Malaysia's principal tax incentives are provided under the Promotion of Investments Act 1986 and the Income Tax Act 1967. These incentives which are designed to grant total or partial relief from payment of income tax include following:
a. Pioneer status
A company given Pioneer Status will generally be granted 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, commencing from the production date as determined by the Ministry of International of Trade and Industry. A 100% exemption may be granted for certain projects, for example strategic projects in high tech industries with heavy capital investment, high R & D content or i ndustrial linkages, etc. b. Investment tax allowance
A company given Investment Tax Allowance will be granted an allowance of 60% in respect of qualifying expenditure incurred within 5 years from the date of the approval of the project. The ITA can be offset against 70% of the statutory income in the year of assessment. Unutilised ITA can be carried forward to subsequent years until the whole amount has been used up. 30% of the statutory income will be taxed at the prevailing company tax rate.
c. Infrastructure allowance
Infrastructure allowance (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. It is deducted against statutory income up to an amount not exceeding 85% of the statutory income for a year of assessment. Any unutilised IA can be carried forward to subsequent years until it is full y utilised. d. Reinvestment allowance
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the expansion of production capacity, modernisation and upgrading of production facilities, and diversification into related products and automation of production facilities.
e. Industrial adjustment allowance
For the purpose of incentives, industrial adjustment has been defined as any activity proposed to be undertaken by a particular sector in the manufacturing industry to restructure by way of reorganisation, reconstruction or amalgamation within that particular sector with a view to strengthening the basis for industrial self efficiency, improving industrial technology, increasing productivity, and enhancing the efficient use of natural resources and the efficient management of manpower. Companies undertaking approved industrial adjustment programmes are eligible for the Industrial Adjustment Allowance (IAA). The IAA provides for an allowance of up to 100% in respect of qualifying capital expenditure incurred by a manufacturing company in its efforts at undertaking industrial adjustment.
f. Double deduction of expenses (given in respect of certain expenses if the conditions imposed are satisfied)
g. Approved agricultural projects incentives h. Research and development incentives i. Industrial building allowance
j. Incentive for in bound tour operators
k. Incentive for approved overseas investments l. Incentive for overseas construction projects
m. Incentives for high technology and multimedia sector n. Incentives for training
o. Incentives for exports of products manufactured in Malaysia and export of approved services p. Operational Headquarters incentives
q. Labuan International Offshore Finance Centre r. Malaysia Multimedia Super Corridor (MSC)
The well-developed financial and banking sector has enhanced the ability of Malaysian manufacturers particularly the small and medium industries (SMIs) to expand their operations and export overseas. Apart from the normal business credit, many commercial banks and financial institutions have been appointed by Bank Negara Malaysia to disburse Government grants and provide fi nancing facilities allocated for SMIs. Financial assistance for small and medium enterprises (SMEs) is provided in the form of grants and soft loans where qualifying criteria are met.
The qualifying criteria are as follows:
• Manufacturing companies or companies providing manufacturing related services incorporated under
the Companies Act 1965 with annual sales turnover of not exceeding RM25 million or full time employees not exceeding 150;
• For the services sector, businesses must be incorporated under the Registration of Business
Ordinance 1956 with annual sales turnover of not exceeding RM5 million or full time employees not exceeding 50;
• At least 60% equity held by Malaysians; and • Possess valid premise license.
The grant schemes provided by Small and Medium Industries Development Corporation (SMIDEC) are:
1. Grant for Business Start Ups
Assistance is given in the form of a matching grant where 50% of the approved project cost is borne by the Government and the remainder by the applicant. For enterprises in the manufacturing sector, incorporated under the Registration of Business Ordinance 1956, assistance is given up to 80% of the approved cost. The maximum grant allocated per application is RM 100,000.
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3. Grant for Productivity and Quality Improvement and Certification
Assistance is given in the form of a matching grant where 50% of approved project cost is borne by the Government and the remainder by the applicant. The maximum grant allocated per application is RM250,000.
4. Grant for Development and Promotion of Halal Product
Assistance is given in the form of a matching grant where 50% of the approved project cost is borne by the Government and the remainder by the applicant. For enterprises in the manufacturing sector, incorporated under the Registration of Business Ordinance 1956, assistance is given up to 80% of the approved cost. The maximum grant allocated per application is RM150,000.
5. Grant for Enhancing Product Packaging, Design and Labelling Capabilities of SMEs
Assistance is given in the form of a matching grant where 50% of the approved project cost is borne by the Government and the remainder by the applicant. For enterprises in the manufacturing sector, incorporated under the Registration of Business Ordinance 1956, assistance is given up to 80% of the approved cost. The maximum grant allocated per application is RM 200,000.
6. Grant for Enhancing Marketing Skills of SMEs
Assistance is given in the form of a matching grant where 50% of the cost of training is borne by the Government and the remainder by the applicant. For enterprise in the manufacturing sector, registered under business ordinance 1956, assistance is given up to 80% of the approved costs.
7. Grant for RosettaNet Standard Implementation
The Government provides assistance to implement the RosettaNet St andard in the form of a grant for local manufacturing, manufacturing related services as well as companies in the services sector. The implementation of the RosettaNet Standard will enable Malaysian companies to adopt efficient business processes with large companies as well as preparing them to embrace global Supply Chain Management (SCM) System. With the adoption of the RosettaNet standard, local companies would be able to conduct business electronically through common codes f or sourcing of parts and
components with their partners, suppliers and buyers apart f rom enjoying the benefits of reduced inventory costs, time to market and lower transaction costs. The two available models in
implementing the RosettaNet Standard are:
• RosettaNet Direct Model
o The assistance is given in the form of a matching grant, where 50 per cent of the
approved project cost is borne by the Government and the remainder by the applicant. The maximum grant allocated per company is RM100,000.00.
• RosettaNet Application Service Provider (ASP) Model
o For SMEsThe assistance is given in the form of a partial grant, w here 70 per cent of
the approved project cost is borne by the Government and the remainder by the applicant. The maximum grant allocated per company is RM30,000.00.
o For Non SMEsThe assistance is given in the form of a matching grant, where 50
per cent of the approved project cost is borne by the Government and the remainder by the applicant. The maximum grant allocated per company is RM30,000.00.
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