Types of Business Tax Incentives in Malaysia
There are various kinds of tax schemes present in Malaysia, which includes tax incentives and exemptions for different types of businesses. They also include allowances and tax deductions on a certain income.
What Are Tax Incentives?
Tax incentives are reductions or exemptions from taxes provided by the government to encourage economic activities. In Malaysia, these incentives aim to attract foreign investments, promote specific industries, and support startups and SMEs. They can take the form of tax holidays, allowances, or deductions.
Types of Business Tax Incentives in Malaysia
Malaysia’s tax incentives are broadly categorized into pioneer status, investment tax allowance, and special industry-specific incentives. Below, we’ll dive into each type:
Pioneer Status (PS)
This incentive provides companies with partial or full income tax exemption for up to five years, extendable in certain cases. It targets businesses in industries that the government aims to develop.
Benefits:
- 70% to 100% exemption on statutory income for up to 5 years.
- Eligible companies can extend the tax exemption period.
Who Qualifies? Industries such as:
- Manufacturing
- Agriculture
- Biotechnology
- Renewable energy
Companies must apply through the Malaysian Investment Development Authority (MIDA) to enjoy Pioneer Status.
Investment Tax Allowance (ITA)
For businesses not qualifying for Pioneer Status, ITA offers an alternative form of tax relief. This allows companies to offset their capital expenditures against taxable income.
Benefits:
- 60% to 100% allowance on qualifying capital expenditure for 5 years.
- The unused allowance can be carried forward until fully utilized.
Eligibility:
- Applicable to industries like automation, modern agriculture, and environmental conservation.
- Companies must demonstrate their commitment to innovation or productivity improvement.
Reinvestment Allowance (RA)
Businesses looking to reinvest in expansion, automation, or modernization can benefit from the RA.
Benefits:
- 60% of qualifying capital expenditure is exempted from taxable income.
- Available for a period of 15 consecutive years.
Industries Covered:
- Manufacturing
- Agricultural processing
Incentives for Small and Medium Enterprises (SMEs)
SMEs play a critical role in Malaysia’s economy, and the government provides tailored tax incentives for them.
Key Incentives:
- Reduced corporate tax rate of 17% on the first RM600,000 of chargeable income.
- Various grants and allowances under the SME Digitalization Initiative.
Industry-Specific Incentives
Some industries receive exclusive tax benefits to spur their growth and global competitiveness:
(a) Halal Industry Incentives
- 100% tax exemption for halal-certified companies.
- Focused on businesses in the food, cosmetics, and pharmaceutical sectors.
(b) Green Technology Incentives
- Green Investment Tax Allowance (GITA) for renewable energy projects.
- Green Income Tax Exemption (GITE) for service providers.
(c) Tourism Tax Incentives
- Tax deductions for building or renovating tourism-related facilities.
Types of Business Tax Incentives in Malaysia Based on Industry
1. Trading Sector
Industries related to the production of goods, tourism sector, hoteling, manufacturing and other commercial businesses can avail pioneer status (PS) or investment tax allowance (ITA). Under PS, companies’ tax is exempted from 70% of the income for five years since the formation of the business.
According to ITA, 60% of the capital expenditure is excused on 70% of the legal income.
2. Special Incentive Scheme
It provides a tax exemption on 70% of the total income. Companies that involve heavy import-export businesses are also eligible for this special tax incentive scheme.
3. Food Production
Food production companies can claim significant tax concessions, especially if they are operating under a large corporate enterprise. Moreover, 100% tax exemption can also be availed under certain conditions if the subsidiary industries are approved through the Ministry of Finance under the list of food production industries.
4. Biotechnology
Biotechnology is rapidly rising in the scientific technology sector. Therefore, Malaysia offers several tax incentives to the companies related to biotechnology that are approved through Biotechnology Corporation, Malaysia.
The following incentives are provided to biotechnology organizations:
- Start-ups and new organizations are provided with a 100% tax exemption for up to 10 years.
- Expanding businesses are given a 100% exemption for up to 5 years.
- Up to 20% concession is provided on the taxes after a period of 10 years.
- An organization with a separate building for biotechnology research is provided with an industrial building allowance of 10% for 10 years.
- Import duty charges are exempted from the biotechnology sector. Since the export of samples and modern machinery is essential in efficient biotechnology business, tax incentive on custom duty is a huge advantage.
5. Education
Private higher education institutions are exempted from the majority of the taxes, for example, development of new curriculum, modification in a course(s), and annual training of the teachers.
Non-profit schools are also provided with tax incentives in Malaysia. However, they must be registered and approved by the Ministry of Education (MOE). There is a certain amount of tax that is exempted. It depends on the scale and strength of the school.
International schools are usually profit-oriented. No tax is collected from these schools for a period of 5 years since their establishment. After this period is over, a certain amount of tax is set, which depends on the number of students studying at the school and the fee structure. Equipment needed in such schools is usually imported, which is made tax-free.
Kindergarten schools registered with MOE are eligible for the education tax incentive scheme. For a period of 5 years, tax exemption is provided to the pre-schools based on their total income. Moreover, building allowance is given to kindergarten schools.
All private pre-schools and kindergartens registered with the MOE are eligible.
6. Green Incentives
Green incentives deal with companies related to renewable and green energy. Any modern technology related to green energy adoption and research in clean energy is covered in such incentives and exempted from customs duty.
Moreover, allowance can be claimed by the companies for the successful purchase of state-of-the-art equipment needed for green energy research. Revenue generated through green technology and services is also exempted to some extent.
7. Healthcare and Wellness
Medical and pharmaceutical industries wishing to expand and modernize their operation are provided allowances by the concerned authorities. Moreover, a 100% tax exemption of QCE is given for a period of 5 years.
8. Information and Communication Technology
E-commerce websites are given a 20% tax exemption on the initial charges of web development for a period of 5 years. Moreover, offshore trading has also become a huge business in Malaysia because it enjoys a huge tax incentive, depending on the total revenue.
9. International Trading Companies
International companies that have established branches in Malaysia, has 60% Malaysian ownership and make at least RM10 Million are provided with tax incentives under the foreign business rules. They are provided with a 20% tax exemption of the 70% legal income for a period of 5 years.
10. Shipping
A tax exemption is given on 70% of the income to organizations and people involved in the transportation of business cargo through Malaysian ships.
The aforementioned highlighted the different types of business tax incentives in Malaysia. If you have any doubt left regarding business taxes, please feel free to get in touch with us.
Eligibility Criteria for Tax Incentives in Malaysia
To qualify for these incentives, businesses must meet specific requirements, including:
1. Registration and Compliance
The company must be registered in Malaysia and comply with local tax laws.
2. Investment in Target Sectors
Tax incentives often focus on industries that align with the government’s strategic economic goals.
3. Application Process
Applications must be submitted to relevant authorities such as MIDA, IRB, or specific industry regulators.
2024 Updates on Tax Incentives in Malaysia
The Malaysian government has introduced new updates and revisions to tax incentives in 2024 to keep up with global economic shifts and enhance local industries.
Key Updates:
1. Enhanced Pioneer Status for Digital Economy
Businesses involved in cloud computing, AI, and digital content are now eligible for extended tax holidays.
2. Expansion of Green Technology Incentives
More sectors are eligible for GITA and GITE, promoting sustainable practices.
3. Tax Incentives for Startups
New measures include tax deductions for angel investors and seed funding for tech startups.
4. Targeted SME Reliefs
Increased tax reductions for SMEs, particularly those adopting digital transformation.
Why Tax Incentives Matter
Understanding and leveraging tax incentives can significantly impact a business’s financial health. By reducing tax liabilities, businesses can reinvest savings into growth opportunities, enhance their competitiveness, and contribute more effectively to Malaysia’s economy.
Benefits Include:
- Boosting cash flow.
- Lowering operational costs.
- Supporting long-term growth strategies.
How to Apply for Tax Incentives in Malaysia
Applying for tax incentives requires thorough documentation and adherence to guidelines set by relevant authorities.
Steps:
- Identify the applicable incentive based on your business activity.
- Gather necessary documentation, including business plans, financial statements, and investment plans.
- Submit the application to the appropriate body, such as MIDA or the IRB.
- Monitor and maintain compliance throughout the incentive period.
Conclusion
Tax incentives in Malaysia are a powerful tool for businesses and investors looking to maximize their potential in a competitive market. By understanding the different types of incentives, their benefits, and the latest 2024 updates, you can strategically position your business for growth.
Whether you’re an SME or a large corporation, taking advantage of these incentives can lead to significant financial benefits.
Frequently Asked Questions about Malaysia Tax Incentives in Malaysia
SMEs can enjoy reduced corporate tax rates and various allowances like the SME Digitalization Grant.
You’ll need to review MIDA’s guidelines and submit an application to determine your eligibility.
Yes, GITA and GITE offer tax exemptions and allowances for businesses in the green technology sector.
