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  • Income Tax Exemption

    A. Approved ServicesProjects(ASP)-Section 127

    The income of companies undertaking ASP is exempted at statutory level.The quantum of tax exemption on statutory income varies between 70% and 100% for a period of 5 to 10 years from the date the first income is generated.The quantum of exemption available are as follows:

    1. Companies undertaking ASP will be granted partial tax exemption on 70% of the statutory income for 5 years.The balance 30% of that statutory income will be taxed at the prevailing company tax rate;
    2. Companies undertaking ASP in Sabah, Sarawak and the designated eastern corridor of Peninsular Malaysia will be granted partial tax exemption on 85% of the statutory income for 5 years.The balance 15% of that statutory income will be taxed at the prevailing company tax rate;
    3. Companies undertaking ASP of national and strategic importance will be granted full tax exemption for 10 years.

    Terms and conditions for companies tax exemption

    1. Dividends paid out of tax-exempt income to shareholders will also be exempted from tax.
    2. Capital allowances and losses unabsorbed have to be utilised during the exemption period and will not be allowed to be carried forward to the post exemption period.

    B. Trading Companies

    Companies approved as International Trading Company are given income tax exemption amounting to 70% of the statutory income arising from increased export sales. For the purpose of this incentive, export sales do not include trading commissions and profits derived from trading at the commodity exchange. This exemption is for 5 years. To qualify as an 'International Trading Company', a company must satisfy the following criteria:

    1. Be incorporated in Malaysia;
    2. Achieve an annual sales turnover of more than RM10 million;
    3. Equity holding of atleast60% by Malaysian;
    4. Market manufactured goods, especially those from small and medium scale industry;
    5. Be registered with MATRADE;and
    6. Export of goods of related companies is allowed without any restrictions.

    In addition, the company must satisfy the following conditions to enjoy for the tax incentive:

    1. Not more than 20% of annual sales is derived from trading of commodities; and
    2. Use local services such as banking, finance, insurance, ports and airports.

    C. Operational Headquarters Company (OHQ)

    An approved OHQ company is a locally incorporated company whichcarries on a business in Malaysia of providing qualifying services to its offices or related companies outside Malaysia and which is approved by the Minister of Finance.

    1. Under Section 60E of the Income Tax Act 1967, income derived by an approved OHQ company is given a tax concession from the provision of qualifying services in respect of:
      1. General management and administration;
      2. Business planing and co-ordination;
      3. Procurement of raw materials, components and finished products;
      4. Technical support and maintenance;
      5. Market control and sales promotion planning;
      6. Training and personnel management;
      7. Treasury and fund management services;
      8. Corporate financial advisory services; and
      9. Research and development work.
    2. Income arising from sources outside Malaysia and received in Malaysia by a resident company is not subject to tax.
    3. The tenure of the OHQ incentives is for a period of 5 years which may be extended for another 5 years.
    4. Companies granted an approved OHQ status will enjoy a 10% concessionary tax on business income, income from loan/fund management services (interest on approved loans raised through financial institutions in Malaysia and extended to its offices or related companies outside Malaysia) and royalty income received from research and development work.

    D. Tour Operator

    1. Incentive for bringing in foreign tourists: Tax exemption on income earned from the business of operating tours provided that the tour operators are licensed with the Ministry of Culture, Arts & Tourism and the tour operators bringing in at least 500 foreign tourists per year through group inclusive tours. This incentive will be available until year of assessment 2006.
    2. Incentive for domestic tourism: Tax exemption on income earned from the business of operating tours provided that the tour operators are licensed with the Ministry of Culture, Arts and Tourism and the tour operators conduct domestic tour packages with at least 1,200 local tourist per year. For this purpose, a domestic tour package means any tour package within Malaysia participated by local tourist (individuals who are Malaysian citizens or residing in Malaysia)inclusive of transportation by air, land or sea and providing at least one night accommodation. This incentive will be available until year of assessment 2006.

    E. Organisers of International Conference

    Local companies which organise international conferences in Malaysia will be eligible for tax exemption on income earned from bringing in at least 500 foreign participants per year into the country.

    F. Promotion of International Trade Exhibitions in Malaysia

    Local companies which organise international trade exhibitions in Malaysia will be eligible for tax exemption on income earned from bringing in at least 500 foreign visitors per year into the country provided that the international exhibitions are approved by MATRADE.

    G. Promotion of Export

    1. Exemption of statutory income equivalent to 10% of the value of increased exports is given to manufacturers provided that the goods exported attains at least 30% value added;
    2. Exemption of statutory income equivalent to 15% of the value of increased exports is given to manufacturers provided that the goods exported attains at least 50% value added;
    3. Exemption of statutory income equivalent to 10% of the value of increased exports is given to companies which export agricultural produce (agricultural produce means fresh and dried fruits, fresh and dried flowers, ornamental plants and ornamental fish);
    4. Exemption of statutory income equivalent to 50% of the value of increased exports is given to companies in selected services sector as follows:
    5. Legal;
    6. Accounting;
    7. Engineering consultancy;
    8. Architecture;
    9. Marketing;
    10. Business consultancy;
    11. Office services;
    12. Construction management;
    13. Building management;
    14. Plantation management;
    15. Health;
    16. Education;
    17. Mublishing; and
    18. Information and communication technology.

    H. Promotion of Car and Motorcycle Racing Events

    Drivers and organizers of car and motorcycles racing of international standards held in Malaysia are eligible for:

    1. Full tax exemption on income earned by the drivers; and
    2. 50% tax exemption on income earned by the organisers.

    I. Promotion of Boat/Yacht Maintenance Activities in Langkawi

    Companies undertaking repair and maintenance activities of luxury boats and yacht in Langkawi are eligible for full income tax exemption for 5 years.

    J. Chartering Services of Luxury Yatchs

    Income derived by the company in providing chartering services of luxury yatchs are eligble for full income tax exemption for 5 years.

    K. Rental of ISO Containers

    Income received from rental of ISO containers by non-residents from shipping companies in Malaysia is exempted from income tax.

    L. Royalty Under The Franchised Education Scheme

    Tax exemption is granted to royalty income received by non-residents (franchiser) for franchised education schemes approved by the Ministry of Education.

    M. Investment Allowance (IA) -Schedule 7B

    IA is an alternative incentive that companies undertaking ASP can opt for other than the income tax exemption under section 127.Under IA, the quantum of allowance available to companies undertaking ASP in respect of qualifying capital expenditure incurred within 5 years from the date the qualifying capital expenditure is first incurred varies between 60% to 100%. The allowance can be utilised to set off (exempt) 70% to 100% of the statutory income.The quantum of allowance available are as follows:

    1. Companies undertaking ASP will be granted IA of 60% in respect of qualifying capital expenditure incurred within 5 years from the date the capital expenditure is first incurred.The allowance can be utilised to set off (exempt)70% of the statutory income;
    2. Companies undertaking ASP in Sabah, Sarawak and the designated eastern corridor of Peninsular Malaysia will be granted IA of 80% in respect of qualifying capital expenditure incurred within 5 years from the date the capital expenditure is first incurred. The allowance can be utilised to set off (exempt) 85% of the statutory income;
    3. Companies undertaking ASP of national and strategic importance will be granted IA of 100% in respect of qualifying capital expenditure incurred within 5 years from the date the capital expenditure is first incurred.The allowance can be utilised to set off (exempt) 100% of statutory income.

    Terms and conditions for companies granted IA

    1. Dividends paid out of tax-exempt income to shareholders will also be exempted.
    2. Any unutilised allowance can be carried to the subsequent years until it is fully utilised.

    N. Reinvestment Allowance (RA)

    RA is given to manufacturing and agricultural companies producing essential food(rice, maize, vegetable, tubers, livestock farming, production of aquatic products and any other activities approved by the Minister of Finance) undertaking expansion, modernisation, diversification and automation activities.

    The level of RAgranted are as follows:

    1. Projects in promoted areas: Sabah, Sarawak and designated Eastern corridor of Peninsular Malaysia which covers Kelantan, Terengganu, Pahang and the district of Mersing in Johor. Companies will be granted an allowance of 60% in respect of qualifying capital expenditure for 15 consecutive years commencing from the date the capital expenditure is first incurred.The allowance can be utilised to set off (exempt) 100% of the statutory income.
    2. Projects in non-promoted areas (Western Corridor of Peninsular Malaysia): Companies will be granted an allowance of 60% in respect of qualifying capital expenditure for 15 consecutive years commencing from the date the capital expenditure is first incurred.The allowance can be utilised to set off (exempt) 70% of the statutory income.However, companies that carry out reinvestment which can improve significantly their productivity level will be allowed to set off (exempt) 100% of statutory income. Productivity will be measured by using the Process Efficiency Ratio (PER)as shown below: Definition of significant increase in productivity PER has increased by at least the same rate as the GDP growth rate for that industry. Formula: Process Efficiency Ratio (PER) PER = Total Output BIMS Total Input BIMS Whereby, BIMS (Bought in materials and services) is defined as value of materials consumed in the production process (including payment for the transport, tax paid including those on materials) + value of equipment used such as packaging materials, daily used materials (including office stationery, materials for improvement and maintenance) + publication cost + lubricants + cost of goods sold in same conditon such as utilities (water, electricity, fuels) + payments to contractors + payment to industrial work done by others + payment for non-industrial services. Eligibility criteria RA is subject to the following criteria:
      1. The company must be in operation for at least 12 months.
      2. RA will be given for a period of 15 years beginning from the year the first reinvestment is made.
      3. Assets acquired from RA cannot be disposed within 2 years of reinvestment.
      4. Has incurred in the basis period for a year of assessment capital expenditure on a factory plant/machinery used in Malaysia for the purposes of a qualifying project.
      5. Has achieved the level of productivity as prescribed by the Minister of Finance.(this only applies to a company which is claiming for the allowance to be set off (exempt) against 100% of the statutory income)

    Effective from the year of assessment 2001, upon expiry of RA, companies producing promoted products or engaging in promoted activities or promoted food products are eligible for Accelerated Capital Allowance on their capital expenditure at the following rate: initial rate 40% and annual rate 20% enabling them to write off their capital expenditure within 3 years.The promoted food products are rice maize, vegetables, tubers, roots, fruits, livestock, farming, aquatic products and any other activities approved by the Minister of Finance.

  • Accelerated Capital Allowance

    A. Computer and information technology assets including software

    Initial allowance of 20% and annual allowance of 40%.

    B. Environmental protection equipment

    Initial allowance of 40% and annual allowance of 20%.

    C. Companies that reinvest in the production of promoted products and promoted food items are eligible for accelerated capital allowance upon expiry of reinvestment allowance. Initial allowance of 40% and annual allowance of 20%.

    D. Deduction for acquiring property rights

    Capital expenditure on acquiring proprietary rights such as patent, industrial design/trademarks is allowed as deduction of 20% on the cost of the acquisition of the proprietary rights for 5 years.

    E. Cost of Developing Websites

  • Deduction for Capital Expenditure on Approved Agricultural Projects

    Schedule 4A of the Income Tax Act 1967 allows a person carrying on an approved agricultural project to elect so that the qualifying capital expenditure incurred by him in respect of that project is deducted from his aggregate income, including income from other sources. Where there is insufficient aggregate income for the qualifying farm, expenditure to be deducted from the unabsorbed expenditure will be carried forward to subsequent years of assessment. He will not be entitled to any capital allowance or agricultural allowance on that same capital expenditure.

    This incentive is not available to companies which have been granted incentive under the Promotion of Investment Act 1986 and the repealed Investment Incentive Act 1968 and whose tax relief period have not started or have not expired.

    The qualifying capital expenditure eligible for deduction for purposes of this incentive are as follows:

    1. the clearing and preparation of land;
    2. the planting (but not replanting) of a crop relating to an approved agricultural project;
    3. the construction on a farm of a road or bridge;
    4. the construction on a farm of a building used for the purpose of an approved agricultural project which is carried out on that farm or the construction on that farm of building provided for the welfare and accommodation of persons employed in that project and which, if that project ceased to be carried out, is likely to be little or no value to any person except in connection with the working of another farm;
    5. the construction of a pond or the installation of an irrigation or drainage system which is used for the purpose of an approved agricultural project.

    Only expenditure incurred within a specific time frame and in respect of a farm cultivation and utilising a specified minimum hectare for each approved project as stipulated by the Minister of Finance will qualify. The approved projects are as follows:

    ProjectPeriodMinimum Hectare
    Cultivation of crops:
    1. Papaya 1 year 40 hectares
    2. Bananas 1 year 40 hectares
    3. Passion fruit 1 year 40 hectares
    4. Star fruit 2 years 8 hectares
    5. Guava (jambu) 2 years 8 hectares
    6. Mangosteen 7 years 8 hectares
    Floriculture 2 years 8 hectares
    Cultivation of vegetable, tubers, roots, herbs, spices, crops for animal feed and hydroponic based products 3 years 40 hectares
    Omamental fish culture - open system (land/concrete pond) 2 years 5 hectares
    Ornamental fish culture - enclosed system 2 years 0.25 hectare
    Pond culture-fish and prawns (brackish water/fresh water) 2 years 20 hectares
    Tank culture-fish (brackish water/fresh water) 2 years 1 hectare
    Off-shore marine cage culture - fish 2 years 0.5 hectare
    Marine cage culture-fish (brackish water/fresh water) 2 years 0.5 hectare
    Cockle culture 1 year 10 hectares
    Mussel and oyster culture 2 years 0.5 hectar
    Seaweed culture 1 year 0.5 hectare
    Shrimp hatchery 2 years 0.25 hectare
    Prawn hatchery 2 years 0.25 hectare
    Fish hatchery (Sea water/brackish water/fresh water) 2 years 0.5 hectare

    (Plants, bulbs, tubers and roots with or without flowerbuds, of the kind specified in chapter 6 of the Custom Duties Order 1988, which are suitable for planting ornamental use, excluding mushroom spawn, budded or seedling rubber stamp and rubber budwood)

  • Additional Incentives For Food Production

    A company which invest in a subsidiary company engaged in food production are eligible for incentives as in alternative A or B:

    1. Alternative A:
      1. The company which invest in the subsidiary company engaged in the food production be granted tax deduction equivalent to the amount of investment made in that subsidiary; AND
      2. The subsidiary company undertaking food production be given income tax exemption of 100% on its statutory income for 10 years commencing from the first year the company enjoys profit in which:
        1. Losses incurred before the exemption period is allowed to be brought forward after the exemption period of 10 years;
        2. Losses incurred during the exemption period is also allowed to be brought forward after the exemption period of 10 years; and
        3. Dividends paid from the exempt income be exempted in the hands of the shareholders.
    2. Alternative B:
      1. The company which invest in the subsidiary company engaged in food production be given group relief for the losses incurred by subsidiary company before it records any profit; AND
      2. the subsidiary company undertaking food production be given income tax exemption of 100% on its statutory income for 10 years commencing from the first year the company enjoys profit in which:
        1. losses incurred during the exemption period is also allowed to be brought forward after the exemption period of 10 years; and
        2. dividends paid from the exempt income be exempted in the hands of the shareholders

    The incentives are granted with the following conditions:

    1. the investing company should own 100% of the subsidiary company that undertakes food production;
    2. the eligible food products are as approved by the Minister of Finance. Initially the approved food products are kenaf, vegetables, fruits, herbs, spices, acquaculture, beef and mutton; and
    3. the food production project should commence within a period of one year from the date the incentive is approved.

    The above incentives are extended to companies which reinvests in the production of the same food product but the incentive are for a period of 5 years subject to the same conditions. Applications for these incentives should be submitted for the approval of the Minister Of Finance through the Minister Of Agriculture before 31 December 2003. To encourage companies to provide cold room and refrigerated facilities and related services such as collection and treatment of locally produced perishable food products, companies will be granted the following incentives:

    1. PS with exemption of 70% on the statutory income for a period of 5 years;or
    2. ITA of 60% on the capital expenditure incurred within 5 years, to be utilised against 70% of statutory income.

  • Incentive for Malaysian Experts Abroad To Return To Work In Malaysia

    To encourage Malaysians experts who are abroad to return to serve Malaysia the following incentives are granted:

    1. income remitted within 2 years from the date of arrival will be exempted from incometax;
    2. two motorcars registered in the country of origin for at least 6 months in the name of either the husband/wife/children will be exempted from import duty and sales tax; and
    3. husband/wife and children ofa Malaysiancitizen will be given permanent resident status within 6 months from the date of arrival.

    These incentives will be effective from 1 January 2001. Applications for this incentiveshould be submitted to a Special Committeein the Ministry Of Human Resources.

  • Tax Incentives For The Venture Capital Industry

    The following incentives are available:

    1. Venture Capital Companies Investing In Venture Companies: Venture Capital Companies (VCC) investing in venture companies are given full tax exemption on all sources of income for 10 years of assessmentor the years of assessment equivalent to the life span of the fund (if any)established for the purpose of investing in the venture company whichever is the lesser. Where a VCC incurs a loss from the disposal of shares in a venture company in the basis period for any year of assessment within the exempt period, such losses shall be carried forward to the post-exempt period. Conditions to qualify for the exemption:
      1. At least 70% of the funds be invested in venture companies in the form of seed capital, start-up or early stage financing; and
      2. VCC should not invest in a venture company which is its related company at the point of first investments
      VCC must obtain annual certification from the Securities Commission that the conditions imposed for the incentives have been complied. The letter of certification must be attached with the income tax return form for submission to the Inland Revenue Board. This incentive is effective from the year of assessment 2000 in respect of the basis period ending in the year 2000.
    2. Companies or Individuals Investing In Venture Companies: A company or an individual having a business source, having invested in a venture company at start-up, seed capital and early stagefinancing are entitled toa deduction from the adjusted income equivalent to the value of the investment made in the venture company. If the company or individual does not have sufficient adjusted incometo offset the investment, the deductions will be allowed to be carried forward. Conditions to qualify for the deduction:
      1. The investment in a venture company is in the form of the holding of shares which at the point of acquisition are not listed for quotation in the official list of a stock exchange;
      2. VCC should notinvestin a venture company which is its related company at the point of first investments;
      3. The company or the individual has not disposed its shares in a venture company prior to its listing on the official list of a stock exchange.
      A company or an individual must obtain annual certification from the Securities Commission that the conditions imposed for the incentives have been complied. The letter of certification must be attached with the income tax return form for submission to the Inland Revenue Board. This incentive is effective from the year of assessment 2001.For a company theincentive9(i) and (ii) are mutually exclusive.

  • Incentive For The Conservation Of Energy

    A. Companies providing energy conservation services:

    1. Tax exemption on70% of statutory income for 5 years OR Investment Tax Allowance of 60% of capital expenditure incurred within a period of 5 years to be set off (exempt) against 70% of the statutory income in the assessment year; and (ii) import duty and sales tax exemption on equipment, on condition that the equipment is not available locally and is used directly in this activity. For equipment locally purchased, sales tax be exempted, on condition that the equipment is used directly in this activity. This incentive is applicable for applications received from 28 October 2000 until 31 December 2002,on condition that the company must implement the project within one year from the date the incentive is approved.

    B. Companies which incur capital expenditure arising from energy conservation measures in their own company:

    1. Capital expenditure incurred from the related equipment purchased is granted Accelerated Depreciation Allowance, to be written off within a period of 3 years; and
    2. Import duty and sales tax exemption on equipment, on condition that the equipment is not available locally and is used directly in this activity. For equipment locally purchased, sales tax be exempted, on condition that the equipment is used directly in this activity.

    The incentive in item B(i) above is effective from the year of assessment 2001 and for item B(ii)is effective from 28 October 2000.

  • Incentive For Utilising Biomass As A new Source Of Energy

    To encourage the utilisation of renewable energy from biomass, companies whichgenerate energysourced from biomass are given the following incentives:

    1. Income tax exemption of 70% for 5 years OR Investment Tax Allowanceof 60%to be set off against 70% of statutory income for 5 years; and
    2. Import duty and sales tax exemption on machinery and equipmentused directly in this activity.

    This incentive is applicable for applications received from 28 October 2000 until 31December 2002, on condition that the company must implement the project within one year from the date the incentive is approved.

  • Tax Exemption on Income of Trade Association

    Statutory income from subscription fees received by trade association is exempted from income tax indefinitely. However, if this tax exemption is less beneficial compared to the current tax treatment of 50% exemption, then the trade association can continue to enjoy the prevailing tax exemption until the expiry of the period and subsequently, enjoy the tax exemption on statutory income from subscription fees.

  • Tax Incentive For Offshore Trading Via websites In Malaysia

    Income received by companies undertaking offshore trading via websites in Malaysia be taxed at a concessionary rate of 10% for a period of 5 years.

  • Special Tax Treatment for Gift

    1. Training Activity: Special tax treatment for donation of used machinery or equipment, to a technical or vocational training institute established and maintained by the Government or statutory body or technical or vocational training institute approved by the Minister of Finance.
    2. Research Activity: Special tax treatment for donation of used machinery or equipment to approved research institutes. For both (a) & (b)

    The disposal value of such machinery or equipment is deemed as zero.Any unutilised capital allowance (residual expenditure) in respect of the machinery or equipment will be given full deduction in the year of assessment in which the machinery or equipment are donated.

    Prior to this, the disposal value of such gifts is taken to be the market value and if the value is higher than the utilised capital allowance, the donor is subject to tax on the balancing charge.

  • Tax Exemption to Promote Labuan as an International Offshore Financial Center (IOFC)

    An Offshore company is also eligible for tax exemption on certain income as follows:

    P.U. (A) 161/1991 -Income Tax (Exemption) (No.16) Order 1991

    Tax exemption is given on:

    1. Dividends received by an offshore company;
    2. Dividends received from an offshore company which are paid, credited or distributed out of income derived from an offshore business activity or, income exempt from tax;
    3. Distributions received from an offshore trust by the beneficiaries;
    4. Royalties received from an offshore company by a non-resident person or, another offshore company;
    5. Interest received from an offshore company by a non-resident person (other than interest accruing to a business carried on by a non-resident person in Malaysia where that non-resident person is licensed to carry on a business under the Banking and Financial Institutions Act 1989, the Islamic Banking Act 1983, the Insurance Act 1963 or the Takaful Act 1983) or, another offshore company;
    6. Interest received from an offshore company by a resident person (other than a person licensed to carry on a business under the Banking and Financial Institutions Act 1989, the Islamic Banking Act 1983, the Insurance Act 1963 or the Takaful Act 1983); and
    7. Amounts received from an offshore company by a non-resident person or another offshore company, in consideration of services, advice or assistance specified in paragraphs (i) and (ii) of section 4A.

    This exemption is effective from the year of assessment 1991.

    P.U.(A) 69/1998 - Income Tax (Exemption) (No:2) Order 1998

    A non-resident person is exempted from income tax in respect of income arising from the use of any moveable property by an offshore company licensed under the Offshore Banking Act 1990 or approved by the Labuan Offshore Financial Services Authority (LOFSA) to carry out leasing business in Labuan.This exemption is effective from 25 October 1997.

    P.U.(A) 99/2000 - Income Tax (Exemption) (No:10) Order 2000

    Shareholders of a domestic company are exempted from income tax on dividend received from the company which are paid out of the dividends received from an offshore company.

    P.U.(A) 100/2000 - Income Tax (Exemption) (No: 11) Order 2000

    Non-citizen individual is exempted from the payment of income tax on 50% of gross income derived by the individual from exercising an employment in Labuan, in a managerial capacity in an offshore company.This exemption is granted for year of assessment 1992 until year of assessment 2004.

    P.U.(A) 101/2000 - Income Tax (Exemption) (No:12) Order 2000

    A trust company is exempted from income tax on 65% of the statutory income from a source consisting of the provision of qualifying professional services rendered in Labuan by that company to an offshore company.This exemption is given for year of assessment 2000 (under a current year assessment system) until year of assessment 2004.

    P.U.(A) 9/2000 - Stamp Duty (Exemption) Order 2000

    Stamp duty is exempted under subsection 80(1) Stamp Act 1949 on the following instruments:

    1. All instruments which are executed by an offshore company in connection with an offshore business activity;
    2. All Memorandum and Articles of Association of an offshore company;
    3. All instruments of transfer of shares in an offshore company.

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