(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:

 

  * 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;
  * 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;
  * companies undertaking ASP of national and strategic importance will be granted full tax exemption for 10 years.
     
  Terms and conditions for companies tax exemption
  * Dividends paid out of tax-exempt income to shareholders will also be exempted from tax.
  * 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:
  (i) be incorporated in Malaysia;
  (ii) achieve an annual sales turnover of more than RM10 million;
  (iii) equity holding of atleast60% by Malaysian;
  (iv) market manufactured goods, especially those from small and medium scale industry;
  (v) be registered with MATRADE;and
  (vi) 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:
  (i) not more than 20% of annual sales is derived from trading of commodities; and
  (ii) 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.
  * 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:
    general management and administration;
-business planing and co-ordination;
-procurement of raw materials, components and finished products;
-technical support and maintenance;
-market control and sales promotion planning;
-training and personnel management;
-treasury and fund management services;
-corporate financial advisory services; and
-research and development work.
  * Income arising from sources outside Malaysia and received in Malaysia by a resident company is not subject to tax.
  * The tenure of the OHQ incentives is for a period of 5 years which may be extended for another 5 years.
  * 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 Operators
  (i) 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.
     
  (ii) 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
  (i) 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;
  (ii) 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;
  (iii) 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);
  (iv) exemption of statutory income equivalent to 50% of the value of increased exports is given to companies in selected services sector as follows:
     
  a. legal;
  b. accounting;
  c. engineering consultancy;
  d. architecture;
  e. marketing;
  f. business consultancy;
  g. office services;
  h. construction management;
  i. building management;
  j. plantationmanagement;
  k. health;
  l. education;
  m. publishing; and
  n. nformation 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:
  (i) full tax exemption on income earned by the drivers; and
  (ii) 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 (franchisor) 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:
     
  * 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;
  * 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;
  * 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
     
  * Dividends paid out of tax-exempt income to shareholders will also be exempted.
  * 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:
     
  (a) 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.
     
  (b) 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:
     
  (i) The company must be in operation for at least 12 months.
  (ii) RA will be given for a period of 15 years beginning from the year the first reinvestment is made.
  (iii) Assets acquired from RA cannot be disposed within 2 years of reinvestment.
  (iv) 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.
  (v) 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.