Tax Credit and Incentive for Corporates in Malaysia

Malaysia offers a vast range of tax incentives that cover the majority of the industrial sectors. There are different forms of tax incentives in Malaysia as they can be granted in the form of tax exemption or allowances. Usually, tax is exempted, which means that shareholders’ income is not taxed.

The following schemes and incentives cover different corporates in Malaysia.

Businesses operating under the manufacturing, tourism, agricultural and any other industrial sector are eligible for PS and ITA. Such industries are responsible for the production of products.

Industries with pioneer status are exempted 70% of the tax on income for five years. Payable taxes for PS and ITA also depend on the type of business. For example, a project that involves a large amount of investment and has great importance in the development of a nation is given a huge tax incentive. Similarly, manufacturing companies, the IT industry and specialized machinery production are given special status under the PS or ITA.

Any local business in Malaysia that wants to expand, introduce automation and modern machinery is eligible for the reinvestment allowance. The terms of this scheme are:

• The allowance is specified up to 15 years from the first year of claiming the tax credit.
• An allowance of 60% of QCE sustained must be used against 70% of legal income. The unsettled 30% is taxed at the usual CIT rate.
• Ministry of Finance has the right to withdraw the allowance if a company fails to comply with taxation rules.

A principal hub is a local organization in which Malaysia is used as the base of conducting both regional and international business activities and operations. Such functions may include risk management, strategic decision making, controlling and supporting the key shares related to the company.

Some of the other incentives available for regional operations of businesses are:

• Absence of ownership conditions
• Flexible rules for foreign exchange
• Customs duty exemption for certain products like raw materials, repackaging materials and other finished products.

International trading companies are excused for five years on the income of 20% of the total export revenue, up to a maximum of 70% of income.

To avail the tax incentive, an international trading company must fulfil the following three conditions:

1. A company must have a branch in Malaysia, and 60% ownership of the businesses must be Malaysian.
2. The minimum revenue of the organization must be MYR 10 million per annum.
3. Business operations must make use of the local services of Malaysia, for example, hiring an accounting firm in Malaysia, banking, financing and insurance must be done locally.

Since 2007, a ten years tax exemption is given to:

• Islamic banks operating under the Islamic Financial Act of 2013. It includes Islamic banking performed in foreign currencies as well.
• Islamic insurance services (Takaful) that are registered under the Islamic Financial Act 2013 are exempted from the tax.

The petroleum sector is given the following tax incentives:

• Quick allowance is provided on the total amount of finance invested from the year of assessment 2010 to 2024 for the working of petroleum industries.
• An investment allowance of 60% is given.
• A significant portion of the income is exempted from the tax payment, which brings down the total tax rate from 38% to 25%.

SDC is also a tax scheme which can be availed by companies. Under SDC, an organization can enjoy the following benefits:

• 100% income tax exemption for five years in the shipping sector.
• 100% income tax exemption for ten years in the production, hotel and education sector.

Tax incentives are designated for less-developed regions as well. Such schemes make sure that small businesses are able to flourish in small areas and play a role in the development of backward areas. They include:

• 100% tax exemption for up to 15 years for companies that create employment and meet a set target of revenue.
• Tax exemption on land or building lease.
• Accounting firms in Malaysia that are based in rural or less-developed areas are also given tax exemption.
• Customs duty exemption on raw materials, machines and other equipment needed in small industries.

Green incentives refer to the tax exemptions provided to companies that are part of the green energy research and playing a role in the development of modern technology for clean energy.

Companies dealing with renewable energy, energy efficiency, waste management and green energy research are eligible to apply for Green incentives. For more questions regarding tax credit and incentive for corporates in Malaysia, feel free to get in touch with us.