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Taxation in Malaysia


Taxation in Malaysia

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Taxation in Malaysia

Corporation Tax

The corporate tax in Malaysia is 25%.

Is there any business incentives offered?

Direct and indirect Malaysian tax incentives and other facilities are outlined in the Promotion of Investments Act, Income Tax Act, Customs Act, Sales Tax Act, Excise Act, and Free Zones Act.

Pioneer Status

A business recognised as having Pioneer Status can enjoy partial exemption from the payment of income tax. It will only have to pay tax on 30% of its statutory income. The period of tax exemption is 5 years, starting from the production date, as dictated by the Ministry of International Trade and Industry. However, if you decide to establish in the incentive zone of Sarawak, you can relish complete exemption on statutory income for 5 years. For strategic projects in high technology industries with robust capital investment, high research and development content or intensive linkages a complete (100%) exemption might be permitted.

Investment Tax Allowance (ITA)

A business which qualifies for the Investment Tax Allowance can enjoy an allowance of 60% in regard to capital expenditure acquired with five years from the time of qualification. The Investment Tax Allowance can be counterbalanced against 70% of the statutory income. Any allowance that remains unused can be transferred to the following years up until it its depletion. Of the statutory income 30% will be subject to taxation at the determined corporate tax rate.
Businesses based in Sarawak, however, will receive an allowance of 100% in regards of the expenditure acquired. It is possible to use the allowance to set-off against 100% of the statutory income.

Reinvestment Allowance (RA)

Businesses can apply for Reinvestment Allowance (RA), if they been active for at least one year and acquire qualifying capital expenditure for the expansion of production capacity, modernisation and upgrading of production facilities, and diversification into related products and automation of production facilities.
The Reinvestment Allowance comes as an allowance of 60% of capital expenditure incurred for the expansion, modernisation and upgrading of production facilities and diversification into related products. The allowance can be used to counterbalance against 70% of the statutory income.

Incentives for Sarawak

  • Companies that qualify for Pioneer Status in Sarawak will be awarded tax immunity of 100% of their statutory income. The regular amount is 70%

  • For businesses that qualify for Investment Tax Allowance, the rate will be augmented to 100% of the statutory income. The normal rate is 75%

  • Certain companies based in Sarawak can be awarded incentives on products that, if manufactured in other parts of Malaysia, others don't enjoy

  • In some instances, it is possible to gain an infrastructure allowance of 100%

  • Domestically aimed products can also be awarded full import tax immunity on raw materials and components and parts that are not otherwise available in Sarawak

  • Double reductions on freight fees for the export of rattan and wood-based products

High technology industries

High tech related business are characterised as engaging in promoted operations or in the manufacture of promoted goods. High technology businesses can apply for the following incentives:

  • Pioneer Status with full tax exemption at statutory income level for a period of five years

  • Investment Tax Allowance of 60% on qualifying capital expenditure incurred within a period of five years

A high tech firm is required to meet the following criteria:

  • Local research and development expenditure to gross sales should be at least 1% on a yearly basis. Businesses are allowed, however, a time of three years from the start-date of operation to oblige this necessity

  • The amount of science and technical graduates to the labour force should be at least 7%

Strategic industries

Strategic projects are characterised as those involving products and operations imperative to the nation. Furthermore, they are integrated, have a sufficient level of technology, and have a fundamental influence on the economy.

These ventures can be awarded the following incentives:

  • A full tax immunity with Pioneer Status, and at a statutory income level for up to a decade

  • 100% Investment Tax Allowance on eligible capital expenditure acquired within five years. This allowance can be counterbalanced against statutory income

Research and Development

There are two types of research and development companies which qualify for incentives: 'companies' and 'contract companies'.
A research and development business is a systematic or critical study conducted in the sector of science or technology. The objective of the study must be the manufacture or improvement of materials, components, utilities, goods, produce or process:

  • Quality control of product or routine testing of materials, devices products or produce

  • Research in the area of social science or humanities

  • Basic data collection

  • Efficiency surveys or management investigations

  • Market research or sales

A research and development business on a contract qualifies can apply for full income tax immunity at statutory income level for five years or a full (100%) Investment Tax Allowance (ITA) on eligible capital expenditure incurred within a decade. The ITA can be used to counterbalance against 70% of the statutory income.

Otherwise, there are research and development companies, which are defined as offering research and development services in Malaysia or to any of its affiliated companies. It qualifies to apply for 100% ITA capital expenditure incurred within the decade of establishment. The ITA can be utilised to offset against 70% of the statutory income.

Contract research and development companies and research and development companies will qualify for incentives offered, providing they meet the following criteria:

  • All research must be in fulfil with the requirements of the nation and contribute significantly to the economy

  • At least 70% of the income of the business needs to be a derivative of research and development operations

  • For production-based research and development, at least half of the labourers of must be properly qualified personnel conducting research and other related functions

  • For agricultural-based research and development at least 5% of the workers must meet the criteria outlined above for production-based research and development

Click here to Ask an Expert about Taxation in Malaysia

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