Malaysia Tax Incentives

What tax incentives are available in Malaysia?

The Malaysia Government provides tax incentives for business activities that enhance the country’s economic or technological development. Tax incentives are available to a wide range of industries, including manufacturing, shipping, trading, investment and financial services sectors.

How are tax incentives offered to companies?

Tax incentives are either in the form of an exemption from taxation or a reduction in the tax rates.

[wc_accordion collapse=”1″ leaveopen=”0″ layout=”box”]

[wc_accordion_section title=”Manufacturing and Services”]

What are the tax incentives offered to the manufacturing and services industry?

Scheme Description Tax Incentive
Pioneer Enterprise Enterprises which incur significant capital expenditure in Malaysia or introduce
leading edge technology and manufacturing skills to Malaysia may be approved
as pioneer enterprises. Tax exemption depends on a few key factors include
nature of product, technology involved and amount invested in Malaysia.		 Full tax exemption for periods 5 to 15 years.
Development & Expansion Incentive Enterprises engaging in projects which bring significant economic benefit
to Malaysia in terms of overall business spending and nature of activities
in Malaysia.		 Concessionary tax rate of 5% for up to 10 years.
Pioneer Service
Company		 A company engaged in qualifying services, including engineering or technical
services, computer or information based services, industrial or production
based services and
other services as may be prescriber, may be approved as a pioneer service company.		 Full tax exemption for periods 5 to 15 years.
Regional HQ Program Company should provide corporate support and headquarters-related services
and business expertise on regional basis; must meet stipulated requirements.		 Concessionary tax rate of 15% for up to 5 years.
International HQ Program Company should provide corporate support and headquarters-related services
and business expertise on global basis; must exceed stipulated requirements.		 Concessionary tax rate as low as 0% for up to 5 years.

[/wc_accordion_section]

[wc_accordion_section title=”Maritime Industry”]

What are the tax incentives offered to the maritime industry?

Scheme Description Tax Incentive
International
Shipping Operations		 Malaysia Flagged Ships
The exemption applies to the income derived from the carriage in international
waters of passengers, mail, livestock or goods by seagoing Malaysia vessels
and includes the income derived from the charter of such vessels.Foreign
Flagged Ships
The income which qualifies for exemption is from the carriage of passengers,
mails, livestock or goods shipped in Malaysia but excludes such carriage arising
solely from transhipment from Malaysia.		 Tax exemption is granted on certain income derived.
Approved International Shipping Enterprise
(MSI-AIS)		 The AIS incentive was introduced to increase the competitiveness of shipping
companies operating from Malaysia. Targeting established international ship
operators with established worldwide networks, the scheme seeks to encourage
international ship owners and ship operators to establish their commercial
shipping operations in Malaysia.		 Tax exemption is
granted on certain
income derived.
Maritime (Ship or
Container) Leasing
(MSI-ML (Ship) or
MSI-ML (Container)		 Approved Shipping Investment Enterprise
Income from chartering or leasing of sea-going ship (foreign & Malaysia)
outside Malaysia port limits, exchange and risk management activities which
are carried out in connection with and incidental to the above operations.Approved
Shipping Investment Manager
Managing a portfolio of an approved shipping enterprise. Expiry of incentive
is till 31 May 2016.Approved Container Investment Enterprise (ACIE)
Leasing of containers to onshore/offshore leassess. Expiry of incentive is till
31 May 2016.Approved Container Investment Manager (ACIM)
Strategic control and management of ACIEs can qualift. Expiry of incentive is
till 31 May 2016.		 Tax exemption is
granted on certain
income derived.Concessionary tax
rate of up to 10%
Shipping-related
Support Services
(MSI-SSS)		 Approved Shipping and Logistics Scheme (ASL)
ASL scheme is targeted at companies with an established track record in the provision
of freight and logistics services. Qualified income from approved ship agencies,
ship management companies, freight forwarders and logistics operators may be
subject to tax exemption.Ship Broking and Forward Freight Agreement
Trading Incentive
Companies carrying on ship broking activities and / or forward freight agreement
trading that are approved may be subject to tax exemption.Qualifying
Corporate Services
Approved entities which have a strong record and are able to show their commitment
to expanding their ancillary shipping activities in Malaysia would be able to
enjoy a concessionary tax rate arising from providing qualifying corporate service
to qualifying approved related parties who are carrying on business of shipping – related
activities.		 Concessionary tax
rate of up to 10%,
applications must be
made before 31 May
2016.

[/wc_accordion_section]

[wc_accordion_section title=”Trading Industry”]

What are the tax incentives offered to the trading sector?

Scheme Description Tax Incentive
Global Trader
Program		 Companies that are carrying on the business of international trading of commodities,
future, derivative instruments with good track record may benefit from the
incentive.		 Concessionary tax rate of up to
10%
Approved Cyber
Trader		 A company that is well established and uses the internet to conduct its international
trading and marketing activities, hosts its website and contents in Malaysia
and bases a minimum number of personnel in Malaysia.		 Concessionary tax rate of up to
10%

[/wc_accordion_section]

[wc_accordion_section title=”Investment Industry”]

What are the tax incentives offered to the investment sector?

Scheme Description Tax Incentive
Enterprise Investment Incentive Start-up companies engaged in innovative and high-growth activities with
substantial R&D content in relation to a specific product, process or service.
Overseas start-ups may also be approved on a case-by-case basis.		 Deductions of losses incurred on disposal of shares or liquidation:
Overseas Enterprise Incentive This incentive is designed to encourage companies to invest in approved overseas
investments and projects.		 Tax exemption on qualifying instruments

[/wc_accordion_section]

[wc_accordion_section title=”Financial Services Industry”]

What are the tax incentives offered to the financial services industry?

The Financial Sector Incentive (FSI) scheme aims to promote and encourage the development of Malaysia’s financial services sector. The FSI Scheme awards concessionary tax rates of 5, 10 and 12% on income derived from qualifying financial activities conducted in Malaysia.

Initial award periods may vary from 5 to 10 years based on headcount and scope of activities undertaken.

The application period for the FSI Scheme – apart from the FSI-Islamic Finance (FSI-IF) scheme – will be extended to 31 December 2018.

With effect from 1 January 2014, several FSI sub-schemes will merge. For example, the range of incentivised activities and financial instruments will be broadened for the FSI-ST, FSI-CM and FSI-CFS awards. The categories are as follows:

Scheme New treatment Concessionary tax rate (%)
FSI-Standard Tier (FSI-ST) The FSI-Islamic Finance (FSI-IF) award has expired on 31 March 2013. The
existing qualifying Islamic Finance activities will be incentivised under the
FSI-ST award.		 12
FSI-Headquarter Services (FSI-HQ) Withholding tax exemption will be granted automatically to FSI-HQ award recipients
on interest payments made during the period of their FSI-HQ award for qualifying
loans. Effective 25 Feb 2013.		 10
FSI-Fund Management (FSI-FM) New applicants will have to satisfy an additional Asset under Management
(AUM) requirement of at least S$250m.		 10
FSI-Capital Market (FSI-CM) A merger of the FSI Bond Market (FSI-BM) and FSI-Equity Market (FSI-EM).
Effective 1 Jan 2014.		 5
FSI-Credit facilities Syndication (FSI-CFS) TBC 5
FSI-Derivative Market (FSI-DM) All five separate FSI-DM sub-schemes will merge into this scheme. 5

Financial Services Industry

Scheme
Description
Tax Incentive
Real Estate Investment Trust (REITs) A REIT is established as a unit trust and is regulated by the MAS. The REIT
is managed by an asset manager and administered by a trustee. A number of tax
concessions, subject to the meeting of conditions, may be granted to listed
REITs and they include:

  • Tax transparency treatment at the trustee level were the trustee is not
    assessed to tax on the REIT’s taxable income that is distributed
    to the unitholders in the same financial year that the income is earned.
  • Tax exemption of individuals regardless of their nationality or
    residence status are granted tax exemption.
  • Transfer of Malaysia properties into listed REITs would be granted remission
    of stamp duties
  • Foreign-sourced income may be exempted from tax in Malaysia
  • Withholding tax rate of non-resident non-individual investors is at the
    reduced rate of 10%
 Tax exemption on qualifying instruments
Designated Unit
Trust (DUT)		 Under the DUT, specified income derived from designated investments are exempt
from Malaysia income tax at the trust level. DUTs are taxed only on interest
income.		 Tax exemption on qualifying instruments
CPF Approved Unit Trust (CPF Unit Trust) Under the CPF Unit Trust scheme, specified income derived from designated
investments are exempt from Malaysia income tax at the trust level. CPF Unit
Trusts are taxed only on interest income		 Tax exemption on qualifying instruments
Approved Unit
Trusts (AUTs)		 AUTs are subject to Malaysia income tax in respect of their investment income
and on one-tenth of the gains realised from the sale of their investments.		 Tax exemption
on qualifying
instruments
Foreign Trusts Subject to conditions, specified income earned by a foreign trust or an eligible
holding company from designated investments would be exempt from Malaysia
income tax.		 Tax exemption on qualifying instruments
Philanthropic
Purpose Trusts		 Any fund or asset in any foreign account of a philanthropic purpose trust
constituted and administered by a trustee company in Malaysia; and income
derived from any fund or assets of an eligible holding company established
for the purposes of that philanthropic purpose trust which are held for the
foreign account of that trust may be exempted from tax.		 May be subject to full tax exemption
Prescribed Locally
Administered
Trusts (LATs)		 Specified Malaysia-sourced investment income and foreign-sourced income
derived by LATs may be exempted from tax. To qualify as a LAT, settlors must
be individuals and the beneficiaries must be individuals, charitable institutions,
trusts or bodies of persons established for charitable purposes only.		 Tax exemption on qualifying investment income
Non-Resident Fund Incentive Income derived by a qualifying fund managed or advised by any fund manager
in Malaysia in respect of designated investments would be exempted. This is
applicable to funds constituted as trusts and companies outside Malaysia provided
that the funds are not wholly owned by investors in Malaysia. The funds or
its trustees should also not have a permanent establishment in Malaysia and
should not carry on a business in Malaysia.		 Tax exemption on qualifying investment income
Resident Fund
Incentive		 Specified income derived by an approved company incorporated and resident
in Malaysia from designated investments arising from funds managed in Malaysia
by a fund manage in Malaysia can benefit from tax incentives as long as the
company is not wholly owned by investors in Malaysia. Approval for this incentive
has to be obtained by 31 March 2014.		 Tax exemption on qualifying investment income
Enhanced Tier Fund Incentive This incentive is available for funds with a minimum fund size of SGD 50
million at the point of application. Under this scheme, tax incentives under
the Qualifying Fund and Resident Fund Exemption Schemes would be enhanced as
follows:

  • no restriction on the residence status of the fund vehicles and investors
  • extended to funds constituted as limited partnerships
  • lifting of the investment limit imposed on resident non-individual investors
 Enhanced tax exemption on qualifying investment income
Finance and
Treasury Centre		 Approved companies which provide finance and treasury services to related
and associated companies outside Malaysia enjoy concessionary tax rates from
provision of qualifying services. Approval for this incentive has to be obtained
by 31 March 2016.		 Concessionary tax rate of up to 10% on provision of qualifying services
Approved Trustee Company Income derived from specified trust and custodian services to non-residents
in respect of non-Malaysia dollar investments, specified person such as foreign
companies and foreign mutual fund corporations.		 Concessionary tax rate of up to 10%
Offshore Leasing Income of a leasing company derived from Malaysia in offshore leasing of
machinery or plant may be subject to tax exemption. Offshore leasing defined
for the purpose of Malaysia taxation as the leasing of machinery or plant
where:

  • the leased asset is used outside Malaysia
  • Leased payments are denominated in currencies other than the Malaysia
    Dollar and are not deductible against any income derived from Malaysia.
 Concessionary tax rate of up to 10%
Insurance An approved insurance company engaging in the business of insuring and reinsuring
offshore risks will taxed at concessionary rates on:

  • Income arising from the business of insuring and reinsuring offshore
    risks
  • Dividends and interest derived from outside Malaysia, gains or profits
    from the sale of offshore investments and interest from Asian Currency
    Unit (ACU)
 Concessionary
tax rate of up to
10%
Islamic Bonds Payouts earned by companies and bodies of persons in Malaysia from Islamic
debt securities substantially arranged by financial institutions will be taxed
at concessionary rates. Payouts of income derived by resident and non-resident
individuals from Islamic debt securities are exempt from tax.		 Concessionary tax rate of up to10%

[/wc_accordion_section]

[wc_accordion_section title=”Research and Development (R&D) Industry”]

What are the tax incentives offered to the R&D Industry?

Scheme Description Tax Incentive
Enhanced R&D Deductions The enhanced deductions for R&D are not limited to businesses whose core
activity is research but also for any businesses that demonstrate projects
meeting the R&D definitions as follows:

  • conduct of a study in a systematic, investigative and experimental manner.
  • Involves novelty or technical risks in the field of science or technology.
  • Object of study includes production or improvement of materials, devices,
    products, produce or processes.

Companies with projects meeting the R&D definition are allowed enhanced
deductions as follows:

  • 400% tax deduction for the first $400,000 of qualifying expenditure incurred
    on R&D done in Malaysia, or overseas R&D which is related to an
    existing trade or business.
  • 150% tax deduction for the balance qualifying expenditure incurred on
    R&D done in Malaysia.
  • 100% tax deduction for the balance of all other R&D expenditure,
    including expenditure incurred on overseas R&D which is related to
    an existing business.
 400% tax deduction on first $400,000 for R&D done in Malaysia___150%
tax deductions on balance qualifying expenditure for R&D done in Malaysia___100%
tax deductions on balance for R&D expenditure

[/wc_accordion_section]

[wc_accordion_section title=”Productivity and Innovation Credit (PIC) Scheme”]

Productivity and Innovation Credit (PIC) Scheme

Scheme Description Tax Incentive
Productivity and Innovation Credit The PIC Scheme provides enhanced deduction or allowance for qualifying expenditure
incurred on each of the six activities:1. Research and Development
(R&D)

  • Please refer to the above.

2. Investments in Approved Design

  • 400% tax deduction for the first $400,000 of qualifying expenditure incurred
    on eligible design activities done in Malaysia on year of assessment.
  • 100% tax deduction for the balance of expenditure.
  • Tax incentive is must be applied through and is administered by the DesignMalaysia
    Council.

3. Acquisition of Intellectual Property

  • 400% allowance for the first $400,000 of qualifying expenditure.
  • 100% allowance for the balance expenditure.

4. Registration of Intellectual Property

  • 400% allowance for the first $400,000 of qualifying expenditure incurred
    on the registration of patents, trademarks, designs and plant varieties.
  • 100% allowance for the balance expenditure.

5. Investments in Automation Equipment

  • 400% allowance or tax deduction for the first $400,000 of expenditure
    incurred on qualifying investments in automation.
  • 100% allowance or tax deduction for the balance of expenditure.
  • Qualifying investments in automation is based on the list of automation
    equipment as prescribed in the “PIC Automation Equipment List” published
    by the IRAS.

6. Training

  • 400% deduction for the first $400,000 of qualifying training expenditure
    incurred on all external training courses, and in-house training courses
    approved by the Workforce Development Agency (WDA) and the Institute of
    Technical Education (ITE).
  • 100% tax deduction for the balance of expenditure.

For each qualifying activity, the following combined expenditure cap would
apply:

  • $800,000 for years of assessment 2011 and 2012
  • $1,200,000 for years of assessment 2013 to 2015

For more information, please proceed to:
PIC
Scheme Guide

 400% tax deduction on first $400,000 on qualifying expenditure___100% tax
deductions on balance qualifying expenditure

Quick Contact InterGest Malaysia

Have questions or need more information? We will get back to you as soon as possible.

Intergest Malaysia