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Application For Tax Incentives

Tax Incentives in Malaysia

Malaysia offers a variety of tax incentives, such as tax exemptions, capital expenditure allowances, and enhanced tax deductions. Although the income is tax-exempt, dividends paid on the exempted income will be subject to tax. Unutilized allowances may be carried forward until they are fully utilized.

Malaysia offers several tax incentives, including:

Pioneer Status

To qualify for Pioneer Status, a company must engage in promoted activities or produce promoted products. Companies granted Pioneer Status are exempt from income tax for five to ten years. Taxes are due on 30% of its statutory income*, with the exemption period commencing on the day the company’s production level reaches 30% of its capacity.

Unabsorbed capital allowances, as well as accumulated losses incurred during the pioneer period, may be carried forward and deducted from the company’s post-pioneer income.

Investment Tax Allowance

An investment tax allowance is an alternative to Pioneer Status. The investment tax allowance and pioneer status are mutually exclusive. A company receiving an ITA is entitled to claim an allowance of 60% for qualifying capital expenditures (factories, plants, machinery, or other equipment used in the approved project) incurred within five years of the date of the first such expenditure. 

During each assessment year, this allowance can be offset against 70% of the company’s statutory income. Allowances that are not used can be carried over to subsequent years until they are fully utilized. At the prevailing company tax rate, the remaining 30% of its statutory income will be taxed.

Reinvestment allowance

The reinvestment allowance is a tax incentive provided under Section 7A of the Income Tax Act of 1967. Reinvestment allowances are available to resident companies operating for at least 36 months that incur capital expenditures to expand, modernize, automate, or diversify their existing manufacturing business or approved agricultural project. 

An allowance of 60% of QCE incurred may be applied to 70% of statutory income. There is a 70% restriction on projects that have achieved the prescribed level of productivity as prescribed by the Minister of Finance. The remaining 30% is taxed at the CIT rate in effect at the time. If the asset for which the allowance is granted is disposed of within five years, the allowance will be withdrawn. A special reinvestment allowance is provided by extending the existing incentive period by three years, from 2016 to 2018.

Allowance for increased exports

 Exporting manufactured products, agricultural produce, or services by a resident company is eligible for allowances between 10% and 100%, which are deductible at 70% of statutory income.

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