For both small and medium sized companies as well as large and multinational companies, there are many tax incentives offered in Malaysia. These vary according to the different industries and change with the annual Budgets announced by the Government.
Some of the major tax incentive available in Malaysia are:
- Pioneer Status
The Pioneer status is available to companies engaged in promoted activities or producing promoted products.A company granted Pioneer Status enjoys a five to ten years partial exemption from the payment of income tax. It pays tax on 30% of its statutory income*, with the exemption period commencing from its Production Day (defined as the day its production level reaches 30% of its capacity).
Unabsorbed capital allowances as well as accumulated losses incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company.
* Statutory Income is derived after deducting revenue expenditure and capital allowances from the gross income.
- Investment Tax Allowance
Investment tax allowance is an alternative to Pioneer Status. Both investment tax allowance and pioneer status is mutually exclusive.A company granted ITA is entitled to an allowance of 60% on its qualifying capital expenditure (factory, plant, machinery or other equipment used for the approved project) incurred within five years from the date the first qualifying capital expenditure is incurred.The company can offset this allowance against 70% of its statutory income for each year of assessment. Any unutilised allowance can be carried forward to subsequent years until fully utilised. The remaining 30% of its statutory income will be taxed at the prevailing company tax rate.
- Reinvestment allowance
Reinvestment allowance is an incentive granted under Sch 7A of the Income Tax Act 1967. It is available to a resident company in operation for not less than 36 months that incurs capital expenditure to expand, modernize, automate, or diversify its existing manufacturing business or approved agricultural project is entitled to reinvestment allowance.The allowance is given for 15 years from the first year of claim. An allowance of 60% of QCE incurred to be utilised against 70% of statutory income. The remaining 30% is taxed as the prevailing CIT rate.The 70% restriction does not apply to projects that achieved the level of productivity as prescribed by the Minister of Finance. The allowance will be withdrawn if the asset for which the allowance is granted is disposed of within five years.A special reinvestment allowance is provided by extending the existing incentive period for up to three years, from year of assessment 2016 to 2018.
- Allowance for increased exports
A resident company engaged in manufacturing, agriculture or service that exports manufactured products, agricultural produce, or services is entitled to allowances between 10% and 100% of increased exports (subject to satisfying prescribed conditions), which is deductible at up to 70% of statutory income.