Main Incentives for Manufacturing Companies
The major tax incentives for companies investing in the manufacturing sector are the Pioneer Status and the Investment Tax Allowance (ITA).
For information related to incentives, visit the Malaysian Investment Development Authority (MIDA) page below:
https://www.mida.gov.my/home/incentives-in-manufacturing-sector/posts/
Pioneer Status
Investment Tax Allowance (ITA)
Applications should be submitted to MIDA.
* Statutory Income is derived after deducting revenue expenditure and capital allowances from the gross income.
+ "Eastern Corridor" of Peninsular Malaysia covers the states of Kelantan, Terengganu and Pahang, and the district of Mersing in Johor. Incentives for Relocating Manufacturing Activities to Promoted Areas
ii. Investment Tax Allowance of 100% on the qualifying capital expenditure incurred within a period of 5 years. The allowance can be offset against 100% of statutory income for each year of assessment.
All applications received from 11 September 2004 to be eligible for this incentive.
Applications should be submitted to MIDA.Incentives for High Technology Companies
ii. Investment Tax Allowance of 60% (100% for promoted areas) on the qualifying capital expenditure incurred within five years from the date the first qualifying capital expenditure is made allowance can be utilized to offset against 100% of statutory income for each year of assessment. Any unutilized allowances can be carried forward to subsequent years until fully utilized.
Applications should be submitted to MIDA.
The high technology company must fulfill the following criteria:
i. The percentage of local R & D expenditure to gross sales should be at least 1% per year. States have three years from the date of operation or commencement of business to meet these requirements.
ii. Scientific and technical staff having degrees or Diploma with work experience of at least 5 years should be at least 7% of the total workforce of the company.Incentives for Strategic Projects
Incentives for Small and Medium Enterprises
ii. Investment Tax Allowance of 60% (100% for promoted areas) on the qualifying capital expenditure incurred within five years. The allowance can be offset against 100% of statutory income for each year of assessment. Any unutilized allowances can be carried forward to subsequent years until fully utilized.
A sole proprietorship or partnership is eligible to apply for this incentive provided a new private limited / limited company is formed to take over production / existing activities. To qualify for the incentive, a small company must meet one of the following criteria:
i. Value-added must be at least 15%; or
ii. The project contributes to socio-economic development of the rural population.
The Company shall carry out the manufacture of products or participate in activities listed as promoted products and activities for small companies (see: List of Activities and Products - Small Scale Companies).
Applications should be submitted to MIDA.Incentives to Strengthen Industrial Linkages
ii. Investment Tax Allowance of 100% on the qualifying capital expenditure incurred within five years from the date the first qualifying capital expenditure is made. The allowance can be offset against 100% of statutory income for each year of assessment. Any unutilized allowances can be carried forward to subsequent years until fully utilized.
To encourage vendors to manufacture products or participate in activities for the international market, vendors in an approved ILP who are capable of achieving world-class standards in terms of price, quality and capacity, will be eligible for the following incentives:
i. Pioneer Status with income tax exemption of 100% of statutory income for a period of 10 years; or
ii. Investment Tax Allowance of 100% on the qualifying capital expenditure incurred within five years, which the company can offset against 100% of statutory income for each year of assessment. Any unutilized allowances can be carried forward to subsequent years until fully utilized.
Applications should be submitted to MIDA.Incentives for Industrial Machinery and Equipment
ii. Investment Tax Allowance of 100% on the qualifying capital expenditure incurred within five years from the date the first qualifying capital expenditure is made. This allowance can be offset against 100% of statutory income for each year of assessment. Any unutilized allowances can be carried forward to subsequent years until fully utilized.
Applications should be submitted to MIDA.
• Additional Incentives for the Production of Heavy Machinery
Applications are accepted from 13 September 2003 of the companies belonging to the existing local reinvest in the production of heavy machinery such as cranes, quarry machinery, batching plant and port material handling equipment, are eligible for the following incentives:
i. Pioneer Status with income tax exemption of 70% (100% for promoted areas) on the increased statutory income arising from the reinvestment for a period of five years; or
ii. Investment Tax Allowance of 60% (100% for promoted areas) on the additional qualifying capital expenditure incurred within five years. The allowance can be offset against 70% (100% for promoted areas) of statutory income for each year of assessment. Any unutilized allowances can be carried forward to subsequent years until fully utilized.
Applications should be submitted to MIDA.
• Additional Incentives for the Production of Machinery and Equipment
Applications received from 13 September 2003 from locally owned companies that reinvest existing in the production of machinery and equipment, including specialized machinery and equipment and machine tools, are eligible for the following incentives:
i. Pioneer Status with income tax exemption of 70% (100% for promoted areas) on the increased statutory income arising from the reinvestment for a period of five years; or
ii. Investment Tax Allowance of 60% (100% for promoted areas) on the additional qualifying capital expenditure incurred within five years. The allowance can be offset against 70% (100% for promoted areas) of statutory income for each year of assessment. Any unutilized allowances can be carried forward to subsequent years until fully utilized.
Applications should be submitted to MIDA.Incentives for Automotive Component Modules
ii. Investment Tax Allowance of 60% (100% for promoted areas) on the qualifying capital expenditure incurred within five years from the date the first qualifying capital expenditure is made. The allowance can be offset against 100% of statutory income for each year of assessment. Any unutilized allowances can be carried forward to subsequent years until fully utilized.
Modules or systems that are eligible are modules over the next module corner of the rear module of the instrument panel, Strut and absorbers and assembly module like module bumpers, modular member cross, door modules function integrated, modular fuel tank, the module seating module pedal module fireplace doors, modular console floor, module tires and wheels, brake systems, wiper systems, airbags, exhaust system, audio system, air conditioning system heating, ventilation system power and signal distribution systems, alarm systems, seat belt systems, outdoor lighting, body in white modules, engine management systems, safety systems, telematics, navigation systems, engine fuel injection systems, and vehicle intelligence systems.
This incentive is for applications received by MIDA from 21 September 2002.Enhanced Incentives for the Use of Oil Palm Biomass
(B) Investment Tax Allowance of 100% on the qualifying capital expenditure incurred within five years. The allowance can be offset against 100% of statutory income for each year of assessment. Any unutilized allowances can be carried forward to subsequent years until fully utilized.
However, companies that have been granted approval for this incentive a year before 13 September 2003 but have not commenced commercial production, or applications under consideration, are eligible for this incentive.
(ii) Existing Companies that Reinvest
(A) Pioneer Status with income tax exemption of 100% on statutory income arising from the reinvestment for a period of 10 years; or
(B) Investment Tax Allowance of 100% on the additional qualifying capital expenditure incurred within five years. The allowance can be offset against 100% of statutory income for each year of assessment. Any unutilized allowances can be carried forward to subsequent years until fully utilized.Additional Incentives for the Manufacturing Sector
(i) Reinvestment Allowance
A manufacturing company that has been operating for at least 12 months and incurs qualifying capital expenditure to expand, modernize or automate its existing business or diversify into any related products within the same industry can apply for Reinvestment Allowance (RA - Reinvestment Allowance) ,
RA is given at the rate of 60% on qualifying capital expenditure incurred by the company, and can be offset against 70% of statutory income for the year of assessment. Any unutilized allowances can be carried forward to subsequent years until fully utilized.
A company can offset the RA against 100% of statutory income for the year of assessment if:
• The company undertakes reinvestment projects in the promoted areas ie the States of Sabah, Sarawak and the designated "Eastern Corridor" of Peninsular Malaysia; or
• The company achieved the level of productivity than that set by the Ministry of Finance. For further details on the prescribed productivity level for each sub-sector, please contact the Inland Revenue Board. (See Useful Addresses - Relevant Organisations)
RA will be given for a period of 15 consecutive years starting from the first year the reinvestment. Companies can only claim the RA upon the completion of a qualifying project; ie after the building is completed or when the plant / machinery is in operation. Assets acquired for the reinvestment can not be disposed of within two years from the time of the reinvestment.
With effect from 21 September 2002, a company that intends to reinvest before the expiry of its Pioneer Status can surrender its Pioneer Status for cancellation and be eligible for RA.
Applications for RA should be submitted to the Inland Revenue Board (LHDN), while applications for the surrender of Pioneer Status for RA should be submitted to MIDA.
(ii) Accelerated Capital Allowance
After a 15-year period of eligibility for RA, companies that reinvest in the manufacture of promoted products are eligible to apply for Accelerated Capital Allowance (ACA - Accelerated Capital Allowance). ACA on capital expenditure is to be utilized within three years, ie an initial allowance of 40% and an annual allowance of 20%.
Applications should be submitted to the LHDN accompanied by a letter from MIDA certifying that the companies are manufacturing promoted products.
(iii) Accelerated Capital Allowance on Equipment to Maintain Quality of Power Supply
To reduce the cost of doing business due to power outages, companies that incur capital expenses on equipment to ensure quality power supply are eligible for Accelerated Capital Allowance for a period of 2 years.
Only equipment determined by the Ministry of Finance are eligible for Accelerated Capital Allowance.
This incentive is effective from year of assessment 2005.
Applications should be submitted to the LHDN.
(iv) Tax Exemption on the Value of Increased Exports
To promote exports, manufacturing companies in Malaysia qualify for:
• A tax exemption on statutory income equivalent to 10% of the value of increased exports, provided the products are exported to the value added of at least 30%; or
• A tax exemption on statutory income equivalent to 15% of the value of increased exports, provided that the goods exported attain at least 50% of value added.
Claims should be submitted to the LHDN.
To further encourage the export of Malaysian goods, a locally-owned manufacturing company with equity of at least 60% is eligible for:
• A tax exemption on statutory income equivalent to 30% of the value of increased exports, provided the company achieves a significant increase in exports;
• A tax exemption on statutory income equivalent to 50% of the value of increased exports, provided the company succeeds in penetrating new markets;
• A full tax exemption on the value of increased exports, provided the company achieves the highest increase in export in its category.
These incentives are effective from year of assessment 2003.
(v) Double Deduction for Expenses to Obtain Certification "Halal" Certification and Quality Systems and Standards
To enhance the competitiveness of Malaysian companies in the global market for "halal" product (product suitable for consumption by Muslims) including "halal" food, double deduction will be given for the purpose of income tax computation to companies which incur expenses for:
a. certificates and quality system standards and the certificate "halal" from the Department of Islamic Development Malaysia (JAKIM)
b. certified quality system and international standards
This incentive is effective from year of assessment 2005.
Claims should be submitted to the LHDN
Pahang State
Development Corporation
16th Floor, Kompleks Teruntum
25000 Kuantan, Pahang.
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