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Executive Summary

Malaysia offers a wide range of tax incentives for the promotion of investments in biotechnology, multimedia & IT and in selected industry sectors. As such, although Malaysia is neither a tax haven nor a low tax jurisdiction, for companies which are eligible for the tax incentives, the effective tax rates may be significantly below the normal corporate tax rate of 25%. For instance, a manufacturing company with a pioneer status tax incentives pays an effective tax at the rate of 7.5% as only 30% of its profits are subject to tax.

Some of the major tax incentives available in Malaysia are the Pioneer Status (PS), Investment Tax Allowance (ITA) and Reinvestment Allowance (RA).

Pioneer Status (PS)

The standard PS incentive is a partial exemption from the payment of income tax for a period of five years up to 70% of a company¡¯s statutory income (income after deduction of allowable expenses and capital allowances).

The PS is available to companies engaged in promoted activities or producing promoted products. The Malaysian Industrial Development Authority (MIDA) at has identified a long list of activities and manufactured products as ¡°promoted activities¡± and ¡°promoted products¡±.

Investment Tax Allowance (ITA)

The ITA incentive is an alternative incentive to PS. Both the ITA and PS incentives are mutually exclusive, i.e. a company can only enjoy either one of the incentive and not both. The ITA incentive is preferable over the PS incentive for projects which are capital intensive and which are not expected to generate large profits in a short time. Similar to PS, ITA is available to companies involved in promoted activities or promoted products.

ITA is an allowance (in addition to the capital allowance) on qualifying plant and equipment acquired by the company during the ITA period (i.e. tax relief period). The normal rate of allowance is 60% on the qualifying capital expenditure. ITA can be offset up to 70% of the statutory income of the company. Any unused allowances in a year can be carried forward to future years indefinitely.

Reinvestment Allowance (RA)

RA, is available to manufacturing companies that reinvest their capital to embark on a project for either expansion of existing production capacity, modernization or automation of the production facilities, or diversification into related products. RA is also available to companies engaged in agricultural projects

The rate of RA is 60% on the qualifying capital expenditure (i.e. factory, plant and machinery) and is granted in addition to capital allowances. The RA is used to reduce up to 70% of statutory income. Any unused RA may be carried forward indefinitely.

The incentive period for RA is 15 years from the first year of claim by a company. Companies that enjoy PS or ITA are not eligible for RA. Unlike PS or ITA, this incentive does not require prior approval from any of the authorities.

Suite 1602, 16th Floor, Wisma Lim Foo Yong, 86 Jalan Raja Chulan,
50200 Kuala Lumpur, Malaysia. P.O.Box 11688, 50754 Kuala Lumpur.
Tel: 603- 2732 0322   Fax: 603- 2142 3116

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