Chapter 3 Linkages for Fostering Innovation Activities – Case ... - ERIA

S&T TAX INCENTIVESThe involvement of private companies in Research and Development (R&D) activities is crucialto the nation's industrialisation drive. To further encourage the involvement of the private sectorin carrying out R&D, the government of Malaysia has made available various types of incentivesfor R&D activities. Most of the R&D deductions and allowances are provided for under theIncome Tax Act, 1967. The category of incentives by way of Pioneer Status and Investment TaxAllowance are provided under the Promotion of Investments Act 1986. The following is thelisting of tax incentives being provided.• In-House Research• R&D Company• Contract R&D Co.• Tax & Duty Exemption• Double Deductions for Approved Research• Double Deductions for Cash Contributions• Double Deductions for Payments• Software Promotion• High Tech Co.• Capital Allowance & Industrial Building Allowance Grant.• Fulfillment of DefinitionTwo or these benefits for (1) in-house R&D and (2) R&D Company are provided belowIn-house R&DUnder the Promotion of Investments Act, 1986, companies which carry out in-house researchare eligible to apply for an Investment Tax Allowance of 50% on the qualifying capitalexpenditure incurred within a period of 10 years. This allowance will be offset against 70% ofthe statutory income for each year of assessment. An existing company undertakingreinvestments in in-house R&D (by way of additional expenditure for plant, machinery andbuilding) is eligible for a second round of Investment Tax Allowance of 50%.R&D CompanyUnder the Promotion of Investments Act, 1986, an R&D company which provides servicesboth for its related companies or any other companies is eligible to apply for Investment TaxAllowance of 100% on the qualifying capital expenditure incurred within a period of 10 years.This allowance will be offset against 70% of the statutory income for each year of assessment.The related companies concerned will not enjoy double deductions for payments made to theR&D Company. However the R&D company may opt not to avail itself of the Investment TaxAllowance in which case, its related companies will enjoy double deductions incentive forpayments made for R&D carried out by the R&D company. An existing R&D company141