1. Main Incentives for Research and Development
(i) Contract R&D Company
A contract R&D company, i.e., a company that provides R&D services in Malaysia to a company other than its related company, is eligible for:
- Pioneer Status with a tax exemption of 100% of the statutory income for five years. Accumulated losses and unabsorbed capital allowances incurred during the pioneer period by companies whose pioneer status will expire on and after 1 October 2005 are allowed to be carried forward and deducted against post-pioneer income of a business relating to the same promoted activity or promoted product; or
- Investment Tax Allowance (ITA) of 100% on the qualifying capital expenditure incurred within 10 years, which can be offset against 70% of the statutory income in the year of assessment. Any unutilised capital allowance can be carried forward to subsequent years until fully utilised.
Applications should be submitted to MIDA.
(ii) R&D Company
A R&D company, i.e. a company that provides R&D services in Malaysia to its related company or to any other company, is eligible for an ITA of 100% on the qualifying capital expenditure incurred within 10 years. The allowance can be offset against 70% of the statutory income in the year of assessment. Should the R&D company opt not to avail itself of the allowance, its related companies can enjoy a double deduction for payments made to the R&D company for services rendered.
Applications should be submitted to MIDA.
Eligibility:
Contract R&D and R&D companies can apply for the various incentives as long as they fulfill the following criteria:
- Research undertaken should be in accordance with the needs of the country and bring benefit to the economy;
- At least 70% of the income of the company should be derived from R&D activities
- For manufacturing-based R&D, at least 50% of the workforce of the company must be appropriately qualified personnel performing research and technical functions; and
- For agriculture-based R&D, at least 5% of the workforce of the company must be appropriately qualified personnel performing research and technical functions.
- In-house Research
A company that undertakes in-house R&D to further its business can apply for an ITA of 50% on the qualifying capital expenditure incurred within 10 years. The company can offset the allowance against 70% of its statutory income in the year of assessment.
Applications should be submitted to MIDA
(iv) Second Round Incentives
Effective from 21 May 2003, R&D companies/activities mentioned in categories (i) – (iii) will be eligible for a second round of Pioneer Status for another five years, or ITA for a further 10 years, where applicable.
(v) Incentives for Commercialisation of Public Sector R&D
To encourage commercialisation of resource-based R&D findings by the public research institutes, the following incentives are given:
- A company that invests in its subsidiary company engaged in the commercialisation of the R&D findings will be given tax deduction equivalent to the amount investment made in the subsidiary company; and
- The subsidiary company that undertakes the commercialisation of the R&D findings will be given Pioneer Status with 100% tax exemption on statutory income for 10 years.
The incentive is provided on the following conditions:
- At least 70% of the investing company (holding company) and the company undertaking the commercialisation projects is owned by Malaysians;
- Company which invests should own at least 70% of the equity of the company that commercialises the R&D findings
- The commercialisation of the R&D findings should be implemented within one year from the date of approval of the incentive.
Applications should be submitted to MIDA.
2. Additional Incentives for Research and Development
(i) Double Deduction for Research and Development
A company can enjoy a double deduction on its revenue (non-capital)expenditure for research which is directly undertaken and approved bythe Minister of Finance.
Double deduction can also be claimed for cash contributions or donations to approved research institutes, and payments for the use of the servicesof approved research institutes, approved research companies, R&D companies or contract R&D companies.
Approved R & D expenditure incurred during the Pioneer Status period will be allowed to be accumulated and brought forward and be given another deduction after the Pioneer Status period.
Expenditure on R&D activities undertaken overseas, including the training of Malaysian staff, will be considered for double deduction on a case-by-case basis.
Claims should be submitted to the IRB.
(ii) Incentives for Researchers to Commercialise Research Findings
Effective from the year of assessment 2004, researchers who undertake research focused on value creation will be given a 50% tax exemption for five years on the income that they receive from the commercialisation of their research findings. The undertaking has to be verified by the Ministry of Science, Technology and Innovations.
Claims should be submitted to the IRB.