Investing in Iskandar Malaysia
QUICK FACTS: ISKANDAR MALAYSIA
Iskandar Malaysia has been allocated RM6.83 billion by the Malaysia Government and is set to locate in Johor, the southern gateway to Peninsular Malaysia, its advantages include:
- Six (6) to eight (8) hours flight radius from Asia’s burgeoning growth centres such as Bangalore, Dubai, Hong Kong, Seoul, Shanghai, Taipei and Tokyo.
- Within reach of a global market of some 800 million people.
- Accessible by air, land, rail and sea.
- Flanked by three major ports, the Pasir Gudang Port, Port of Tanjung Pelepas and Tanjung Langsat Port.
Five Flagship Zones have been designated as key focal points for development in Iskandar Malaysia. These flagship zones have been envisaged to both further strengthen existing economic clusters as well as diversify and develop targeted growth sectors. Refer to Appendix for more details.
TAX INCENTIVES for Promoted Activities in Iskandar Malaysia:
- 100% Tax Exemption up to a maximum of 10 Years on the statutory income ;
- 200% Tax Deduction up to a maximum of 10 Years on the investment activities
1. Incentives through the Malaysian Industrial Development Authority (‘MIDA’)
Companies which are carrying out the following promoted activities and/or producing promoted products will be eligible for the following tax incentives provided under the Promotion of Investments Act, 1986 and/or the Income Tax Act, 1967.
- Electrical and Electronics
- Petrochemicals and oleochemicals
- Food and Agro-processing
- Biotechnology
General
Pioneer Status
-5 years Pioneer Status and tax exemption at 70% of statutory income
Investment Tax Allowance
-60% ITA on qualifying capital expenditure incurred within 5 years and can be set off against 70% of statutory income
High Technology Projects
Pioneer Status
-5 years Pioneer Status and tax exemption at 100% of statutory income
Investment Tax Allowance
-60% ITA for 5 years and can be set off against 100% of statutory income
Strategic/ Prepackaged incentive Projects
Pioneer Status
-10 years Pioneer Status and tax exemption at 100% of statutory income
Investment Tax Allowance
-100% ITA for 5 – 10 years and can be set off against 100% of statutory income
- Exemption on import duty and/or sales tax on plant and equipment directly used in the manufacturing process
- Exemption from import duty and/or sales tax on raw materials and components used in the manufacturing process
Logistics
- Integrated logistic services providers (‘ILS’)
- International procurement centres (‘IPCs’)/ regional distribution centres (‘RDCs’)
- 5 years Pioneer Status and tax exemption at 70% of statutory income, or
- 60% ITA for 5 years and can be set off against 70% of statutory income
- For IPCs and RDCs, full tax exemption for 10 years
Tourism
- Establishment of hotels (up to 3 stars)
- Expansion/modernization of existing hotels
- Establishment and expansion of tourist projects
- Establishment of recreational camps
- Establishment of convention centres
- 5 years Pioneer Status and tax exemption at 70% of statutory income, or
- 60% ITA for 5 years and can be set off against 70% of statutory income
- Exemption from import duty and/or sales tax on selected equipment used in the hotel/tourism industry
Education
- Technical or vocational training
- Private Higher Education Institutions (‘PHEIs”) providing selected courses in Science (new set up) or existing PHEIs in the selected fields of Science undertaking additional investments for upgrading or expansion capacity
- 100% ITA on qualifying capital expenditure incurred within 10 years to be set off against 70% of statutory income
- Special building allowance of 10% per year
- Exemption on import duty and/or sales tax on educational equipment including laboratory equipment
- Exemption on withholding tax on royalties paid to non-resident franchisors
- Incentives for Private Higher Education Institutions (‘PHEIs) providing courses relating to multimedia and which have their own multimedia faculties are also available through MDeC.
Creative Industries
- Film and video production
- 5 years Pioneer Status and tax exemption at 70% of statutory income, or
- 60% ITA for 5 years and can be set off against 70% of statutory income
- For other incentives, please refer to incentives provided through MDeC for multimedia development and applications.
Financial services, advisory services and consulting services
- Provision of regional headquarters services under business process outsourcing/ offshoring
- 10 years tax exemption on the provision of regional headquarters services to related companies including certain types of business process outsourcing/ offshoring
- See part IV below for incentives for selected services under Islamic Financial Services
2. Incentives through the Multimedia Development Corporation (‘MDEC’)
Companies that develop or use multimedia technologies to produce or enhance their products and services are eligible for MSC Malaysia Status. These also include private higher educational institutions providing courses relating to IT.
A company seeking MSC Malaysia status must meet the following criteria:
- Be a provider or heavy user of multimedia products and services;
- Employ a substantial number of knowledgeable workers;
- Provide technology transfer and/or contribute towards the development of MSC Malaysia or support Malaysia’s k-economy initiatives;
- Establish a separate legal entity for MSC Malaysia qualifying multimedia business and activities;
- Locate in a MSC Malaysia designated cybercity/cybercentre*;
- Comply with environmental guidelines
(*Menara MSC Cyberport, a building located within Iskandar Malaysia, is a designated cybercentre)
Economic Drivers
Education
- -Private Higher Education Institutions (‘PHEIs”) providing courses related to IT and which have their own multimedia faculties
Creative Industries
May include:
- Film and television (pre and post production, production)
- Games and animation (content creation, production, post-production)
- Online and mobile content generation
- Online and mobile content aggregation and enablers
Financial services, advisory services and consulting services
- Business process outsourcing/offshoring
Incentives
- 5 years Pioneer Status (extendable by another 5 years) and tax exemption at 100% of statutory income; or
- 100% ITA on qualifying capital expenditure incurred within 5 years to be set off against 100% of statutory income.
- Exemption on import duty and/or sales tax on multimedia equipment used in the MSC operations.
- Exemption on withholding tax on payments to non-residents for technical services, licensing fees and interest on loans for technology development.
- Owners of buildings in Cyberjaya whose buildings are rented out to MSC status companies are eligible for Industrial Building Allowance of 10% to be claimed over a period of ten years.
3. Incentives through the Ministry of Agriculture
Projects in selected food production are eligible for a better form of tax incentives. The eligible ‘food products’ as approved by the Minister of Finance include vegetables, fruits, herbs, spices, aquaculture, rearing of cattle, goats and sheep and deep sea fishing. The incentives are for the company undertaking the approved food production activity as well as for the company investing in the approved food production company.
Economic Drivers
- Food and agro-processing
Incentives
Approved Food Production company
– 100% tax exemption on statutory income for 10 years
Company which invests in Approved Food Production company
- The investor company is entitled to a tax deduction equivalent to the amount invested in the subsidiary (must be at least 70% owned) which undertakes the food production project; or
- The investor company will be given group relief for the losses incurred by the subsidiary company
- Exemption on import duty and/or sales tax on plant and equipment directly used in the operations
4. Incentives through the Malaysia Islamic Financial Centre (‘MIFC’)
General banking and financial services providers are not eligible for any tax incentive in Malaysia. To promote Malaysia as an Islamic Financial Centre (MIFC), tax incentives are available for eligible companies carrying out Islamic banking services, takaful operations, stock broking, fund management services and etc. The incentives for Islamic financial services include the following:
- tax exemption for Islamic Financial Institutions on transactions in international currencies
- tax exemption for Special Purpose Vehicles issuing Islamic securities
- tax deduction for expenditure on the issuance of Islamic securities
- tax exemption for Islamic fund management companies
- tax deduction for the establishment of an Islamic stockbroking firm
- tax exemption on income received by non-resident experts in Islamic finance
5. Incentives through the Malaysian Biotechnology Corporation
A company which is a provider of a product or services based on life sciences or substantially utilize biotechnology processes and with research capabilities in specific focus areas is eligible to apply for a BioNexus status. The application for BioNexus status is to be submitted to the Malaysian Biotechnology Corporation (Biotech Corp). The incentives are:
- 100% income tax exemption for ten years commencing from the first year the company derives profits; or
- Investment Tax Allowance of 100% on the qualifying capital expenditure incurred within a period of five years.
- Upon the expiry of the tax exemption period, a BioNexus status company will be given a concessionary tax rate of 20% for ten years on income from qualifying activities.
- A company which invests in its subsidiary (at least 70%), which is a BioNexus Status company is granted tax deduction equivalent to the amount of investment made in that subsidiary;
- A company or individual investing in a BioNexus status company is given a tax deduction equivalent to the total investment made in seed capital and early stage financing;
- Exemption of import duty and sales tax on raw materials/components and machinery and equipment;
- Double deduction on expenditure incurred for R&D;
- Double deduction on expenditure incurred for the promotion of exports; and
- Buildings used for biotechnology activities will be eligible for Industrial Building Allowance to be claimed over a period of 10 years.
6. Incentives through the Halal Industry Development Corporation (HDC)
Halal is a way of life and promotes a healthy lifestyle by how we eat, live and conduct our business. HDC Malaysia has been tasked to develop and promote Malaysia as a ‘Global Halal Hub’ through standards development, branding enhancement as well as commercial and industry development.
The following incentives are available for the different type of activities within the supply chain to bring halal certified products to the market.
Development of halal parks
- 10 years tax exemption on the provision of regional headquarters services to related companies including certain types of business process outsourcing/ offshoring
- See part IV below for incentives for selected services under Islamic Financial Services
Services provided must be integrated similar to services provided by an “integrated logistic services provider” which had been approved with tax incentives
- 5 years Pioneer Status with tax exemption at 100% of statutory income; or
- 100% ITA on qualifying capital expenditure incurred within 5 years to be set off against 100% of statutory income
- Exemption from import duty on equipment directly used in the Cold Room Operations
Development of halal parks
- Exemption on statutory income from export sales for 5 years; or
- 100% ITA on qualifying capital expenditure incurred within 10 years to be set off against 100% of statutory income
- Exemption from import duty on raw materials used for the development and production of halal promoted products
- Double deduction on expenses incurred in obtaining international quality standards such as HACCP, GMP, Codex Allimentarious (food standard guidelines of FAO and WHO) , Sanitation Standard Operating Procedures and regulations for compliance for export markets such as Food and Traceability from farm to fork.
