INVESTMENT INCENTIVES PROVIDED BY MIDA

INCENTIVES FOR NEW INVESTMENTS

A tax incentive is a financial benefit that is given to a company or individual to encourage them to invest in a particular industry. Agribusiness, tourism (including hotels), and approved services are covered, as are R&D, training, and environmental protection.  Direct tax incentives provide partial or total exemptions from income tax, while indirect tax incentives provide exemptions from import and excise duties.

There are more than 11 industries that will benefit from government incentives, including:

  1. Incentives for The Manufacturing Sector
  2. Incentives for The Agricultural Sector
  3. Incentives for The Biotechnology Industry
  4. Incentives for Environmental Management
  5. Incentives for Research and Development
  6. Incentives for Training
  7. Incentives for Approved Service Projects
  8. Incentives for The Shipping and The Transportation Industry
  9. Incentives for Information and Communication Technology (ICT)
  10. Incentives for Less Developed Areas
  11. Other Incentives

However, we will explain only three industries that will benefit from the incentives as follows:

  1. Incentives for The Manufacturing Sector
  2. Main Incentives for Manufacturing Companies

The Pioneer Status and the Investment Tax Allowance are the two most important tax breaks for companies investing in the manufacturing sector.

Eligibility for Pioneer Status and the Investment Tax Allowance is determined by a number of factors, including the level of value-added, technology used, and industrial linkages. Eligible activities and products are referred to as “promoted activities” or “promoted products” respectively.

Before beginning operations/production, the company must submit an application to MIDA.

  1. Incentives for High Technology Companies
  2. Promotional activities or products are produced by high technology companies. A high-tech company qualifies for: i. Pioneer Status, which exempts 100% of statutory income for five years. Unused capital allowances can be carried forward and deducted from the company’s post-pioneer income. Losses accumulated during the pioneer period can be carried forward and deducted from post pioneer income for seven years; or
  3. 60% ITC on qualifying capital expenditures incurred within five years of the first qualifying capital expenditure.The allowance can be used to offset 100% of the statutory income for each year. Unused allowances can be carried over to the following year until used up.

Applications should be submitted to MIDA.

  1. Incentives for Strategic Projects

Strategic projects entail the development of products or activities of national significance. They are typically large capital investments with lengthy gestation periods, highly technological, integrated, generate extensive linkages, and have a significant economic impact. These types of projects are eligible for:

  1. Pioneer Status with 100% statutory income tax exemption for ten years; unabsorbed capital allowances can be carried forward and deducted from post-pioneer income.

Losses accumulated during the pioneer period can be carried forward and deducted from the company’s post pioneer income for seven years;

  • 100% ITC on qualifying capital expenditures incurred within five years of the first qualifying capital expenditure.

This allowance can be used to offset 100% of the statutory income for each year.

Unused allowances can be carried over to the following year until used up.

Applications should be submitted to MIDA.

  1. Small and Medium Business Tax Credits
  1. Small and Medium Enterprise (SMEs)

A company resident in Malaysia with a paid-up capital of ordinary shares of RM2.5 million or less at the beginning of the basis period of a year of assessment that cannot be controlled by another company with a paid up capital exceeding RM2.

On chargeable incomes up to RM500,000, SMEs get a reduced corporate tax rate of 17%. The remaining taxable income is taxed at 24%.

  • Small Businesses

The Promotion of Investments Act (PIA) 1986 provides tax incentives for small scale companies with a minimum 60% Malaysian equity. Small scale companies are defined as Malaysian-incorporated companies with a minimum shareholder fund of RM2.5 million and 60% to 100% Malaysian equity as of July 3, 2012.

To know more, please contact us.

  • Incentives for The Agricultural

The Promotion of Investments Act 1986 defines “company” as “agro-based cooperative societies and associations” and “agricultural sole proprietorships and partnerships”.

Producers of promoted products and activities in agriculture are eligible for the following incentives:

  1. Main Incentives for the Agricultural Sector

a. Pioneering

Companies that produce or engage in promoted products or activities are eligible for Pioneer Status.

A Pioneer Status company pays no income tax. It pays 30% tax on statutory income for five years starting on Production Day (defined as the day of first sale of the agriculture produce).

Unused capital allowances can be carried forward and deducted from the company’s post-pioneer income.

Losses accumulated during the pioneer period can be carried forward and deducted from post-pioneer income for seven years.

Applications should be submitted to MIDA.

b. Investment Tax Allowance

Companies that produce or engage in promoted activities can apply for Investment Tax Allowance instead of Pioneer Status (ITA). A company granted ITA is entitled to a 60% deduction on qualifying capital expenditures made within five years of the first qualifying capital expenditure.

For each year of assessment, companies can deduct this allowance from their statutory income.

Unused allowances can be carried over to the following year until used up. The remaining 30% is taxed at the current company tax rate.

Applications should be submitted to MIDA.

  1. Incentives for Food Production

New Project Incentives

Incentives are introduced to encourage investment in food projects, both on farms and in production/processing. These will increase the supply of raw materials for food processing, reducing reliance on imports.

Tax incentives are given to both the company investing in a subsidiary engaged in an approved food production project and the subsidiary itself. The tax breaks are as follows:

  • It is possible to claim a tax deduction equal to the amount invested in the subsidiary company engaged in food production activities for the year of assessment; and
  • a full tax exemption on statutory income for ten years of assessment for new project.

Agro-based industry received applications from January 2016 to December 2020.

  1. Incentives for Halal Products
  2. Additional Incentives for the Agricultural Sector

To know more, please contact us.

  • Incentives for The Biotechnology Industry

Main Incentives for the Biotechnology Industry

Incentives for biotechnology companies approved by Malaysian Bioeconomy Development Corporation Sdn Bhd (Bioeconomy Corporation) include:

  1. A tax exemption of up to 100% of statutory income** for IP income:
    1. In either case, the company must have earned statutory income for ten (10) consecutive years starting with the first year; or five (5) consecutive years starting with the first year.
    1. In the case of non-IP income, an exemption up to 70% of statutory income** for ten (10) consecutive years of assessment from the first year the company derives statutory income from the new business, or five (5) consecutive years of assessment from the first year the company derives statutory income from an existing business and expansion project;
    1. After the tax exemption period, a 20% tax rate on statutory income from qualifying activities for ten years.
    1. exempted from import duty and sales tax.
    1. Double deduction for R&D expenses
    1. Double deduction for export promotion expenses
    1. Qualifying buildings used solely for biotechnology activities are eligible for a ten-year Industrial Building Allowance.
    1. Tax deduction equal to total investment made at the start of commercialisation stage for companies or individuals (with business income source).

** Information as of 22 April 2019 and subject to Ministry of Finance finalisation.

Biotechnology Funding for BioNexus Status Companies

Bioeconomy Corporation’s Biotechnology Commercialisation Fund (BCF 2.0) supports BioNexus companies. The BCF Facility’s goals are to help applicants commercialise biotechnology products and services and expand their existing biotechnology businesses.

The BCF Program offers two (2) distinct financing options. The Bioeconomy Development Scheme (BDS), a term financing facility, and the Business Sustenance Scheme (BSS), which addresses the applicant’s working capital financing needs.

To know more, please contact us.