for the enhanced incentive of 100% ITA for the promoted areas which expires on 31.12.05 has been extended for another 5 years until 31.12.10 (2006 Budget)

243


Eligibility Tax Reliefs Any company that reinvests in the promoted

food processing activity Tax relief period may be extended for another 5 years (2003 Budget)

Any company participating in producing

halal food that complies with international standards (for applications received by MIDA from 11.9.04) Conditions: (a) Halal certification has been obtained

from Jabatan Kemajuan Islam Malaysia (JAKIM); and

(b) Other quality certification has been obtained

Any company establishing forest plantation

Tax exemption of up to 100% of statutory income for each year of assessment from ITA computed at 100% on qualifying capital expenditure incurred within 5 years from the date which the approval is to take effect (2005 Budget) Tax exemption of up to 100% of statutory income for each year of assessment from ITA computed at 100% on qualifying capital expenditure incurred within 5 years from the date which the approval is to take effect


activity or producing a promoted product of national and strategic importance (as may be determined on a case-to-case basis) to Malaysia. A company which is already operating in Malaysia may also apply if it fulfils such conditions as may be determined by the Minister

Tax exemption of up to 100% of statutory income for each year of assessment from ITA computed at 100% on qualifying capital expenditure incurred within 5 years from the date which the approval is to take effect Unutilised allowances can be carried forward to subsequent years



31. Reinvestment Allowance (RA)

A company which incurs capital expenditure (as defined in Sch 7A Para 9) from 1.1.96 on a qualifying agricultural project in Malaysia. This incentive has been extended to an agro-based co-operative society, an area farmers’ association, a national farmers’ association, a state farmers’ association, an area fishermen’s association, a national fishermen’s association and a state fishermen’s association

Tax exemption of statutory income from RA computed at 60% on qualifying capital expenditure. However, for qualifying projects located outside Sabah, Sarawak and the Eastern Corridor of Peninsular Malaysia, the tax exemption is restricted to 70% of statutory income for each year of assessment

This incentive has been further extended to

an individual provided that the person is a citizen and resident in that basis year

The RA is at the rate of 60% on qualifying capital expenditure incurred and is restricted to 70% of statutory income for each year of assessment

For projects located in the promoted areas, there is no restriction on the deduction of RA against the statutory income

244


Eligibility Tax Reliefs With effect from Y/A 1998, RA will only be

given to a company, an agro-based co-operative society, a farmers’ association or a fishermen’s association which has been operating for not less than 12 months and incurs capital expenditure (as defined in Sch 7A Para 9) on a qualifying agricultural project in Malaysia

Tax exemption of up to 100% of statutory income for each year of assessment from RA computed at 60% on qualifying capital expenditure incurred in the basis periods for 5 consecutive years of assessment. The period of 5 years since 1998 is extended to 15 consecutive years commencing from the year the first RA is claimed. However, for qualifying projects located outside Sabah, Sarawak and the Eastern Corridor of Peninsular Malaysia, the tax exemption is restricted to 70% of the statutory income for each year of assessment Where an asset included in the qualifying capital expenditure is disposed of at any time within 2 years from the date of acquisition of that asset, RA given in respect of that asset shall be deemed to have not been given Unutilised allowances can be carried forward to subsequent years until fully utilised

Companies producing promoted food

products upon expiry of RA

Effective from Y/A 2001, accelerated capital allowances on capital expenditure to be utilised within 3 years (initial 40%; annual 20%) will be given upon expiry of the RA [Income Tax (Accelerated Capital Allowance) (Reinvestment in a Qualifying Project) Rules 2000] subject to a letter from MIDA confirming the promoted product status

Companies involved in the rearing of

chickens and ducks which reinvest for the purpose of shifting from open to closed house system Conditions: (a) Approved by the Ministry of

Agriculture and Agro-based Industry; (b) Minimum rearing capacity:

– at least 20,000 broiler chickens/ ducks per cycle; or

– at least 50,000 layer chickens/ ducks per cycle

(2003 Budget)

The RA is at the rate of 60% on qualifying capital expenditure incurred and is restricted to 70% of statutory income for 15 consecutive years commencing from the year the first RA is claimed For projects located in the promoted areas, there is no restriction on the deduction of RA against the statutory income for 15 consecutive years commencing from the first year the RA is claimed

245


Eligibility Tax Reliefs The above incentive has been extended to

rearers of parent and grand parent stock of chickens and ducks Conditions:

(a) Minimum rearing capacity of at least 20,000 parent or grand parent stock of chickens/ducks per cycle; and

(b) Project has been approved by Ministry of Agriculture and Agro-based Industry;

(2005 Budget)

Company that intends to surrender its

Pioneer Status for cancellation and undertake reinvestment before the expiry of its Pioneer Status incentive

Can opt for Reinvestment Allowance incentive with effect from 21.9.02 (2003 Budget)

32. Abatement of Statutory Income for Exports


33. Export Allowance



Companies engaged in the promotion of exports and which incur approved outgoings and expenses

Double deduction of approved outgoings and expenses [Income Tax (Promotion of Exports) Rules 1986; Income Tax (Promotion of Exports) (Amendment) Rules 2001; Income Tax (Deduction for Promotion of Exports) Rules 2002; and Income Tax (Promotion of Exports) (Amendment) Rules 2003]

Companies engaged in the promotion of


Single deduction of outgoings and expenses incurred in respect of hotel accommodation and sustenance up to a maximum of 3 nights, subject to a maximum of RM300 and RM150 per day respectively [Income Tax (Deduction for Promotion of Exports) (No. 3) Rules 2002]






246


Eligibility Tax Reliefs Companies which export fresh and dried

fruits, fresh and dried flowers, ornamental plants, ornamental fish, frozen raw prawn or shrimp, frozen cooked and peeled prawn and frozen raw cuttlefish and squid

Tax exemption of statutory income equivalent to 10% of the value of increased exports w.e.f. 1.1.98. Unabsorbed allowance can be carried forward to subsequent years [Income Tax (Allowance for Increased Exports) Rules 1999; Income Tax (Allowance for Increased Exports) (Amendment) Rules 2003]

Companies whose manufactured goods

achieve a significant increase in exports (ie at least 50%)

Tax exemption of statutory income (restricted to 70% in a year of assessment) equivalent to 30% of the value of increased exports of manufactured goods w.e.f. Y/A 2003 [Income Tax (Exemption) (No. 17) Order 2005]

Companies which succeed in penetrating

new export markets Tax exemption of statutory income (restricted to 70% in a year of assessment) equivalent to 50% of the value of increased exports of manufactured goods w.e.f. Y/A 2003 [Income Tax (Exemption) (No. 17) Order 2005]

Companies which have been awarded the Export Excellence Award (given by MITI)

Full tax exemption of statutory income on increased export value w.e.f. Y/A 2003 [Income Tax (Exemption) (No. 17) Order 2005]


activity relating to contract research and development or providing research and development services in Malaysia only to company other than a related company


35. Research and Development

Companies which incur expenditure (not being capital expenditure) on approved research

Double deduction of expenditure on approved research


relating to technical or vocational training




Tax exemption of up to 70% of statutory income for each year of assessment from ITA computed at 50% on research capital expenditure incurred within 10 years from the date which the approval is to take effect

Companies which incur qualifying

expenditure on buildings used for approved research

Industrial building allowance of 10% (initial) and 2% (annual – increased to 3% w.e.f YA 2002)

Companies which incur expenditure on

qualifying plant and machinery used for approved research

Claim of capital allowances on plant and machinery

247


Eligibility Tax Reliefs Companies resident in Malaysia that invest

in subsidiary that undertakes the commercialisation of R&D findings in resourced based industry

Effective from 11 September 2004, single deduction is given on the value of investment up to the year of assessment prior to the commencement of the commercialization of the project i.e. tax relief period of related company [Income Tax (Deduction for Investment in a Project of Commercialisation of Research and Development Findings) Rules 2005]

36. Pioneer companies which incur approved

R&D expenditure Double deduction of approved R&D expenditure can be accumulated and claimed in post pioneer period [S. 34A(4A)]

37. Companies which incur expenditure in

obtaining certification for recognised quality systems and standards, and halal certification, evidenced by a certificate issued by a certification body as determined by the Minister

Double deduction of expenditure incurred [S. 34(6)(ma)]

38. Qualifying Farm Expenditure

Persons who incur qualifying farm expenditure on an approved agricultural project

Deduction from aggregate income for qualifying farm expenditure incurred on approved agricultural projects (Sch 4A, ITA) Abolished w.e.f. Y/A 2006

39. Group Relief of Adjusted Loss

A company resident in Malaysia which incurs adjusted loss from approved food production projects, has made application for surrender of the loss not later than 31.12. 2010, commenced the project within one year from date of approval. The relief is extended to forest and rubber plantations under the pre-package scheme (Economic Stimulus Package 2003)

Deduction of adjusted loss of the company (referred to as surrendering company) against the aggregate income of one or more related companies (as defined in Sch 4C and referred to as claimant companies) Adjusted loss not surrendered in the current year will be carried forward but cannot be surrendered in subsequent years for deduction against aggregate income of related companies Abolished w.e.f. Y/A 2006. Please refer to further comments in item 104

40. Exemption of Import Duty and Sales Tax

(a) Import of machinery and equipment used in plantation which are not available locally

(b) Import of machinery and equipment used in plantation which are produced locally (2001 Budget w.e.f. 28.10.00)

Exemption of import duty and sales tax Exemption of sales tax only

This incentive requires the approval of MIDA

248


Eligibility Tax Reliefs 41. Tax Deduction of Investment Amount with

Tax Exemption of Statutory Income of Subsidiary (first alternative)

Mutually exclusive with item 42

Companies which invest in subsidiary

companies engaged in the production of approved food products

Effective Y/A 2001, tax deduction of an amount equivalent to the amount of investment made in the subsidiary company [Income Tax (Deduction for Investment in an Approved Food Production Project) Rules 2001]

The above tax deduction incentive has been

extended to consolidation of management of smallholdings and idle land (but not the group relief for losses). This incentive is applicable for applications received from 21.9.02 (2003 Budget)

Wholly-owned subsidiary company involved

in the consolidation of management of smallholdings or idle land

Exemption of service tax w.e.f. 1.1.03 (2003 Budget)

Subsidiary companies undertaking

production of approved food products Conditions: (a) Investing company should own 100%

(reduced to 70% w.e.f 11.9.2004 – 2005 Budget) in the subsidiary company undertaking food production;

(b) Approved food products are kenaf, vegetables, fruits, herbs, spices, aquaculture, cattle, goats, sheep and deep sea fishing [Income Tax (Approved Food Production Projects) Order 2002 and Income Tax (Approved Food Production Projects) (Amendment) Order 2003]

(c) Application for these incentives should be submitted for approval by the Ministry of Finance through the Ministry of Agriculture and Agro-based Industry from 20.10.01 to 31.12.05 (extended to 31.12.2010 – Finance Act 639); and

Income tax exemption of 100% of statutory income for 10 years commencing from the first year the subsidiary company records profit.

Losses incurred before the tax exemption period are allowed to be carried forward to post exemption period of 10 years and losses incurred during tax exemption period are allowed to be carried forward to post exemption period Dividends paid out from the exempt income are tax exempt in the hands of shareholders

(d) The food production should commence within one year from the approval date of the incentive.

As proposed in the 2002 Budget, the above incentives can be extended to any company which reinvests in the same food products for a period of 5 years subject to same condition as announced in the 2001 Budget.

249


Eligibility Tax Reliefs 42. Group Relief of Losses with Tax Exemption

of Statutory Income of Subsidiary (second alternative)

Mutually exclusive with item 41

Companies that invest in subsidiary

companies engaged in the production of approved food products

Group relief of losses incurred by subsidiary companies before it records any profit

Subsidiary companies undertaking

production of approved food products

Income tax exemption of 100% of statutory income for 10 years commencing from the first year the subsidiary company records profit. Losses incurred during tax exemption period of 10 years are allowed to be carried forward to post exemption period

Conditions:

(a) Investing company should own 70% in the subsidiary company undertaking food production;

(b) Approved food products are kenaf, vegetables, fruits, herbs, spices, aquaculture, cattle, goats, sheep and deep sea fishing [Income Tax (Approved Food Production Projects) Order 2002 and Income Tax (Approved Food Production Projects) (Amendment) Order 2003]

(c) Application for these incentives should be submitted for approval by the Ministry of Finance through the Ministry of Agriculture and Agro-based Industry from 20.10.01 to 31.12.05 (extended to 31.12.2010 – Finance Act 639); and

Dividends paid out from the exempt income are tax exempt in the hands of shareholders

(d) The food production should commence within one year from the approval date of the incentive.

As proposed in the 2002 Budget, the above incentives can be extended to any company which reinvests in the same food products for a period of 5 years subject to same condition as announced in the 2001 Budget.

43. Accelerated Capital Allowances

Companies which Incur Capital Expenditure for Conserving Their Own Energy Consumption

Effective Y/A 2001, accelerated capital allowances on related equipment are to be allowed over a period of 3 years [Income Tax (Accelerated Capital Allowances) (Conservation of Energy) Rules 2001]

250


Eligibility Tax Reliefs Effective Y/A 2003, the write-off period on

capital expenditure incurred on the related equipment be accelerated from 3 years to 1 year [Income Tax (Accelerated Capital Allowances) (Conservation of Energy) Rules 2003

Effective 28.10.00, import duty and sales tax are

exempted on equipment that is not produced locally. For equipment that is produced locally, only sales tax exemption will be given


on machinery and equipment (to be determined by the Minister of Finance) used in the agricultural sector excluding forest plantations

Effective Y/A 2005, accelerated capital allowances on the related machinery and equipment are to be allowed over a period of 2 years [Income Tax (Accelerated Capital Allowance) (Machinery and Equipment for Agriculture Sector) Rules 2005]


on equipment (certified by the Ministry of Energy, Water and Communications) for generating energy for their own consumption from resources that are renewable and environment friendly such as biomass, hydropower and solar energy

Effective Y/A 2005, accelerated capital allowances on the related equipment are to be allowed in 1 year (initial allowance 20%; annual allowance 80%) [Income Tax (Accelerated Capital Allowance) (Renewable Energy) Rules 2005]

44. Non-Rubber Plantation Companies which

Plant Rubberwood Trees The write-off period on capital expenditure incurred on the qualifying capital expenditure be accelerated from 2 years to 1 year (This proposal is applicable to applications received from 21.9.02 onwards by the Ministry of Primary Industries) (2003 Budget)

45. Locally Owned Companies which Acquire a

Foreign Company to acquire high technology for production in Malaysia or to gain new export markets for local products


B16.5 TOURISM SECTOR

46. Pioneer Status Companies involved in the hotel and tourist industry and participating in establishment or expansion/modernisation/renovation of hotel or participating in establishment or expansion/modernisation of tourism project which have applied for pioneer status before 1.11.91. As proposed in the 1997 Budget, this incentive for the expansion or modernisation of existing hotels would be re-introduced

Tax exemption of adjusted income (for applications received by MIDA before 1.1.91) or statutory income (for applications received by MIDA on or after 1.1.91) for 5 years (which may be extended to 10 years)

251

B16.5 TOURISM SECTOR (CONT’D)

Eligibility Tax Reliefs Companies in the hotel and tourism industry

and investing in expansion, modernisation and renovation [for applications received from 13.9.03 by MIDA (2004 Budget)]

Another round of Pioneer Status with a tax exemption of 100% of statutory income


activity or producing a promoted product (not being an activity or a product where pioneer status or investment tax allowance has already been granted to the company) which has applied for and is granted pioneer status on or after 1.11.91

An exemption of 70% of statutory income for 5 years with the balance of 30% of the statutory income taxable at current corporate tax rate An exemption of 85% (increased to 100% for applications received from 13.09.03 to 31.12.05 - 2004 Budget) of statutory income will be given to pioneer companies located in the Eastern Corridor of Peninsular Malaysia, Sabah, Sarawak and the Federal Territory of Labuan The application period for the enhanced incentive of 100% exemption for the promoted areas which expires on 31.12.05 has been extended for another 5 years until 31.12.10 (2006 Budget)

Any company involved in the following

tourism projects: (a) construction of medium and low cost

hotels of up to three-star category as certified by the Ministry of Culture, Arts and Tourism provided that the projects have not commenced operation as at 25.10.96 (effective from 1.1.96)

(b) construction of holiday camps and recreational projects including summer camps (effective for applications received after 25.10.96)

Tax exemption of 70% (85% for projects located in the Eastern Corridor of Peninsular Malaysia, Sabah, Sarawak and the Federal Territory of Labuan) of statutory income for 5 years with the balance of 30% (15%) of the statutory income taxable at current corporate tax rate. For incentive that has expired on 31.12.00, extension of another 5 years until 31.12.05 will be given (2001 Budget)

(c) construction of convention centres with a hall capable of accommodating at least 3,000 participants (w.e.f. Y/A 1997)


Companies involved in hotel and tourism industry participating in establishment or expansion/modernisation/renovation of hotel or participating in establishment or expansion/modernisation of tourism project

Allowance of up to 100% on qualifying capital expenditure incurred within 5 years from the date from which approval is to take effect

Companies in the hotel and tourism industry and investing in expansion, modernisation and renovation [for applications received from 13.9.03 by MIDA (2004 Budget)]

Another round of ITA at the rate of 100% and offsetted against 100% of statutory income for 5 years

252


Eligibility Tax Reliefs Any company participating in a promoted

activity or producing a promoted product (not being an activity or a product where pioneer status or investment tax allowance has already been granted to the company) which applies for and is granted investment tax allowance on or after 1.11.91


Tax exemption of up to 85% (increased to 100% for applications received from 13.09.03 to 31.12.05 – 2004 Budget) of statutory income for each year of assessment from ITA computed at 80% (increased to 100% – 2004 Budget) on qualifying capital expenditure incurred by companies located inthe Eastern Corridor of Peninsular Malaysia, Sabah, Sarawak and the Federal Territory of Labuan within 5 years from the date from which approval is to take effect Unutilised allowance can be carried forward to subsequent years The application period for the enhanced incentive of 100% ITA for the promoted areas which expires on 31.12.05 has been extended for another 5 years until 31.12.10 (2006 Budget)

Any company involved in the following

tourism projects: (a) construction of medium and low cost

hotels of up to three-star category as certified by the Ministry of Culture, Arts and Tourism provided that these projects have not commenced operation as at 25.10.96 (effective from 1.1.96)

(b) construction of holiday camps and recreational projects including summer camps (effective for applications received after 25.10.96)

(c) construction of convention centres with a hall capable of accommodating at least 3,000 participants (w.e.f. Y/A 1997)

Tax exemption of up to 70% (85% for projects located in the Eastern Corridor of Peninsular Malaysia, Sabah, Sarawak and the Federal Territory of Labuan) of statutory income for a year of assessment from ITA computed at 60% on qualifying capital expenditure incurred within 5 years from the date which the approval is to take effect

48. Industrial Building Allowance

Pioneer companies or companies granted investment tax allowance which incur qualifying capital expenditure on a hotel building including expenditure on extension and modernisation of existing hotel building (extended to Company not granted pioneer status/ITA effective YA2002) Airport and motor racing circuit are treated as industrial buildings effective Y/A 2001

Initial allowance of 10% and annual allowance of 2% With effect from Y/A 1994, 10% annual allowance on building for accommodation for non-managerial, non-administrative and non-clerical employees Effective Y/A 2002, initial allowance of 10% is extended to purchased buildings and an increased annual allowance of 3% is extended to both constructed and purchased buildings

253


Eligibility Tax Reliefs 49. Tour operators bringing in at least 500

tourists from outside Malaysia through group inclusive tours

Exemption of tax from Y/A 1986 to Y/A 2000. Extended to Y/A 2001. Extended from Y/A 2002 to Y/A 2006 [(Income Tax (Exemption) (No. 11) Order 2002]

50. Companies carrying on hotel or tour

operating business which are not registered with the HRDF and have incurred expenses for training of employees and also training of handicapped persons

Double deduction of the training expenses incurred [Income Tax (Deduction for Approved Training) Rules 1992]

51. Overseas promotion expenses Double deduction of overseas promotion expenses

[Income Tax (Deduction for Overseas Expenses for Promotion of Tourism) Rules 1991; and Income Tax (Deduction for Overseas Expenses for Promotion of Tourism) (Amendment) Rules 2003]

52. Double deduction on leave passage for

domestic travel for employees Double deduction for a year from 1.6.03 [Income Tax (Deduction for Expenditure on Leave Passage) Rules 2003]

53. Local companies organising conferences in

Malaysia bringing in at least 500 foreign participants

Tax exemption on statutory income relating to the bringing in of the participants will be given w.e.f. Y/A 1997 [Income Tax (Exemption) (No. 53) Order 2000]

54. Any promoter of car or motorcycle races

who organises races of international standard held in Malaysia

Tax exemption on 50% of statutory income of promoters [Income Tax (Exemption) (No. 54) Order 2000]

55. Local companies organizing exhibition,

festival or conference including game or sports competition of international standard and held in Malaysia

Tax exemption on 50% of statutory income of promoters [Income Tax (Exemption) (No. 55) Order 2000]

56. Promotion of Domestic Tourism

Companies organising domestic tour packages (inclusive of transportation by air, land or sea and accommodation) within Malaysia which are participated by at least 1,200 local tourists (who are Malaysian citizens or individuals residing in Malaysia) per year

Tax exemption for foreign nationals participating in such activities Income (Tax Exemption) (No. 55) Order 2000 Exemption of income derived from domestic tour packages for Y/A 1999 and Y/A 2000. Extended to Y/A 2001. Extended from Y/A 2002 to 2006 [(Income Tax (Exemption) (No. 10) Order 2002]

57. Income Tax Exemption

Companies providing chartering services of luxury yachts [(Income Tax (Exemption) (No. 23) Order 2002]

Income tax exemption of 100% for a period of 5 years effective 20.10.01

254


Eligibility Tax Reliefs 58. Exemption of Excise Duty

Car Rental Operators Excise duty exemption on purchase of national car

B16.6 RESEARCH AND DEVELOPMENT SECTOR

59. Pioneer Status Any contract research and development company participating in an activity relating to research and development and provides research and development services in Malaysia only to companies other than related companies

Tax exemption of 100% of statutory income for 5 years. Unabsorbed business loss of contract R & D company can be carried forward to post-pioneer period for utilisation in subsequent years until fully utilised

Any subsidiary company that undertakes the

commercialisation of R&D findings (applications through a committee at the MIDA that includes a representative from the Ministry of Science, Technology and Innovation received from 11.09.04) Conditions: (a) At least 70% of its equity is owned

by Malaysians; (b) Only resource-based R&D findings

are eligible; and (c) The commercialisation of the R&D

findings should be implemented within 1 year from the date of approval of the incentive

Tax exemption of 100% of statutory income for 10 years (2005 Budget).


Any contract research and development company participating in an activity relating to research and development and provides research and development services in Malaysia only to companies other than related companies


Any research and development company

participating in an activity relating to research and development and provides research and development services in Malaysia to its related company or to any other company




Tax exemption of up to 70% of statutory income for each year of assessment from ITA computed at 50% on research capital expenditure incurred within 10 years from the date from which approval is to take effect Unutilised allowances for the above can be carried forward to subsequent years

255

B16.6 RESEARCH AND DEVELOPMENT SECTOR (CONT’D)

Eligibility Tax Reliefs With effect from Y/A 1998, the above

research and development incentives will be extended to companies which carry out designing or prototyping as an independent activity (research and development activity encompasses designing, prototyping, and testing)

61. Double Deduction of Expenses For donor or user of services 62. Double deduction on approved R&D

expenditure incurred during pioneer period is allowed to be accumulated and claimed in post pioneer period

S. 34A(4A)

63. R&D Companies granted either PS/ITA will

be given second round of incentives. Economic Stimulus Package 2003

64. Deduction on Investment in Subsidiary

Company Engaged in the Commercialisation of R&D Findings

Companies resident in Malaysia that invest in subsidiary that undertakes the commercialisation of R&D findings. (applications through a committee at the MIDA that includes a representative from the Ministry of Science, Technology and Innovation received from 11.09.04) Conditions: (a) The company should own at least

70% of the equity of the subsidiary that commercialises the R&D findings;

(b) Only resource-based R&D findings are eligible; and

(c) The commercialisation of the R&D findings should be implemented within 1 year from the date of approval of the incentive

Effective from 11 September 2004, the value of investment in subsidiary shall be given as a deduction in ascertaining the adjusted income of the company up to the year of assessment prior to the commencement of the commercialization of the project i.e. tax relief period of related company [Income Tax (Deduction for Investment in a Project of Commercialisation of Research and Development Findings) Rules 2005]

B16.7 OIL AND GAS SECTOR

65. Export of Services Companies which export services in the oil and gas industry

50% exemption on income remitted to Malaysia Y/A 1993 – 50% Y/A 1994 – 70% [Income Tax (Exemption) (No. 13) Order 1995]

256

B16.8 CONSTRUCTION SECTOR

66. Overseas Construction Projects Companies resident in Malaysia which carry on construction projects outside Malaysia

Tax exemption of 70% (Y/A 1993 and prior – 50%) on income derived from overseas construction projects and remitted to Malaysia from the commencement date of the projects [Income Tax (Exemption) (No. 5) Order 1989]

B16.9 EDUCATION SECTOR

Eligibility Tax Reliefs 67. Investment Tax Allowance (ITA)

Any technical or vocational training company which provides technical or vocational training in Malaysia

Tax exemption of up to 70% of the statutory income for a year of assessment from ITA computed at 100% on qualifying capital expenditure incurred within 10 years from the date which the approval is to take effect

Unutilised allowances can be carried forward to subsequent years

Any private institutions of higher learning

(IPTS) which provides courses in the field of science and existing IPTS in the field of science undertaking additional investment for upgrading of equipment or expanding capacity Qualifying science courses (to be reviewed from time to time): (i) Biotechnology (ii) Medical and health science (iii) Molecular biology (iv) Material sciences and technology (v) Food science and technology

Tax exemption of up to 70% of the statutory income for a year of assessment from ITA computed at 100% on qualifying capital expenditure incurred within 10 years from the date which the approval is to take effect for applications received by MIDA from 1.10.05 (2006 Budget)


Any person who owns buildings used for industrial, technical or vocational training approved by the Minister

Initial allowance of 10% and annual allowance of 2% Annual allowance of 10% on qualifying expenditure incurred w.e.f. Y/A 1996 Effective from Y/A 2002, initial allowance of 10% is extended to purchased buildings and an increased annual allowance of 3% is also extended to all buildings used.

Any company who owns buildings used for a

school or an educational institution approved by the Minister of Education or any relevant authority

Annual allowance of 10% on qualifying expenditure incurred w.e.f. Y/A 1996

257

B16.9 EDUCATION SECTOR (CONT’D)

Eligibility Tax Reliefs 69. Promotion of Exports Companies involved in the export of

education services Effective from YA2002, the tax exemption on 70% of statutory income has been increased to 50% of the value of increased exports [Income Tax Exemption (No. 9) Order 2002]

Companies incurring export promotion expenses

Double deduction for export promotional expenses effective Y/A 1996 Income Tax (Deductions for Promotion of Export of Higher Education) Rules 2001 and Income Tax (Deductions for Promotion of Export of Higher Education) (Amendment) Rules 2003

70. Multimedia Faculties in Institutions of

Higher Learning Tax incentives accorded to MSC companies will be extended to multimedia faculties (providing courses in media, computer, information technology, telecommunications, communications and contents relating to data, voice, graphics and images) in institutions of higher learning (1998 Budget w.e.f. Y/A 1998)

Refer to Pioneer Status and Investment Tax Allowance under High Technology and Multimedia Sector


Abolished w.e.f. Y/A 2001 Please refer to 2004 Budget Commentary & Tax Information for details

72. Deduction of expenses

IPTS which incur expenses on the development of new courses and compliance with regulatory requirements in introducing new courses

Effective Y/A 2006, the following expenses are allowed to be amortised for a period of 3 years: (i) Expenses on the development of new

courses (commencing from the year of completion of the process of developing the course); and

(ii) Expenses on the regulatory compliance (commencing from the year of completion of the exercise)

(2006 Budget) 73. Exemption of Import Duty, Sales Tax and

Excise Duty IPTS undertaking vocational and technical training for applications received from 20.10.01

Exemption on import duty, sale tax and excise duty on all educational equipment including laboratory equipment, workshop, studio and language laboratory

258

B16.9 EDUCATION SECTOR (CONT’D)

74. Exemption of Tax on Royalty Income Non-resident franchisors providing franchised education programmes approved by the Ministry of Education

Tax exemption on royalty [Income Tax (Exemption) (No. 16) Order 2002]

B16.10 COMMUNICATIONS, UTILITIES AND TRANSPORTATION SECTORS

Eligibility Tax Reliefs 75. Exemption of Statutory Income

Companies undertaking approved service projects (ASP) of national and strategic importance

Exemption of income tax on 100% of statutory income for 10 years

Companies undertaking approved service

projects (ASP) in Sabah, Sarawak and the Eastern Corridor of Peninsular Malaysia

Exemption of income tax on 85% of statutory income for 5 years

Companies undertaking approved service

projects (ASP) in other areas in Malaysia Exemption of income tax on 70% of statutory income for 5 years

Unabsorbed capital allowances and losses are not

allowed to be carried forward to post exemption period

Companies undertaking generation of energy

using biomass. Applicable to applications received from 28.10.00 to 31.12.02. The incentive is extended to 31.12.05 and the company is required to implement the project within 1 year from the date of approval (2003 Budget). This incentive is further extended to 31.12.10 (2006 Budget)

Exemption of income tax of 70% (increased to 100% - 2006 Budget) of statutory income for 5 years Promotion of Investments (Promoted Activities and Promoted Products) (Amendment) Order 200l

The sources of renewable energy are

extended to hydropower (not exceeding 10 megawatts) and solar power. The company is required to implement the project within 1 year from the date of approval (2003 Budget)

A resident person carrying on the business of

transporting passengers or cargoes by sea on a Malaysian ship or letting out on charter a Malaysian ship owned by him on a voyage or time charter basis

Exemption of statutory income

259

B16.10 COMMUNICATIONS, UTILITIES AND TRANSPORTATION SECTORS (CONT’D)

Eligibility Tax Reliefs

76. Investment Allowance (IA) Companies undertaking approved service projects in the service sector in relation to transportation, communications, utilities or any other sub-sector approved by the Minister

Tax exemption of up to 70% of the statutory income for a year of assessment from IA computed at 60% on qualifying capital expenditure incurred within 5 years from the date which the approval is to take effect Unutilised allowances can be carried forward to subsequent years

77. Double Deduction of Expenses

Companies incurring expenses pertaining to promotion of export of services, and research and development and training

Double deduction of eligible expenses for promotion of export of services and expenses of research and development and training [Income Tax (Deduction for Promotion of Export of Services) Rules 2002; Income Tax (Deduction for Approved Training) Rules 1992; and Income Tax (Deduction for Approved Training) (Amendment) Rules 1995]


Companies undertaking approved service projects (ASP) incurring capital expenditure on construction or purchase of a building which is used for the purpose of the provision of services and modernisation of operations

An initial allowance of 10% and an annual allowance of 2% (increased to 3% w.e.f YA 2002) 10% annual allowance w.e.f. Y/A 1994 for building used as accommodation living for non-managerial, non-administrative and non-clerical employees

Airport is treated as industrial building effective Y/A 2001

Effective from Y/A 2002, initial allowance of 10% is extended to purchased buildings and an increased annual allowance of 3% is extended to all buildings used

79. Exemption of Import Duty and Sales Tax (a) Import of prime movers and trailers

by hauliers which are not produced locally

Exemption of import duty and sales tax

(b) Import of prime moves and trailers by hauliers produced locally (2001 Budget effective from 28.10.00)

Exemption of sales tax only

(c) Import of machinery and equipment for the generation of energy using biomass which are:

(i) Not produced locally Exemption of import duty and sales tax (ii) Produced locally (2001

Budget effective 28.10.00) Exemption of sales tax only

260

B16.11 HIGH TECHNOLOGY AND MULTIMEDIA SECTOR

80. Investment Tax Allowance (ITA) Companies undertaking generation of energy using biomass. Applicable to applications received from 28.10.00 to 31.12.02. The incentive is extended for another 3 years until 31.12.05 (2003 Budget). This incentive is further extended to 31.12.10 (2006 Budget) The sources of renewable energy are extended to hydropower (not exceeding 10 megawatts) and solar power. The company is required to implement the project within 1 year from the date of approval (2003 Budget)

Tax exemption of 70% (increased to 100% - 2006 Budget) of statutory income for a year of assessment computed at 60% (increased to 100% - 2006 Budget) on capital expenditure incurred within 5 years from the date on which approval is to take effect Promotion of Investments (Promoted Activity and Promoted Products) (Amendment) Order 2001

81. Pioneer Status

New or existing MSC status multimedia companies operating in Cybercities (Cyberjaya, Kuala Lumpur City Centre, Technology Park Malaysia, Bayan Lepas in Penang and Kulim Hi-Tech Park in Kedah) approved by the Multimedia Development Corporation (MDC) and subject to compliance of conditions to be imposed Selected companies undertaking multimedia activities operating outside the Cybercities recommended by the MDC and subject to compliance of conditions to be imposed

Tax exemption of 100% of statutory income for a period of 10 years. In the case of an existing company, tax exemption applies to the related additional statutory income Tax exemption of 50% of statutory income for a period of 5 years from the date which the approval is to take effect [for applications received by MDC from 1.10.05 (2006 Budget)]

Companies granted “Strategic Knowledge-

based Status Company” (a) Characteristics: – Potential to generate knowledge

content – High value added operations – High technology – A large number of knowledge workers (b) Condition:

– Must have a Corporate Knowledge-based Master Plan

for applications received by MIDA from 21.09.02 (2003 Budget)

Tax exemption of 100% of statutory income for a period of 5 years from the date which the approval is to take effect [for applications received by MIDA from 21.09.02 (2003 Budget)] With effect from YA2003, expenditure incurred on drafting the individual Corporate Knowledge-based Master Plan be allowed as a deduction and be claimed when the company begins to implement the Master Plan


New or existing MSC status multimedia companies operating in Cybercities (Cyberjaya, Kuala Lumpur City Centre, Technology Park Malaysia, Bayan Lepas in Penang and Kulim Hi-Tech Park in Kedah) approved by the Multimedia Development Corporation (MDC) and subject to compliance of conditions to be imposed

Tax exemption of up to 100% of statutory income for a year of assessment from ITA computed on capital expenditure incurred. In the case of an existing company, tax exemption applies to the related additional statutory income

261

B16.11 HIGH TECHNOLOGY AND MULTIMEDIA SECTOR (CONT’D)

Eligibility Tax Reliefs Selected companies undertaking multimedia

activities operating outside the Cybercities approved by the MDC and subject to compliance of conditions to be imposed

Tax exemption of up to 50% of statutory income for a year of assessment from ITA computed at 50% on capital expenditure incurred within 5 years from the date on which approval is to take effect [for applications received by MDC from 1.10.05 (2006 Budget)]

With effect from Y/A 1998, the above incentives will be extended to multimedia faculties (providing courses in media, computer, information technology, telecommunications, communications and contents relating to data, voice, graphics and images) in institutions of higher learning operating outside the Cybercities

In addition to the tax exemption under Pioneer Status or ITA as stated above, exemption of all taxes on multimedia equipment and a special incentive for companies whose presence will attract other companies to establish their operations in the IT City will be given

Companies granted “Strategic Knowledge-

based Status Company” (a) Characteristics:

(b) Potential to generate knowledge content

(b) High value added operations (b) High technology (b) A large number of knowledge

workers (b) Condition: – Must have a Corporate Knowledge-

based Master Plan

Tax exemption of up to 100% of statutory income for each Y/A for ITA computed at 60% on the qualifying capital expenditure incurred within 5 years from the date which the approval is to take effect [for applications received by MIDA from 21.09.02 (2003 Budget)] With effect from YA2003, expenditure incurred on drafting the individual Corporate Knowledge-based Master Plan be allowed as a deduction and be claimed when the Company begins to implement the Master Plan

83. Deduction on cost for acquisition of a foreign

owned company A locally owned company which acquires a foreign owned company abroad for the following purposes for applications received by MIDA from 21.9.02:

(b) to acquire high technology for production within the country, or

(b) to gain new export markets for local products

An amount equal to 20% of the cost of acquisition will be given as a deduction in ascertaining the adjusted income for 5 years of assessment. This incentive is applicable for applications received from 21.9.02 [Income Tax (Deduction for Cost on Acquisition of a Foreign Owned Company) Rules 2003]

B16.12 SERVICE SECTOR

84. Incentive for Approved Investments Overseas Company must be of Malaysian origin and at least 70% of its equity is owned by Malaysians

Income earned abated by 70% as proposed in the 1994 Budget (Y/A 1993 and prior – 50%)

262

B16.12 SERVICE SECTOR (CONT’D)

Eligibility Tax Reliefs The Malaysian company holds at least 30%

in the overseas company Pre-operating expenses allowed as a deduction

The Board of Directors reflects the equity

structure of the overseas company Exemption is for a period of 5 years after the investing company commences operations and makes profit. This 5 year condition is to be removed as per the 1994 Budget

The project is either undertaken to overcome

market access problem and will utilise Malaysian raw materials or components or to supply inputs required by domestic industry in Malaysia or to contribute to “South-South Co-operation”

85. Infrastructure Allowance (IA) Any company which has incurred capital expenditure on infrastructure in any construction, reconstruction, extension or improvement of any permanent structure including a bridge, jetty, port or road in respect of a business or businesses in operation in a promoted area. Qualifying capital expenditure excludes those qualifying for investment tax allowance, capital allowance or reinvestment allowance and capital expenditure incurred on waste disposal or for the use of management, administrative or clerical staff

Tax exemption of up to 85% of the statutory income for a year of assessment from IA computed at 100% on capital expenditure on infrastructure incurred. For incentive that has expired on 31.12.00, extension of another 5 years until 31.12.05 will be given (2001 Budget) Unabsorbed allowance can be carried forward to subsequent years until it is fully utilised

86. Exemption of Statutory Income

Companies providing cold room and refrigerated truck facilities (i.e. cold chain facilities) and related services for perishable food products (applications received from 28.10.00 to 31.12.02)

Pioneer status with tax exemption on 70% (85% for promoted areas) of statutory income for a period 5 years [Promotion of Investments (Promoted Activities and Promoted Products) (Amendment) Order 2001]

Existing companies which reinvest in cold chain facilities and services for perishable agricultural produce (applications received by MIDA from 13.9.03)

Pioneer status with tax exemption of 70% (100% for promoted areas) on increased statutory income arising from reinvestment for a period of 5 years (2004 Budget)

Companies providing energy conservation services

Exemption of income tax on 70% of statutory income for 5 years. This incentive is applicable to applications received from 28.10.00 to 31.12.02 and the project must be implemented within 1 year from the date of approval [Promotion of Investments (Promoted Activity and Promoted Products) (Amendment) Order 2001]. The application date is extended until 31.12.05 (2003 Budget). The application date is further extended until 31.12.2010 (2006 Budget)

263


Eligibility Tax Reliefs Companies providing manufacturing related

services in total chemical management system, integrated logistic, marketing support and utility services for applications received by MIDA from 20.10.01 [Promotion of Investments (Promoted Activities and Promoted Products) (Amendment) Order 2002]

Income Tax exemption of 70% of the statutory income for a period of 5 years. Income tax exemption of 85% of the statutory income for a period of 5 years for projects located in the Eastern Corridor of Peninsular Malaysia, Sabah and Sarawak

A body of persons or a trust or a company limited by guarantee (resident and not operated or conducted primarily for profit) providing activity related to the management of the public cemeterial ground as follows: • maintenance of the cemeterial ground

including the maintenance of facilities and infrastructure;

• religious or cultural and traditional ceremony;

• purchase of new cemeterial ground; • administrative expenditure; • building or maintenance of a building for

prayer or a building which is needed in accordance to the specific tradition or culture of each specific race;

• building or maintenance of the crematorium or funeral parlour; or

• building or maintenance of a columbarium building for storage of the deceased’s ash

Effective YA 2004, tax exemption of statutory income in relation to the following: • performance fees/donation whether in cash or

kind; • cemetery bookings deposits; • service fees for the burial or cremation of the

deceased, the provision for the storage of the deceased’s ash, grave maintenance or the provision of the place and facilities for the praying ceremony;

• sale proceeds of the cemetarial plot; • sale proceeds of the columbarium site for

storage of the deceased’s ash; • member’s subscription fees received; • interest from fixed deposit; and • rental of the praying hall/funeral parlour or a

building or real property owned by it.

Income Tax (Exemption) (No. 36) Order 2005

87. Investment Allowance (IA)

Any private hospital which incurs qualifying capital expenditure in providing special wards to lower income earners (1998 Budget)

Tax exemption from IA computed at 60% on qualifying capital expenditure

Companies providing energy conservation

services Tax exemption of up to 70% of the statutory income for a year of assessment from IA computed at 60% of capital expenditure incurred within a period of 5 years. This incentive is applicable for applications received from 28.10.00 to 31.12.02 and the project must be implemented within one year from the date of approval

The application period has been further extended for an additional 3 years until 31.12.05 (2003 Budget) Promotion of Investments (Promoted Activity and Promoted Products) (Amendment) Order 2001

264



Companies providing cold room and refrigerated truck facilities (i.e. cold chain facilities) and related services for perishable food products (applications received from 28.10.00 to 31.12.02)

Tax exemption of up to 70% (85% for promoted areas) of statutory income for each year of assessment from ITA computed at 60% of qualifying capital expenditure incurred within 5 years from the date which the approval is to take effect Promotion of Investments (Promoted Activities and Promoted Products) (Amendment) Order 2001

Companies providing energy conservation

services Tax exemption of up to 70% of the statutory income for a year of assessment from ITA computed at 60% of capital expenditure incurred within a period of 5 years. This incentive is applicable for applications received from 28.10.00 to 31.12.02 and the project must be implemented within one year from the date of approval [Promotion of Investments (Promoted Activity and Promoted Products) (Amendment) Order 2001] The application period has been extended for an additional 3 years until 31.12.05 (2003 Budget) and further extended for another 5 years until 31.12.2010 (2006 Budget)

Existing companies which reinvest in cold

chain facilities and services for perishable agricultural produce (applications received by MIDA from 13.9.03)

Tax exemption of up to 70% (100% for promoted areas) of statutory income for each year of assessment from ITA computed at 60% (100% for promoted areas) of additional qualifying capital expenditure incurred within 5 years from the date which the approval is to take effect (2004 Budget)


Companies involved in the export of services in the legal, accounting, architecture, marketing, business consultancy, office services, construction management, building management, plantation management, private healthcare and private education sectors [Income Tax (Exemption) (No. 2) Order 2001]

Tax exemption on 70% of statutory income equivalent to 10% of the value of increased exports w.e.f. 1.1.98 Effective Y/A 2002, tax exemption of 70% of statutory income is increased from 10% to 50% of the value of increased exports for all sectors [(Income Tax (Exemption) (No. 9) Order 2002]

Companies involved in the export of

publishing and information and communication technology (ICT) services [Income Tax (Exemption) (No. 2) Order 2001]

Tax exemption on 70% of statutory income equivalent to 10% of the value of increased exports w.e.f. Y/A 2001

265


Eligibility Tax Reliefs Companies which have incurred expenses for

promotion of export of services This incentive has been extended to Partnerships and Sole Proprietorships [Income Tax (Deduction for Promotion of Exports of Professional Services) Rules 2003]

Double deduction of expenses for promoting the export of services w.e.f. Y/A 1996 [Income Tax (Deduction for Promotion of Export of Services) Rules 2002; Income Tax (Deduction for Promotion of Export of Services) (Amendment) Rules 2003; Income Tax (Deduction for Promotion of Export of Services) (Amendment) Rules 2005 and Income Tax (Deduction for Promotion of Export of Services) (Amendment) (No. 2) Rules 2005] and Income Tax (Deduction For Promotion Of Exports Of Professional Services) Rules 2003

Effective YA 2005, the double deduction has been extended to expenses incurred in preparing models for participating in competitions at international level as verified by the Professional Services Development Corporation Sdn. Bhd. [Income Tax (Deduction for Promotion of Export of Professional Services) (Amendment) Rules 2005]

90. Repairs and Maintenance of Luxury Boats

and Yachts in Langkawi Activities undertaken in Langkawi for the repair and maintenance of luxury boats and yachts (1999 Budget)

Income tax exemption for a period of 5 years w.e.f. 24.10.98


(a) Import of spares and consumables for service sectors

Exemption of import duty and sales tax until 31.12.03

(b) Import of machinery used in project providing energy conservation services which are not produced locally


(c) Import of machinery used in project providing energy conservation services which are produced locally


(d) Import of equipment for projects on manufacturing related services


92. Deduction on Investment in Venture

Company A company or a resident individual (with a business source) which makes an investment in a venture company

The amount on investment shall be given as a deduction in ascertaining the adjusted income of the company or individual

Conditions:

(a) The investment in the venture company is in the form of shares which at time of acquisition are not listed on a stock exchange

This takes effect from Y/A 2001, PU (A) 212, Income Tax (Deduction for Investment in a Venture Company) Rules 2001; Revoked by Income Tax (Deduction for Investment in a Venture Company) Rules 2005 which takes effect from YA 2003.

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Eligibility Tax Reliefs (b) The investment is made for financing

or funding at seed-capital, start-up or early stage

(c) The venture company is not a related company of the venture capital company at the point of initial investment

(d) Where early stage financing is provided to a venture company which is involved in technology-based activities not listed under the MESDAQ Market, the investment must be made from the seed capital or start-up stage and the early stage financing is provided as:

(i) additional capital expenditure or additional working capital to increase production capacity, marketing or product development; or

(ii) an interim financing for the purpose of being listed on the official list of a stock exchange

(e) The investment is made at least two years prior to the date of its disposal

93. Venture Capital Companies

Exemption from tax Income tax exemption on statutory income from all sources, other than interest income arising from savings or fixed deposits and profits from syariah-based deposits for 10 years or the life span of the fund, whichever is the lesser

Conditions: (a) At least 70% of the funds invested in

venture company should be in the form of seed capital. With effect from year of assessment 2003, the funds invested in the venture company have been defined to exclude cash, fixed deposits and interest earned (2004 Budget)

(b) Venture capital company should not invest in a related company at the point of the first investment

(c) The venture company is resident in Malaysia

(d) The venture company utilises the financing at seed-capital, start-up or early stage for –

Losses from the disposal of shares in a venture company within the exempt period can be carried forward to post-exempt period This takes effect from Y/A 2000(cyb), PU (A) 211, Income Tax (Exemption) (No. 3) Order 2001; Revoked by Income Tax (Exemption) (No. 11) Order 2005 which takes effect from YA 2003

267


Eligibility Tax Reliefs (i) Activities or products

promoted under the PIA 1986 (ii) Technology-based activities

listed on MESDAQ (iii) Industrial Research and

Development Grant Scheme (iv) Multimedia Super Corridor

Research and Development Grant Scheme

(e) Where early stage financing is provided to a venture company which is involved in technology-based activities not listed under the MESDAQ Market, the investment must be made from the seed capital or start-up stage and the early stage financing is provided as:

(i) additional capital expenditure or additional working capital to increase production capacity, marketing or product development; or

(ii) an interim financing for the purpose of being listed on the official list of a stock exchange

Exemption given under the repealed Order shall continue to remain in full force and effect and that Order shall be deemed to continue to apply for the remaining years of assessment of the exempt period of that venture capital company unless an election has been made to apply the new Order.

94. Venture Capital Management Companies

(VCMC)

Effective Y/A 2003, exemption from tax on statutory income from the share of profits received by it from a venture capital company on any investment made by the venture capital company as stipulated in the agreement entered into between them Income Tax (Exemption) (No. 12) Order 2005

95. Operational Headquarters (OHQ)

Conditions: (a) Incorporated under the Malaysian

Companies Act 1965 (b) Minimum paid up capital of RM0.5

million (c) Minimum total business spending of

RM1.5 million per year

(a) Concessionary tax rate of 10% on income

derived from the provision of qualifying services to its offices or related companies outside Malaysia

(b) Interest income derived from foreign currency loans extended to its offices or related companies outside Malaysia taxed at 10%

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Eligibility Tax Reliefs (d) Carry out a minimum of 3 qualifying

activities (e) Serve a minimum of 3 related

companies outside Malaysia (f) Appoint a minimum of 3 senior

professional or management personnel (g) A sizeable network of companies

outside Malaysia which includes the parent company or its head office and related companies

(h) A well established network of companies with significant and substantial employment of qualified professionals, technical and supporting personnel

Non-application: OHQ which has been granted any incentives (except deductions for promotion of exports) under the Promotion of Investments Act 1986 or any exemption or allowances or deductions given under the Income Tax Act 1967 in respect of its non-qualifying income

(c) Royalties received from R&D carried out in Malaysia on behalf of its offices or related companies outside Malaysia taxed at 10%

(d) Dividends received from related companies overseas are exempt from tax

(e) Effective YA 2003, income tax exemption on statutory income from all income from the provision of qualifying services and a part of the income from the provision of services in Malaysia (not exceeding 20%) for 10 years commencing from a year of assessment in which the date of approval of such OHQ falls in the basis period of that year of assessment. [Income Tax (Exemption) (No. 40) Order 2005]

(f) Losses (current year as well as unabsorbed losses) in respect of the provision of qualifying services shall be disregarded from the source consisting of the provision of services in Malaysia and other businesses.

(g) Dividends paid out from the exempt income are tax exempt in the hands of shareholders [this incentive is applicable for applications received by MIDA on or after 21.9.02 [Income Tax (Exemption) (No. 40) Order 2005]

(h) Expatriates working in an OHQ are taxed only on that portion of their chargeable income attributable to the number of days that they are in the country [this incentive is applicable for applications received by MIDA on or after 21.9.02 [Income Tax (Exemption) (No. 66) Order 2003]

Key non-fiscal incentives:

(a) 100% foreign equity allowed (b) Borrow freely in foreign currency to fund

treasury and fund management services (c) Number of expatriate posts allowed will

be based on skills and requirements (d) Borrow freely in Ringgit up to RM50

million for local use (e) Open foreign/multi foreign currency

accounts with onshore licensed bank in Malaysia to retain export proceeds in foreign currency up to an aggregate overnight balance of USD100 million

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Eligibility Tax Reliefs (f) Open foreign currency accounts with

onshore licensed banks, licensed offshore banks in Labuan or overseas banks for crediting foreign currency receivables, other than export proceeds, with no limit on the overnight balances

(g) Obtain any amount of foreign currency credit facilities from onshore licensed banks and licensed merchant banks in Malaysia and from any non-residents for their own use

(h) Invest freely in foreign securities and lend to related companies outside Malaysia with limitations of RM50 million domestic borrowing and the remittances are made in foreign currency equivalent

(i) Use the professional services of a foreign firm provided that such services are not available locally

(j) Allowed to acquire fixed assets as long as it is used for the purpose of carrying out the operations of the OHQ

96. International Procurement Centre

Conditions: A. Incentives

(a) Makes procurement from and sale to its related and unrelated companies within or outside Malaysia at market price

(b) Minimum annual sales turnover of RM100 million with export sales of at least RM80 million (out of which direct export sales must be at least RM50 million) in respect of the qualifying activities

Not sell more than 20% of its products to local market [local sales include sale to free zones (free industrial zone or free commercial zone) or licensed manufacturing warehouse (LMW)]. B. Status (a) Minimum paid up capital of RM0.5

million (b) Minimum total operating expenditure

of RM1.5 million per year

Effective YA 2003, tax exemption on the following statutory income for 10 years: (a) all income from the qualifying activities

in respect of its direct export sales; (b) a part of the income from the qualifying

activities in relation to its drop shipment export sales; and

(c) a part of the income from the qualifying activities in relation to its local sales

Dividend paid out from the exempt income are exempt from tax in the hands of the shareholder Losses (current year as well as unabsorbed losses) in respect of the provision of qualifying activities shall be disregarded from the source consisting of other businesses (i.e. non-qualifying activities) The above incentives are applicable for applications received by MIDA on or after 21.9.02 [Income Tax (Exemption) (No. 42) Order 2005]

270


Eligibility Tax Reliefs (c) Minimum annual sales turnover of

RM50 million by the third year (d) Incremental usage of Malaysian

ports/airports (f) Drop shipment permitted up to 30% of

annual sales turnover

Key non-fiscal incentives: (a) Number of expatriate posts allowed will

be based on requirements (b) Open one or more foreign currency

accounts to retain export proceeds without any limits imposed

(c) Enter into foreign exchange forward contracts with licensed commercial banks to sell export proceeds based on projected exports

(d) Exempt from foreign equity requirements of Ministry of Domestic Trade and Consumer Affairs

(e) Allowed to bring in raw materials, components or finished products without payment of customs duties into Free Zones or Licensed Manufacturing Warehouses for repacking, cargo consolidation or integration before distribution to final consumers

97. Regional Distribution Centre (RDC)

Same conditions as IPC except that the RDC is allowed to deal with its own brand of goods only and must be located in free zones (free industrial zones or free commercial zones) or licensed warehouses (public and private) or licensed manufacturing warehouses

Same tax incentives as IPC


Old Folks Care Centre is treated as industrial building effective Y/A 2003

10% annual allowance on qualifying expenditure incurred [Income Tax (Industrial Building Allowance) (Old Folks Care Centre) Rules 2003]

B16.13 WASTE RECYCLING SECTOR

99. Pioneer Status Companies undertaking waste recycling activities which are of high value added using high technology in the following areas: (i) recycling of agricultural waste or

agricultural by-products; (ii) recycling of chemicals; and (iii) recycling of reconstituted wood-based

panel board or products

Tax exemption of 70% of statutory income for 5 years with the balance of 30% of statutory income taxable at corporate tax rate Tax exemption of 85% of statutory income for 5 years for pioneer companies located in the promoted areas

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B16.13 WASTE RECYCLING SECTOR (CONT’D)


Companies undertaking waste recycling activities which are of high value added using high technology in the following areas: (i) recycling of agricultural waste or

agricultural by-products (ii) recycling of chemicals; and (iii) recycling of reconstituted wood-based

panel board or products

Tax exemption of up to 70% of statutory income for each year of assessment from ITA computed at 60% of qualifying capital expenditure incurred within 5 years from the date which the approval is to take effect Tax exemption of up to 85% of statutory income for each year of assessment from ITA computed at 80% of qualifying capital expenditure incurred by companies located in the promoted areas

101. Accelerated Capital Allowance

Companies undertaking waste recycling activities

Capital expenditure incurred for the purchase of waste recycling machinery and equipment to be fully utilised within a period of 3 years [Income Tax (Accelerated Capital Allowances) (Recycling of Wastes) Rules 2000]


(a) Import of machinery and equipment for waste recycling activities not produced locally


(b) Import of machinery and equipment for

waste recycling activities produced locally


B16.14 ALL SECTORS

103. Companies which incur capital expenditure on equipment (to be certified by the Ministry of Energy, Water and Communications) to ensure quality of power supply

Effective Y/A 2005, accelerated capital allowances on the related equipment are to be allowed over a period of 2 years [Income Tax (Accelerated Capital Allowances) (Power Quality Equipment) Rules 2005]

104. Group Relief of Adjusted Loss

All locally incorporated companies resident in Malaysia which fulfill the following conditions (a) Both the claimant and the

surrendering companies must each has a paid up of ordinary share capital of more than RM2.5 million

(b) Both companies must have the same accounting period

Effective Y/A 2006, deduction of up to 50% of the adjusted loss from the surrendering company against the aggregate income of claimant company (2006 Budget) Tax treatment for existing claimant companies currently deducting 100% of adjusted loss of the surrendering company will be continued (2006 Budget)

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B16.14 ALL SECTORS (CONT’D)

Eligibility Tax Reliefs (c) Both companies must be related with

at least 70% shareholding owned, whether through direct or indirect shareholding with respect to each other

(d) The shareholding of 70% for companies must be on continuous basis during the preceding year and the relevant year

(e) Losses from the acquisition of proprietary rights or foreign-owned companies are disregarded for group relief

105. Pioneer Status

Any companies enjoying pioneer status whose pioneer period expires on or after 1.10.2005 (2006 Budget)

Unabsorbed losses and unabsorbed capital allowances incurred during pioneer period be allowed to be carried forward and deducted from post-pioneer statutory income of a business relating to the same promoted activity or promoted product (2006 Budget)

106. Double deduction

Any companies listed on the stock exchange endorsed by the Securites Commission providing employment opportunities for unemployed graduates

Double deduction of allowances paid to participants of Unemployed Graduate Training Programme from 1.10.2005 to 31.12.2008 for a period of 3 years w.e.f Y/A 2005 (2006 Budget)


Any companies which incur capital expenditure for conserving energy for own consumption

Tax exemption of up to 70% of the statutory income for each year of assessment from ITA computed at 60% of qualifying capital expenditure within 5 years from the date which the approval is to take effect [for applications received by MIDA from 1.10.2005 to 31.12.2010 (2006 Budget)]


New buildings to be occupied by MSC status companies in Cyberjaya are treated as industrial building

10% annual allowance on qualifying expenditure incurred by owners of the buildings w.e.f. Y/A 2006 (2006 Budget)

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B16.15 SUMMARY Summary of pioneer status, investment tax allowance and reinvestment allowance

Manufacturing/processing/ agricultural company

Promoted product/

Promoted activity

Promoted product/

Promoted activity of national or strategic

importance

High technology company/

company in Industrial Linkage

programme

Technical or

vocational training

company

Selected Multi-media

activities outside cyber-cities

Contract R&D

R&D company

In-house R&D

PS

Rate of exemption

- Outside promoted area

See the

following

70% on SI 100% on SI or VI if existing company

100% on SI – 50% 100% on SI

– –

- Promoted area

columns 85% on SI (100%

w.e.f. YA 2004)

100% on SI or VI if existing company

100% on SI – 50% 100% on SI

– –

Tax relief period


5 5 – 10 5 5 5

- Promoted area

5 5 – 10 5 5 5

ITA ITA rate - Outside promoted area

See the

following

60% 100% 60% 100% 50% 100% 100% 50%

- Promoted area

columns 80% (100%

w.e.f. YA 2004)

100% 60% 100% 50% 100% 100% 50%

Rate of exemption


70% of SI 100% of SI 100% of SI 70% of SI 50% 70% of SI

70% of SI

70% of SI

- Promoted area

85% of SI (100%

w.e.f. YA 2004)

100% of SI 100% of SI 70% of SI 50% 70% of SI

70% of SI

70% of SI

Tax relief period


5 5 5 10 5 10 10 10

- Promoted area

10 5 5 10 5 10 10 10

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B16.15 SUMMARY (CONT’D)

Manufacturing/ processing/ agricultural company

Promoted product/

Promoted activity

Promoted product/

Promoted activity of national or strategic

importance

High technology company/

company in Industrial Linkage

programme

Technical or

vocational training company

Selected Multi-media

activities outside cyber-cities

Contract R&D

R&D company

In-house R&D

RA

RA rate 60% – – – – – – – –

Rate of exemption


70% of SI

- Promoted area

100% of SI

Tax relief period

15

SI = Statutory income VI = Value added income (SI minus inflation-adjusted base income)

CA = Capital allowances PS = Pioneer status ITA = Investment tax allowance RA = Reinvestment allowance

Documents

Pioneer Status - MICPA - The Malaysian Institute Of … B16 TAX INCENTIVES B16.1 MAJOR CHANGES Pioneer Status Salient points: – Pioneer status is granted for an initial period of