What Are Malaysia Tax Incentives and How Do They Work?
There are numerous types of tax incentives in Malaysia that are offered in terms of tax exemption, allowances, and deductions. Typically, such tax incentives can be availed by tax resident companies.
The purpose of offering different types of tax incentives to various businesses is to encourage more people to establish their businesses in Malaysia and enjoy the benefits from such incentives.
Generally, accounting firms in Malaysia can help businesses and individuals apply for the relevant tax incentives as such companies are familiar with the incentives and exemptions available as per the law.
Following are the major types of tax incentives in Malaysia that you should know about while running a business:
Understanding Malaysia Tax Incentives
Malaysia offers a variety of tax incentives aimed at encouraging investment, innovation, and growth. Here, we break down the key incentives, eligibility criteria, and benefits.
Types of Tax Incentives
Pioneer Status
- Eligibility: Companies engaged in promoted activities/products.
- Benefits: 70% exemption on statutory income for 5 years
Investment Tax Allowance (ITA)
- Eligibility: Companies investing in new projects, expansions, or diversification.
- Benefits: 60% allowance on qualifying capital expenditure for 5 years.
Reinvestment Allowance (RA)
- Eligibility: Companies involved in manufacturing/agriculture that reinvest in modernizing/expanding operations.
- Benefits: 60% allowance on qualifying capital expenditure for 15 consecutive years.
Accelerated Capital Allowance (ACA)
- Eligibility: Companies investing in automation equipment.
- Benefits: 100% allowance on the first RM2 million qualifying expenditure.
Principal Hub Incentive
- Eligibility: Companies establishing regional/global operations in Malaysia.
- Benefits: 10-year tax exemption.
Comparison Of Malaysia Tax Incentives
| Incentive | Eligibility | Benefits |
|---|---|---|
| Pioneer Status | Promoted activities/products | 70% exemption for 5 years |
| Investment Tax Allowance | New projects, expansions, diversification | 60% allowance for 5 years |
| Reinvestment Allowance | Modernizing/expanding operations | 60% allowance for 15 years |
| Accelerated Capital Allowance | Automation equipment | 100% on first RM2 million expenditure |
| Principal Hub Incentive | Regional/global operations in Malaysia | 10-year tax exemption |
Pioneer Status and Investment Tax Allowance (ITA)
Organizations involved in promotional activities and manufacturing promoted products for 5 to 10 years are given pioneer status (PS) in the form of tax exemption. The investment tax allowance (ITA) is an alternative to PS.
ITA is given on the basis of the capital expenditure spent on industrial buildings and machinery being used for promoted activities or during the production of promoted products.
Special Incentive Scheme
Under the special incentive scheme, organizations formed in Malaysia that generate income from an “authorized business” as determined by the Minister of Finance can enjoy significant tax exemptions.
These companies can provide quality tax exemptions up to as high as 70% of the statutory income.
Allowances for Manufacturing Industry
Malaysia offers various types of allowances for the manufacturing industry. Companies operating in the manufacturing or agriculture industry can apply for the allowance for increased export.
Furthermore, organizations operating in industries like communication and transportation are also eligible for tax incentives under the approved services project (ASP).
Food Production
A company with an approved license for food production that has invested in its subsidiary can apply for a tax deduction on the basis of the amount invested by the parent company.
Generally, the Ministry of Finance is responsible for approving the subsidiary companies for the food production industry. Such companies can be eligible for even 100% tax exemption for up to 10 years.
Professional accounting services in Malaysia can typically handle such procedures easily and guide to apply for applicable tax incentives.
Reinvestment Allowance
Reinvestment allowance is another popular tax incentive in Malaysia that facilitates the companies operating in Malaysia for more than 36 months and spending money on the QCE of the manufacturing plant.
The goal of this scheme is to help companies expand, modernize, and automate the traditional process of a manufacturing plant.
Incentives for Information and Communications Technology
The amount of money involved in the development of an e-commerce website is exempted with a yearly exemption of 20% for five years.
Similarly, offshore trading companies operated by the non-residents of Malaysia can also apply for tax exemption if they are using a website based in Malaysia to sell foreign products.
A wide range of ICT companies can also apply for tax exemptions and incentives under the multimedia super corridor (MSC). Companies with MSC status involved in high-capital intensive dealings can apply for tax exemption on statutory income for 10 years.
Moreover, if the ICT companies choose to shift to cybercities, they can be eligible for a 100% tax exemption for ten years on statutory income.
On the other hand, if the MSC companies are not located within the designated region, they can still apply for a 75% tax exemption for five years.
Many different types of tax incentives are available for ICT companies. It becomes easier to understand and apply for these incentives by using the services of accounting firms in Malaysia.
Medical Tourism
If an organization wants to modernize or grow its private healthcare facility, it can apply for tax exemption. However, the healthcare facility must benefit at least 5% of the healthcare travelers from all patients. In this case, it can apply for an exemption of 100% of QCE for five years.
Final Takeaway
The Malaysian government is taking several other steps to improve and expand the structure of tax incentives to develop a transparent, competitive, and attractive business environment in the country.
Special focus is being placed on high technology activities and industries to attract more companies.
Since a wide range of tax incentives are available in Malaysia, it is always a good idea to rely on professionals like an accounting firm in Malaysia to get reliable accounting services.
