1. Industrial Building Allowance
An Industrial Building Allowance (IBA) is granted to companies incurring capital expenditure on the construction or purchase of a building that is used for specific purposes, including manufacturing, agriculture, mining, infrastructure facilities, research, Approved Service Projects and hotels that are registered with the Ministry of Culture, Arts and Tourism. Such companies are eligible for an initial allowance of 10% and an annual allowance of 3%. As such, the expenditure can be written off in 30 years.
Claims should be submitted to the IRB.
2. Industrial Buiding Allowance for Buildings in MSC
To encourage the construction of more buildings in Cyberjaya for use by MSC status companies, IBA for a period of 10 years will be given to owners of new buildings occupied by MSC status companies in Cyberjaya. Such new buildings include completed buildings but are yet to be occupied by MSC status companies.
Claims should be submitted to the IRB.
3. Infrastructure Allowance
Companies in the States of Perlis, Sabah and Sarawak and the designated “Eastern Corridor” of Peninsular Malaysia are also eligible for an Infrastructure Allowance of 100%. Companies eligible are those engaged in manufacturing, agriculture, hotel, tourism or other industrial/commercial activities and which incur qualifying capital expenditure on infrastructure such as the reconstruction, extension and improvement of any permanent structure including bridges, jetties, ports and roads.
These companies can offset the allowance against 100% of their statutory income in the year of assessment. The remaining statutory income will be taxed at the prevailing company tax rate. Any unutilised allowances can be carried forward to subsequent years until fully utilised. This incentive applies to all applications received by 31 December 2010.
Claims should be submitted to the IRB.
4. Double Deduction for Expenses to Obtain “Halal” Certification and Quality Systems and Standards Certification
Effective from the year of assessment 2005, for the purpose of income tax computation, double deduction will be given to companies which incur expenses in obtaining;
- Quality system and standards certification as well as ‘halal’ certification from the Department of Islamic Development Malaysia (JAKIM)
- International quality systems and standards certification
Claims should be submitted to the IRB.
5. Deduction of Audit Fees
To reduce the cost of doing business and enhance corporate compliance, expenses incurred on audit fees by companies are deemed as allowable expenses for deduction in the computation of income tax.
The incentive is effective from the year of assessment 2006.
Claims should be submitted to the IRB.
6. Tax Incentives for Venture Capital Industry
Currently, venture capital companies (VCCs) have the option to choose between the following incentives:
- Income tax exemption for 10 years for investing at least 70% of its investment funds in venture companies (VCs) in the form of seed capital, start-up or early stage financing; or
- Deduction for income tax purposes equivalent to the value of investment made in VCs
However, effective from the year assessment of 2007, VCCs investing at least 50% of its investment funds in VCs in the form of seed capital are eligible for income tax exemption for 10 years.
Claims should be submitted to the IRB.
7. Tax Incentives for Mergers and Acquisitions of Listed Companies
A Malaysian-owned company that acquires a foreign-owned company abroad to acquire high technology for production within the country or to gain new export markets for local products, will be granted a deduction equivalent to the acquisition costs for five years.
8. Incentive for Acquiring Proprietary Rights
Capital expenditure incurred in acquiring patents, designs, models, plans, trade marks or brands and other similar rights from foreigners qualify as a deduction in the computation of income tax. This deduction is given in the form of an annual deduction of 20% over a period of five years.
Claims should be submitted to the IRB.
9. Tariff Related Incentives
(i) Exemption from Import Duty on Raw Materials/ Components
Full exemption from import duty can be considered for raw materials/components, regardless of whether the finished products are meant for the export or domestic market.
With regard to products for the export market, full exemption from import duty on raw materials/components is normally granted, provided the raw materials/components are not produced locally or, where they are produced locally, are not of acceptable quality and price.
As for products for the domestic market, full exemption from import duty on raw materials/components that are not produced locally can be considered. Full exemption can also be considered if the finished product made from dutiable raw materials/components is not subject to any import duty.
Applications should be submitted to MIDA.
(ii) Exemption from Import Duty and Sales Tax on Machinery and Equipment
It is the policy of the government not to impose taxes on machinery and equipment used directly in the manufacturing process and not produced locally. No taxes are therefore imposed on most categories of machinery and equipment. In cases where the imported machinery and equipment are taxable but are not available locally, full exemption is given on import duty and sales taxes. For locally purchased machinery and equipment, full exemption is given on sales tax.
(iii) Exemption from Import Duty and Sales Tax on Spares and Consumables
Manufacturing companies qualify for import duty and sales tax exemptions on spares and consumables that are not produced locally. Exemption is selective and based on the following:
* The company’s level of exports should be at least 80% of its production, or the spares and consumables have limited demand and do not have potential for domestic production, or
* the import duty on such items exceeds 5%
(iv) Exemption from Import Duty and Sales Tax for Outsourcing Manufacturing Activities
To reduce the cost of doing business and enhance competitiveness, owners of Malaysian brands with at least 60% Malaysian equity ownership who outsource manufacturing activities are eligible for:
- Import duty and sales tax exemptions on raw materials and components used in the manufacturing of finished products by their contract manufacturers locally or abroad
- Import duty and sales tax exemptions on semi-finished goods from their contract manufacturers abroad, to be used by their local contract manufacturer to manufacture the finished products.
Applications should be submitted to MIDA.
(v) Sales Tax Exemption
Manufacturers licensed under the Sales Tax Act 1972 qualify for sales tax exemption on the inputs for their manufacturing operations. Manufacturers with an annual sales turnover of less than RM100,000 are exempted from licensing and are thus exempted from paying sales tax on their output. However, these manufacturers can opt to be licensed and obtain sales tax exemption on their inputs instead.
Certain categories of goods are exempted from sales tax at both the input and output stages. These include all goods (inclusive of packaging materials) used in the manufacture of controlled articles, pharmaceutical products, milk products, batik fabrics, perfumes, beauty or make-up preparations, photographic cameras, wrist-watches, pens, computers and computer peripherals, parts and accessories, carton boxes/cases, products in the printing industry, agricultural or horticultural sprayers, plywood, re-treaded tyres, uninterruptible power systems, machinery, and manufactured goods for export.
Applications can be made to the Royal Customs Department.
(vi) Drawback on Import Duty, Sales Tax and Excise Duty
Under Section 99 of the Customs Act 1967, Section 29 of the Sales Tax Act 1972 and Section 19 Excise Act 1976, a drawback on import duty, sales tax and excise duty that have been paid may be claimed by a manufacturer if the parts, raw materials or packaging materials are used in the manufacture of goods for export within a year based on conitions stipulated in the Acts.
Excise duties are imposed on a selected range of goods manufactured in Malaysia. Goods which are subject to excise duties include intoxicating liquor, cigarettes containing tobacco, motor vehicles, playing cards and mahjong tiles.
The movement of goods from the principal customs area or licensed premises (for goods subject to excise duty) for use in the manufacture of other products by a factory in a free zone (FZ) or licensed manufacturing warehouse (LMW) or the islands of Langkawi, Labuan and Tioman is considered as exports from Malaysia.
Applications should be made to the nearest Royal Customs Department office where its factory is located.
10. Incentives for Export
(i) Double Deduction for the Promotion of Exports
Certain expenses incurred by resident companies in seeking opportunities to export Malaysian manufactured and agricultural products and services, qualify for double deduction.
The eligible expenses are those incurred in:
- overseas advertising, publicity and public relations work
- supplying samples abroad, including delivery costs
- undertaking export market research
- preparing tenders for supply of goods overseas
- supplying of technical information abroad
- preparing exhibits and participation costs in trade/industrial exhibitions, virtual trade shows and trade portals and fares for overseas travel by company employees for business
- accommodation expenses up to RM300 per day and sustenance expenses up to RM150 per day for company representatives who travel overseas for business
- maintaining sales offices and warehouses overseas to promote exports
- hiring professional to design packaging for exports, subject to the company using local professional services
- undertaking feasibility studies for overseas projects identified for the purpose of tenders
- preparing architectural and engineering models, perspective drawings and 3-D animations for participating in competitions at international level. This is effective for the year of assessment 2005.
- participating in trade or industrial exhibitions in the country or overseas
- participating in exhibitions held in Malaysian Permanent Trade and Exhibition Centres overseas
(ii) Single Deduction for the Promotion of Exports
Certain expenses incurred by resident companies in looking for opportunities to export Malaysian manufactured and agricultural products and services qualify for single deduction. The eligible expenses are those incurred in:
- registration of patents, trade marks and product licensing overseas
- hotel accommodation for a maximum of three nights in providing hospitality to potential importers invited to Malaysia.
(iii) Double Deduction on Export Credit Insurance Premiums
Premium payments on export credit insurance qualify for double deduction.
(iv) Special Industrial Building Allowance for Warehouses
An annual allowance of 10% of qualifying capital expenditure is given for buildings used as warehouses for storing goods for export and re-export.
(v) Double Deduction on Freight Charges
Manufacturers who ship their goods from Sabah or Sarawak to any port in Peninsular Malaysia qualify for double deduction on freight charges.
(vi) Incentive for the Implementation of RosettaNet
RosettaNet is an open Internet-based common business messaging standard for supply chain management link-ups with global suppliers.
To encourage local small and medium-scale companies to adopt RosettaNet in order to become more competitive in the global market, the expenditure and contributions incurred by companies in the management and operation of RosettaNet Malaysia and in assisting local small and medium-scale companies to adopt RosettaNet are eligible for income tax deduction.
The eligible expenditure and contributions are those on equipment (computers and servers) and salaries for full-time employees seconded to RosettaNet Malaysia; contribution of software, sharing of software and programming, as well as the training of the staff of local small and medium-scale companies to use RosettaNet.
Claims should be submitted to the IRB.
(vii) Double Deduction for the Promotion of Malaysian Brand Names
To promote Malaysian brand names, a company who is a registered proprietor of a Malaysian brand, or a company within the same group is eligible for double deduction on expenditure incurred in advertising the brand, subject to the following conditions:
- the company must be owned more than 50% by the registered proprietor of the Malaysian brand name
- the deduction can only be claimed by one company in a year of assessment.
- the product meets export quality standards.
Claims should be submitted to the IRB.
11. Training Incentives
(i) Double Deduction for Approved Training
Manufacturing and non-manufacturing companies that do not contribute to the Human Resource Development Fund (HRDF) qualify for double deduction on expenses incurred for approved training.
For the manufacturing sector, the training could be undertaken in-house or at approved training institutions. However, for the non-manufacturing sector, the training should be held only at approved training institutions. Approval is automatic when the training is at approved institutions.
For the hotel and tour operation business, training programmes, in-house or at approved training institutions, to upgrade the level of skills and professionalism in the tourism industry should be approved by the Ministry of Tourism.
Applications should be submitted to MIDA.
(ii) Incentive for Unemployed Graduate Training Scheme
To encourage private sector assistance in enhancing the employability of graduates, both public and unlisted companies under the supervision of the SC qualify for double deduction on allowances paid to participants of Unemployed Graduate Training Programme which are endorsed by the Securities Commission (SC).The scheme include the companies own in-house training programmes.
The incentive takes effect from 2 September 2006 until 31 December 2008 and the deduction is given for the period of 3 years.
Claims should be submitted to the IRB.
(iii) Deduction for Pre-Employment Training
Training expenses incurred before the commencement of business qualify for a single deduction. Nevertheless, companies must prove that they will employ the trainees.
Claims should be submitted to the IRB.
(iv) Deduction for Non-Employee Training
Expenses incurred in providing practical training to residents who are not employees of the company can be considered for single deduction.
Claims should be submitted to the IRB.
(iv) Deduction for Cash Contributions
Contributions in cash to technical or vocational training institutions that are not operating primarily for profit and those established and maintained by a statutory body qualify for single deduction.
Claims should be submitted to the IRB.
(vi) Human Resource Development Fund (HRDF)
Please refer to Manpower for Industry.
(vii) Special Industrial Building Allowance for Training
Companies that incur expenditure on buildings used for approved industrial, technical or vocational training can claim a special Industrial Building Allowance (IBA) of 10% for 10 years on qualifying capital expenditure for the construction or purchase of a building.
Claims should be submitted to the IRB.
12. Incentive for the Use of Environmental Protection Equipment
Companies using environmental protection equipment receive an initial allowance of 40% and an annual allowance of 20% on the capital expenditure incurred on such equipment. Thus, the full amount can be written off in three years.
Claims should be submitted to the IRB.
13. Donations for Environmental Protection
Donations to an approved organisation exclusively for the protection and conservation of the environment qualify for single deduction.
Claims should be submitted to the IRB.
14. Incentive for Employees’ Accommodation
When a building is used for employees for the purpose of living accommodation in a manufacturing operation, an Approved Service Project, hotel or tourism business, a special Industrial Building Allowance of 10% of the expenditure incurred on the construction/purchase of the building is given for 10 years.
Claims should be submitted to the IRB.
15. Incentive for Employees’ Child Care Facilities
Expenditure incurred for the construction/purchase of buildings for the purpose of providing child care facilities for employees are eligible for a special Industrial Building Allowance of 10% for 10 years.
A single deduction also applies to gifts in kind and cash to provide and maintain a child care centre for the benefit of employees.
Claims should be submitted to the IRB
