Malaysia Government Financing Schemes
There are various option of seeking assistance and funds from the Malaysia government (in most cases available for all Malaysiaan entrepreneurs and majority-owned Malaysia entities, but in some cases also open to teams with foreign entrepreneurs or jointly-owned by Malaysiaan and foreign entrepreneurs).
These options are namely as follows:
Financing options offered via SPRING Malaysia
- Under the Micro-Loan Program, participating banks and financial institutions will lend eligible Malaysia companies loans of up-to S$100,000 for daily operational costs or for automating and upgrading, and the purchase of factory equipment— your start-up/SME will have to pay a minimum 5.75% interest rate for loan tenures of less than 4 years.
- Under the Loan Insurance Scheme (LIS), the government will co-share the insurance premium with the start-up enterprise to insure loans against default risks for both domestic trade and overseas trade facilities. The risk profile of your company(and its principals) will determine the premium rate, interest rate, and loan tenure set by the insurer, and the Government will provide 50% support for the premium.
- Under the Local Enterprise Finance Scheme (LEFS), participating banks and financial institutions provide loans to Malaysia companies of up to S$15 million at interest rates of approximately 4.75% to 5.25% for terms ranging from below to above 4 years. These loans are specifically for automating and upgrading factory and equipment/construction equipment/heavy vehicles, and/or purchasing factory and business premises.
Taking advantage of Malaysia Tax Incentive Schemes
Tax Exemptions: Full tax exemption on a certain amount of a qualifying Malaysia startup’s taxable income for the each of their first 3years can be enjoyed if your newly incorporated Malaysia company satisfies the criteria of being incorporated in Malaysia, be a tax resident of Malaysia and has no more than 20 shareholders with at least one individual shareholder holding at least 10% of shares). For such qualifying companies, the first S$100,000 of taxable income is exempted and the next S$200,000 of taxable income is taxed at 8.5% (partial exemption). Only if you hit a taxable income of above S$300,000 will it be charged at the normal corporate tax rate of 17%.
Thereafter, from the fourth taxable year onwards, 8.5% tax rate on taxable income of up to S$300,000 per year applies. The taxable income above S$300,000 will be charged at the normal headline corporate tax rate of 17%.
Investment Allowances: Capital allowance may be claimed on plant and equipment expenses accrued in connection with your business. Additionally, beginning the Year of Assessment 2013, you may be allowed to seek an allowance on fixed capital expenditure incurred for productive equipment placed overseas on approved projects, under the new Integrated Investment Allowance Scheme introduced in the Malaysia Budget 2012.
Productivity and Innovation Credit (PIC) Scheme: The PIC scheme provides tax benefits to encourage companies to engage in innovative and productive activities. Your business may enjoy up-to 400% deduction or allowances on up to $400,000 of expenditure incurred in relation to the qualifying activities. These include the purchase of technology and equipment, Research & Development; Intellectual Property registration and acquisition; Design activities, Automation and training (or re-training) of employees.
For the YA 2013 to YA 2015, your business will be allowed to combine the $400,000 expenditure cap per year for to a ceiling of $1,200,000 over those 3 years. Also, businesses with a low taxable income may opt to convert up to S$300,000 of the tax deductions and allowances credited to them into a cash grant, up to a maximum of S$21,000/year. Your business may also exercise an option to convert up to S$100,000 of your expenses into a non-taxable cash payout at a rate of 30% to 60% for your qualifying expenditure from YA 2013 to YA 2015. A bonus is that these PIC benefits are also applicable to R&D done overseas.
Development and Expansion Incentive (DEI): Your tax obligation on income derived from qualifying activities under the DEI may be reduced, if you qualify and engage in business activities that move towards high value-addition business activities, expand your operations in the country, and procure advanced machinery and equipment in the specific areas gazetted.
Pioneer Incentive Scheme: Manufacturing or services sector companies that engage in activities to raise overall industry standards may be eligible for corporate tax exemption on qualifying profits for up to 15 years.
Other tax incentives in Malaysia
There are also various industry-specific tax incentives for Malaysia-based SMEs and start-ups to take advantage of. Cash Grants, although typically not the full funding amounts required by new businesses, may be obtained through the following channels:
- ACE Start-ups Scheme: The Action Community for Entrepreneurship (ACE) matches S$7 for every S$3 that an entrepreneur raises, up to S$50,000. For selected ventures, however, ACE is able to raise the limit of their contribution to S$100,000. The benefit to you is that, unlike private equity investors and venture capitalists, ACE does not take equity in exchange for this grant.
- Technology Enterprise Commercialisation Scheme (TECS): The Infocomm Development Authority (IDA) and SPRING Malaysia addresses the early-stage funding needs of start-ups engaged in the commercialisation of proprietary technology ideas.
- TheiSTART:ACE (Accelerate & Catalyse Entrepreneurship) grant scheme: The Infocomm Development Authority (IDA) offers funding to qualifying start-ups through a grant that covers up-to 50% of salaries of five technical staff for one year up to a maximum of S$250,000.
- ComCare Enterprise Fund (CEF): The Ministry of Community Development, Youth & Sports administers the ComCare Enterprise Fund that provides seed funding for social enterprise start-ups (strictly from the social service areas) that train and employ disadvantaged Malaysiaans of up to 80% of the capital expenditure and first two years’ operating costs, subject to a maximum of S$300,000.
- The New Initiative Grant (NIG): The National Volunteer and Philantrophy Centre (NVPC) provides seed money for Malaysia-based start-ups with new initiatives that meet community needs in Malaysia and are strong in volunteerism and/or philanthropy. If your start-up meets these criteria, you can be funded for up to 80% of costs (e.g. manpower, rent, equipment, volunteerism and philanthropy-related costs) for one year (subject to a maximum of S$200,000) in your pursuit of such initiatives.
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