B16 TAX INCENTIVES - The Malaysian Institute Of Certified Public ...

B16 TAX INCENTIVESB16.1 MAJOR CHANGESPioneer StatusSalient points:– Pioneer status is granted for an initial period of 5 years commencing from the production day asdetermined by the Ministry of International Trade and Industry (MITI).– Adjusted business income from a pioneer activity is fully exempted from tax.– Capital allowances are not deducted. The qualifying expenditure is deemed to be incurred on the firstday of the post-pioneer period.– Extension of the pioneer period (up to 5 years) is granted if specific criteria are met.– The amount of income exempt from tax is credited to a tax-exempt account from which exemptdividends can be declared.– Unabsorbed business losses can be carried forward to the post-pioneer period if certain criteria are met.Changes affecting applications received by Malaysian Industrial Development Authority (MIDA) on or after1.1.1991 are as follows:– Only statutory business income is exempt from tax. As such, capital allowances must be deductedfrom adjusted income.– Unabsorbed capital allowances cannot be carried forward to the post-pioneer period.– Unabsorbed pioneer losses cannot be carried forward to the post-pioneer period except for contractresearch and development company.Changes affecting applications received and approved by MIDA on or after 1.11.1991 are as follows:– Only 70% of statutory business income will be exempted from tax. The balance will be subject toincome tax. Tax exemption of 85% (increased to 100% of statutory income – 2004 Budget) ofstatutory income will be given to pioneer companies located in promoted areas, i.e. Sabah, Sarawakand Eastern Corridor of Peninsular Malaysia. As this incentive has expired on 31.12.00, extension ofanother 5 years until 31.12.05 will be given (2001 Budget).– 70% (100% tax exemption for promoted areas – 2004 Budget) tax exemption on increased statutoryincome for 5 years arising from reinvestment will be given to existing pioneer companies undertakingactivities in producing value added products using oil palm biomass (10 years), in heavy machinery,machinery and equipment including specialised machinery and equipment and machinery tools, andcold chain facilities and services for perishable agricultural produce.– Pioneer status will not be granted to companies which have previously benefited directly or indirectlyfrom pioneer status or investment tax allowance in respect of a similar product or activity.– Unabsorbed pioneer losses and unabsorbed capital allowances can be carried forward to the postpioneerperiod for companies with pioneer periods expiring on or after 1.10.05 (2006 Budget).However, a 100% tax exemption of statutory income for 5 to 10 years could still be given for:– Companies participating in promoted activity or producing promoted product of national and strategicimportance to Malaysia. Pioneer period for this incentive is extendable to 10 years.221

B16.1 MAJOR CHANGES (CONT’D)– Companies participating in a promoted activity or producing a promoted product in areas of new andemerging technologies or participating in a promoted activity or producing a promoted product in anindustrial linkage programme or participating in an activity relating to contract research anddevelopment. This incentive is given for a period of 5 years.– Vendor companies which produce intermediate goods for the international market in an approvedscheme and capable of achieving world-class standard in terms of price, quality and capacity. Thisincentive is given to companies whose applications for pioneer status are received after 25.10.1996 andfor a period of 10 years.– Any new or existing company which is approved by the Multimedia Development Corporation (MDC)and complies with certain conditions to be imposed. In the case of an existing company, the taxexemption applies to the related additional statutory income. This incentive is given for a period of 10years.– Companies undertaking activities in the production of machine tools; plastic injection machines;material handling equipment; robotics and factory automation equipment; and parts and components ofthese machines and equipment. This incentive is granted for a period of 10 years (2002 Budget).– The scope of machinery manufactured is extended to production of specialised/process machinery orequipment for specific industry; packaging machinery; plastic extrusion machinery; and parts andcomponents of the above machinery and equipment (2003 Budget).– Companies granted “Strategic Knowledge-based Status Company” and meet certain conditions aregranted a tax exemption of 100% of statutory income for a period of 5 years (2003 Budget).– Companies (new or existing) undertaking activities in design, research and development, andproduction of qualifying automotive component modules or systems. This incentive is granted for aperiod of 5 years and will be given to companies whose applications for pioneer status are received byMIDA from 21.9.02 (2003 Budget).– Companies in the hotel and tourism industries in the promoted areas and investing in expansion,modernisation and renovation will be given another round of pioneer status with a tax exemption of70% of statutory income for an extended period of five years for applications received by MIDA from13.9.03 (2004 Budget).– Existing companies which relocate their manufacturing activities to promoted areas. Extension (secondround) of tax exemption of 100% of statutory income for a period of 5 years, is given to companieswhose applications for pioneer status are received from 11.9.2004 (2005 Budget).– Subsidiary companies that undertake the commercialisation of research and development (R&D)findings. This incentive which is for a period of 10 years, is given to companies whose applications forpioneer status are received from 11.9.2004 (2005 Budget).– Companies generating energy from renewable sources such as biomass, hydro power and solar power.This incentive is given to companies whose applications for pioneer status are received by MIDA from1.10.05. The incentive is for a period of 10 years (2006 Budget).Changes proposed in Economic Stimulus Package 2003:– Approved R&D expenditure incurred during pioneer period is allowed to be accumulated and claimedin post-pioneer period.– R&D Companies granted pioneer status for a period of 5 years will be given a second round pioneerstatus for another 5 years.– Companies under the pre-package scheme qualify for group relief at adjusted loss for food projects,rubber and forest plantations and selected manufacturing products.222

B16.1 MAJOR CHANGES (CONT’D)Investment Tax Allowance (ITA)Salient points:– ITA is given at a rate not exceeding 100% of the qualifying capital expenditure incurred for thepurposes of the promoted activity or product.– ITA is given in respect of capital expenditure incurred within 5 years from the date which the approvaltook effect except for Companies in R&D sector.– ITA is deducted against adjusted income.– The amount of income exempted from tax is credited to a tax-exempt account from which exemptdividends can be declared.– Unabsorbed ITA is carried forward and deducted against the adjusted income of subsequent years.Changes affecting applications received and approved by MIDA on or after 1.1.91 are as follows:– ITA will be 60% of the qualifying capital expenditure.– ITA will be restricted to a maximum of 70% of the statutory income for each year of assessment.– No ITA will be given to companies which have previously benefited directly or indirectly from asimilar incentive in respect of a similar product or activity.– Restricts the backdating of ITA to 3 years from the date the application is received by the Minister andnot to 5 years as was previously allowed.Companies participating in an activity or producing a product of national and strategic importance to Malaysiawill be allowed to backdate the incentive to 1.11.91 and enjoy ITA of 100% on capital expenditure incurredwithin 5 years from the date which the approval is to take effect even though application is made after1.11.1991. Companies which are already operating in Malaysia may also apply for this tax relief if they fulfilsuch conditions as may be determined by the Minister.An allowance of 80% on the qualifying capital expenditure incurred subject to a maximum of 85% of thestatutory income will be given to companies that qualify for ITA located in promoted areas, i.e. Sabah,Sarawak and Eastern Corridor of Peninsular Malaysia. Certain research and development companies will begiven ITA of 100% or 50% on capital expenditure incurred. As this incentive has expired on 31.12.00,extension of another 5 years until 31.12.05 has be given (2001 Budget). ITA granted to pioneer companieslocated in promoted areas has been increased from 80% to 100% on qualifying capital expenditure incurredfor a period of 5 years and be allowed to set off against 100% of statutory income (2004 Budget).Companies in the hotel and tourism industries and investing in expansion, modernisation and renovation willbe given another round of ITA of 5 years at the rate of 100% and available for setoff against 100% of statutoryincome [for applications received by MIDA from 13.9.03 onwards (2004 Budget)].An allowance of 60% on additional qualifying capital expenditure for existing companies that reinvest andwhich can be utilised to set off against 70% of statutory income for 5 years will be given to companies thatundertake activities in producing value added products using oil palm biomass (10 years), in heavy machinery,machinery and equipment including specialised machinery and equipment and machinery tools, and coldchain facilities and services for perishable agricultural produce (100% ITA for set off against 100% ofstatutory income for promoted areas and biomass projects) – 2004 Budget.An allowance of 100% on qualifying capital expenditure be given to private institutions of higher learning(IPTS) in the field of science. The allowance can be utilised to set-off against 70% of statutory income for10 years [for applications received by MIDA from 1.10.05 (2006 Budget)].223

B16.1 MAJOR CHANGES (CONT’D)Tax exemption of 100% of statutory income from ITA computed at 60% on qualifying capital expenditureincurred within 5 years from the date which the approval is to take effect, is given to:– companies participating in a promoted activity or producing a promoted product in areas of new andemerging technologies;– participating in a promoted activity or producing a promoted product in an industrial linkageprogramme;– companies (new or existing) undertaking activities in design, research and development, andproduction of qualifying automotive component modules or systems. This incentive is granted for aperiod of 5 years to ITA applications that are received by MIDA from 21.9.02 (2003 Budget);– companies granted “Strategic Knowledge-based Status Company” and meet certain conditions (2003Budget);– small and medium scale enterprises (Economic Stimulus Package);– companies under the pre-package scheme qualify for group relief at adjusted loss for food projects,rubber and forest plantations and selected manufacturing products.Tax exemption of 100% of statutory income from ITA computed at 100% on qualifying capital expenditureincurred within 5 years from the date which the approval is to take effect is given to:– companies undertaking activities in the production of machine tools; plastic injection machines;material handling equipment; robotics and factory automation equipment; and parts and components ofthese machines and equipment (2002 Budget). The scope of machinery manufactured is extended toproduction of specialised/process machinery or equipment for specific industry; packaging machinery;plastic extrusion machinery; and parts and components of the above machinery and equipment (2003Budget).– new companies undertaking activities in utilising oil palm biomass to produce value added products(2004 Budget).– companies producing halal food. This incentive is granted for a period of 5 years to ITA applicationsthat are received by MIDA from 11.9.2004 (2005 Budget).– existing companies which relocate their manufacturing activities. Extension (second round) of taxexemption of 100% on the qualifying capital expenditure can be used to set-off up to 100% ofstatutory income in each year of assessment for a period of 5 years to ITA applications that arereceived by MIDA from 11.9.2004 (2005 Budget).– companies generating energy from renewable sources such as biomass, hydro power and solar power.This incentive is granted for a period of 5 years to ITA applications that are received by MIDA from1.10.05 (2006 Budget).Changes proposed in Economic Stimulus Package:– R&D Companies granted ITA for a period of 10 years will be given a second round ITA for a further10 years.Abatement of Adjusted IncomeThe abatement for exports in respect of exports made on or after 1.1.1994 is abolished. Please refer to 2004Budget Commentary & Tax Information for details.Export AllowanceThe export allowance in respect of exports made on or after 1.1.1994 is abolished. Please refer to 2004 BudgetCommentary & Tax Information for details.224

B16.1 MAJOR CHANGES (CONT’D)Reinvestment Allowance (RA)Salient points:– RA is given on qualifying capital expenditure incurred on:(a) approved project for expansion of existing business up to 31.12.1990; and(b) qualifying project for expansion, modernisation or diversification from 1.1.1991 onwards.– The RA rates are as follows:Up to Y/A 1988 – 25%Y/A 1989 to 31.12.93 – 40%Y/A 1990 onwards (for small scale companies only) – 50%1.1.94 onwards (all companies) – 50%– RA is deducted against adjusted income.– Unabsorbed RA is carried forward and deducted against the adjusted income of subsequent years.– The amount of income exempted from tax is credited to a tax exempt account from which exemptdividends can be declared.– From Y/A 1991 onwards, no acknowledgement letter from MIDA is required.– From Y/A 2001 onwards, accelerated capital allowances on capital expenditure to be utilised within3 years (initial allowance 40%, annual allowance 20%), will be given to companies manufacturingpromoted products or producing promoted food items upon expiry of the RA [Income Tax(Accelerated Capital Allowances) (Reinvestment in a Qualifying Project) Rules 2000] subject to aletter from MIDA confirming the promoted activity/promoted product status.With effect from 1.1.96, RA is extended to capital expenditure incurred on qualifying agricultural projects forcultivation of rice and maize, vegetables, tuber and roots and fruits, livestock farming, spawning, breeding orculturing of aquatic products, rearing of chicken and ducks (w.e.f. Y/A 2003), and any other activitiesapproved by the Minister.With effect from Y/A 1997, RA has been revised to include the following changes:1. The rate of RA is increased from 50% to 60%.2. RA is abated against the statutory income instead of adjusted income.3. RA on qualifying projects located outside Sabah, Sarawak and the Eastern Corridor of PeninsularMalaysia is restricted to 70% of statutory income for each year of assessment. Unabsorbed allowanceis allowed to be carried forward to subsequent years until it is fully utilised.With effect from Y/A 1997, RA is extended to agro-based co-operative societies, farmers’ associations andfishermen’s associations, in addition to companies.Effective from Y/A 1998, tax exemption of 70% and 100% of statutory income for each year of assessmentfrom RA computed at 60% on qualifying capital expenditure incurred in respect of approved reinvestment inequipment would be given.Certain conditions have to be fulfilled for the granting of RA to companies with effect from Y/A 1998. RAwill now only be given to a company which has been operating for not less than 12 months and incurs capitalexpenditure within 5 years from the date the expenditure was first incurred on a factory, plant and machineryused in Malaysia for the purposes of a qualifying project which includes a project involved in automation.Where an asset included in the qualifying capital expenditure is disposed of within 2 years from the date ofacquisition, RA given in respect of that asset is deemed to have not been given.225

B16.1 MAJOR CHANGES (CONT’D)Effective Y/A 1998, RA period is limited to 15 consecutive years commencing from the year the first RA isclaimed.With effect from 21.9.02, any Pioneer Status company which intends to undertake reinvestment before theexpiry of its Pioneer Status, is eligible for RA provided the Pioneer Status is surrendered (2003 Budget).Infrastructure Allowance (IA)Salient points:– IA is given on capital expenditure incurred on infrastructure in respect of a business or businesses inoperation in a promoted area.– Infrastructure means any construction, reconstruction, extension or improvement of any permanentstructure including a bridge, jetty, port or road.– IA is given at the rate of 100% on capital expenditure incurred within 5 years from 29.10.93.– IA is deducted against statutory income up to an amount not exceeding 85% of the statutory incomefor a year of assessment.– Unabsorbed IA can be carried forward to subsequent years until it is fully utilised.– Capital expenditure of pioneer companies is deemed to have been incurred in the post pioneer period.With effect from Y/A 1997, capital expenditure is no longer restricted to the 5-year period from 29.10.93.For those IA which has expired on 31.12.00, extension of another 5 years until 31.12.05 will be given (2001Budget).Investment Allowance for Service Sector (IASS)Salient points:– IASS is given on capital expenditure incurred for the purpose of an approved service project.– Approved service project means a project in the service sector in relation to transportation,communications, utilities or any other sub-sector as approved by the Minister.– IASS is given at the rate of 60% on capital expenditure incurred within 5 years from the date which theapproval is to take effect.– IASS is deducted against statutory income at an amount not exceeding 70% of the statutory income foreach year of assessment.– Unabsorbed IASS can be carried forward to subsequent years until it is fully utilised.This incentive is effective from Y/A 1996.Group ReliefGroup relief of adjusted loss is available for food projects, rubber and forest plantations and selectedmanufacturing products (such as biotechnology, nanotechnology, optics and photonics) under the pre-packagescheme (Economic Stimulus Package 2003). For further details, refer to “Agriculture Sector”.226

B16.2 MANUFACTURING SECTOREligibility1. Pioneer StatusAny company participating in a promotedactivity or producing a promoted productwhich has applied for pioneer status before1.11.91Any company participating in a promotedactivity or producing a promoted product(not being an activity or a product wherepioneer status or investment tax allowancehas already been granted to the company)which applies for and is granted pioneerstatus on or after 1.11.91Any company participating in a promotedactivity or producing a promoted productwhich relocates its manufacturing activitiesto promoted areasAny company which reinvests in thepromoted food processing activity andapplies for and is granted pioneer status onor after 1.11.91Tax ReliefsTax exemption of adjusted income (forapplications received by MIDA before 1.11.91)or statutory income (for applications received byMIDA on or after 1.11.91) for 5 years (whichmay be extended to 10 years for selectedactivities or products)An exemption of 70% of statutory income for5 years with the balance of 30% of the statutoryincome taxable at current corporate tax rateAn exemption of 85% (increased to 100% forapplications received from 13.9.03 to 31.12.05 –2004 Budget) of statutory income for 5 years willbe given to pioneer companies located inpromoted areas. For incentive which has expiredon 31.12.00, extension of another 5 years until31.12.05 will be given (2001 Budget)The application period for the enhanced incentiveof 100% exemption for the promoted areas whichexpires on 31.12.05 has been extended foranother 5 years until 31.12.10 (2006 Budget)Extension (second round) of tax exemption of100% of statutory income for a period of 5 years[for applications received by MIDA from 11.9.04(2005 Budget)]An exemption of 70% of statutory income for5 years with the balance of 30% of the statutoryincome taxable at the current corporate tax rate[for applications received by MIDA on or after21.9.02 (2003 Budget)]An exemption of 85% of statutory income for5 years will be given to pioneer companieslocated in promoted areas [for applicationsreceived by MIDA on or after 21.9.02 (2003Budget)]Any company which reinvests for expansionpurposes in the rubber, oil palm and woodbased industries for applications received byMIDA from 20.10.01 (2002 Budget)An exemption of 70% of statutory income for5 yearsAn exemption of 85% of statutory income for5 years will be given to pioneer companieslocated in promoted areasNo other extension of pioneer period will begranted227

B16.2 MANUFACTURING SECTOR (CONT’D)EligibilityAny company which reinvests in theproduction of heavy machinery, machineryand equipment including specialisedmachinery and equipment, machinery tools,value added products by utilising oil palmbiomass [for applications received by MIDAfrom 13.9.03 (2004 Budget)]Any company participating in a promotedactivity or producing a promoted product ofnational and strategic importance (as may bedetermined on a case-to-case basis) toMalaysia. A company which is alreadyoperating in Malaysia may also apply if itfulfils such conditions as may be determinedby the MinisterAny company participating in a promotedactivity or producing a promoted product inareas of new and emerging technologiesAny company participating in a promotedactivity or producing a promoted product inan industrial linkage programme (being anintegrated programme undertaken by aMinistry or Government agency in which asmall company or medium company whichis a manufacturer and supplier is linked to alarger company or to another small companyor medium company through themanufacture and supply of parts andcomponents or through technology orresearch and development)Vendor companies which produceintermediate goods for international marketin an approved scheme and capable ofachieving world class standard in terms ofprice, quality and capacity and applied forpioneer status after 25.10.96 (1997 Budget)Any company undertaking activities in theproduction of the following machinery andequipment:(a) Machine tools;(b) Plastic injection machines;(c) Material handling equipment;(d) Robotics and factory automationequipment;(e) Parts and components of the abovemachines and equipment;Tax ReliefsAn exemption of 70% (100% for value addedproducts and promoted areas) of increasedstatutory income for 5 years (10 years for valueadded products)Tax exemption of 100% of the statutory incomefor a period of 5 years which may be extended foranother 5 yearsTax exemption of 100% of statutory income for5 yearsTax exemption of 100% of statutory income for5 yearsTax exemption of 100% of statutory income for10 yearsTax exemption of 100% of statutory income for10 years228

B16.2 MANUFACTURING SECTOR (CONT’D)Eligibility(f) Specialised/process machinery orequipment for specific industry;(g) Packaging machinery;(h) Plastic extrusion machinery; and(i) Parts and components of the abovemachinery and equipmentFor items (f) to (i), the applications have tobe received by MIDA from 21.09.02 (2003Budget)Any company (new or existing) undertakingactivities in design, research anddevelopment, and production of qualifyingautomotive component modules or systemsSmall and medium-scale enterprisesCompanies under the pre-package scheme2. Investment Tax Allowance (ITA)Any company participating in a promotedactivity or producing a promoted productwhich has applied for investment taxallowance before 1.11.91Any company participating in a promotedactivity or producing a promoted product(not being an activity or a product wherepioneer status or investment tax allowancehas already been granted to the company)which applies for and is granted investmenttax allowance on or after 1.11.91Tax ReliefsTax exemption of 100% of statutory income for5 years for applications received by MIDA from21.9.02 (2003 Budget)Increased income tax exemption from 70% to100% for each year of assessment (EconomicStimulus Package 2003)Tax exemption extended from 10 years to 15 yearscommencing on the first year the Companyregisters profit (Economic Stimulus Package2003)Tax exemption of up to 100% of adjusted incomefor each year of assessment from ITA computed at100% on qualifying capital expenditure incurredwithin 5 years from the date which the approval isto take effectTax exemption of up to 70% of statutory incomefor each year of assessment from ITA computed at60% on qualifying capital expenditure incurredwithin 5 years from the date which the approval isto take effectTax exemption of up to 85% (increased to 100%for applications received from 13.9.03 to 31.12.05- 2004 Budget) of statutory income for each yearof assessment from ITA computed at 80%(increased to 100% – 2004 Budget) on qualifyingcapital expenditure incurred by companies locatedin Sabah, Sarawak and the Eastern Corridor ofPeninsular Malaysia within 5 years from the datewhich the approval is to take effect. As thisincentive has expired on 31.12.00, extension ofanother 5 years until 31.12.05 will be given (2001Budget)The application period for the enhanced incentiveof 100% ITA for the promoted areas whichexpires on 31.12.05 has been extended for another5 years until 31.12.10 (2006 Budget)229

B16.2 MANUFACTURING SECTOR (CONT’D)EligibilityAny company participating in a promotedactivity or producing a promoted productwhich relocates its manufacturing activitiesto promoted areasAny company participating in a promotedactivity or producing a promoted product ofnational and strategic importance (as maybedetermined on a case-to-case basis) toMalaysia. A company which is alreadyoperating in Malaysia may also apply if itfulfils such conditions as may be determinedby the MinisterAny company undertaking activities in theproduction of the following machinery andequipment:(a) Machine tools;(b) Plastic injection machines;(c) Material handling equipment;(d) Robotics and factory automationequipment;(e) Parts and components of the abovemachines and equipment;(f) Specialised/process machinery orequipment for specific industry;(g) Packaging machinery;(h) Plastic extrusion machinery; and(i) Parts and components of the abovemachinery and equipmentFor items (f) to (i), the applications have tobe received by MIDA from 21.09.02 (2003Budget)Any company participating in a promotedactivity or producing a promoted product inareas of new and emerging technologiesAny company participating in a promotedactivity or producing a promoted product inan industrial linkage programme (being anintegrated programme undertaken by aMinistry or Government agency in which asmall company or medium company whichTax ReliefsExtension (second round) of tax exemption of100% on the qualifying capital expenditure whichcan be used to set-off up to 100% of statutoryincome in each year of assessment for a period of5 years [applications received by MIDA from11.9.04 (2005 Budget)]Tax exemption of up to 100% of statutory incomefor each year of assessment from ITA computed at100% on qualifying capital expenditure incurredwithin 5 years from the date which the approval isto take effectTax exemption of up to 100% of statutory incomefor each year of assessment from ITA computed at100% on qualifying capital expenditure incurredwithin a period of 5 yearsTax exemption of up to 100% of statutory incomefor each year of assessment from ITA computed at60% on qualifying capital expenditure incurredwithin 5 years from the date which the approval isto take effectTax exemption of up to 100% of statutory incomefor each year of assessment from ITA computed at60% on qualifying capital expenditure incurredwithin 5 years from the date which the approval isto take effect230

B16.2 MANUFACTURING SECTOR (CONT’D)Eligibilityis a manufacturer and supplier is linked to alarger company or to another small companyor medium company through themanufacture and supply of parts andcomponents or through technology orresearch and development)Vendor companies which produceintermediate goods for international marketin an approved scheme and capable ofachieving world class standard in terms ofprice, quality and capacity and applied forpioneer status after 25.10.96 (1997 Budget)Any company participating in a promotedactivity relating to contract research anddevelopment or providing research anddevelopment services in Malaysia only to acompany other than a related companyAny company participating in an activityrelating to technical or vocational trainingAny company participating in an activityrelating to in-house research anddevelopment within the company inMalaysia for the purposes of its ownbusinessAny company which reinvests for expansionpurposes in the rubber, oil palm and woodbased industries for applications received byMIDA from 20.10.01 (2002 Budget)Any company which reinvests in theproduction of heavy machinery, machineryand equipment including specialisedmachinery and equipment, machinery tools,value added products by utilising oil palmbiomass [for applications received by MIDAfrom 13.09.03 (2004 Budget)]Tax ReliefsTax exemption of up to 100% of statutory incomefor each year of assessment from ITA computed at100% on qualifying capital expenditure incurredwithin 5 years from the date which the approval isto take effectTax exemption of up to 70% of statutory incomefor each year of assessment from ITA computed at100% on qualifying capital expenditure incurredwithin 10 years from the date which the approvalis to take effectTax exemption of up to 70% of statutory incomefor each year of assessment from ITA computed at100% on qualifying capital expenditure incurredwithin 10 years from the date which the approvalis to take effectTax exemption of up to 70% of statutory incomefor each year of assessment from ITA computed at50% on research capital expenditure incurredwithin 10 years from the date which the approvalis to take effectTax exemption of up to 70% of statutory incomefor each year of assessment from ITA computed at60% of qualifying capital expenditure incurredwithin 5 yearsTax exemption of up to 85% of statutory incomefor each year of assessment from ITA computed at80% of qualifying capital expenditure incurred inpromoted areasTax exemption of up to 70% (100% for valueadded products and promoted areas) of statutoryincome for each year of assessment from ITAcomputed at 60% (100% for value added productsand promoted areas) of additional qualifyingcapital expenditure incurred within 5 yearsTax exemption of up to 100% of statutory incomefor each year of assessment from ITA computed at60% on qualifying capital expenditure incurredwithin 5 years from the date which the approval isto take effect231

B16.2 MANUFACTURING SECTOR (CONT’D)EligibilityAny company which reinvests in thepromoted food processing activity andapplies for and is granted pioneer status onor after 1.11.91Any company participating in producinghalal food that complies with internationalstandards [for applications received byMIDA from 11.9.04]Conditions:(a) Halal certification has been obtainedfrom Jabatan Kemajuan IslamMalaysia (JAKIM); and(b) Other quality certification has beenobtainedAny company (new or existing) undertakingactivities in design, research anddevelopment, and production of qualifyingautomotive component modules or systemsSmall- and medium-scale enterprisesCompanies under the pre-package scheme3. Abatement of Adjusted IncomeAbolished w.e.f. 31.12.1991Tax ReliefsUnutilised allowances for the above can be carriedforward to subsequent yearsTax exemption of up to 70% of statutory incomefor each year of assessment from ITA computed at60% on qualifying capital expenditure incurredwithin 5 years from the date which the approval isto take effect [for applications received by MIDAon or after 21.9.02 (2003 Budget)]Tax exemption of up to 85% of statutory incomefor each year of assessment from ITA computed at80% on qualifying capital expenditure incurred bycompanies located in promoted areas [forapplications received by MIDA on or after 21.9.02(2003 Budget)]Tax exemption of up to 100% of statutory incomefor each year of assessment from ITA computed at100% on qualifying capital expenditure incurredwithin 5 years from the date which the approval isto take effect (2005 Budget)Tax exemption of up to 100% of statutory incomefor each year of assessment from ITA computed at60% on qualifying capital expenditure incurredwithin 5 years from the date which the approval isto take effect (2003 Budget)Increased income tax exemption from 70% to100% for each year of assessment (EconomicStimulus Package 2003)Tax exemption of up to 100% of statutory incomefor each year of assessment for ITA computed at100% on qualifying expenditure incurred within5 years is extended to 10 years (EconomicStimulus Package 2003)Please refer to 2004 Budget Commentary & TaxInformation for details232

B16.2 MANUFACTURING SECTOR (CONT’D)Eligibility4. Reinvestment Allowance (RA)A company which incurs capital expenditureon a factory, plant or machinery for aqualifying project in Malaysia for expansion,automation (w.e.f. Y/A 1998), modernisationor diversificationWith effect from Y/A 1998, RA will only begiven to a company which has beenoperating for not less than 12 months andincurs capital expenditure on a factory, plantor machinery used in Malaysia for thepurposes of a qualifying projectTax ReliefsFrom Y/A 1997, tax exemption of statutoryincome from RA is computed at 60% onqualifying capital expenditure. However, forqualifying projects located outside Sabah,Sarawak and the Eastern Corridor of PeninsularMalaysia, the tax exemption is restricted to 70%of statutory income for each year of assessmentFor Y/A 1996 and prior, tax exemption of adjustedincome from RA is computed at 50% (40% forexpenditure incurred prior to 1.1.94 by non-smallscale companies) on qualifying capital expenditureTax exemption of up to 100% of statutory incomefor each year of assessment from RA computed at60% on qualifying capital expenditure incurred inthe basis periods for 5 consecutive years ofassessmentHowever, for qualifying projects located outsideSabah, Sarawak and the Eastern Corridor ofPeninsular Malaysia, the tax exemption isrestricted to 70% of the statutory income for eachyear of assessmentWhere an asset included in the qualifying capitalexpenditure is disposed of at any time within2 years from the date of acquisition of that asset,RA given in respect of that asset shall be deemedto have not been givenUnutilised allowances for the above can be carriedforward to subsequent years until fully utilisedCompanies manufacturing promotedproducts upon expiry of RAEffective from Y/A 2001, accelerated capitalallowance on capital expenditure to be utilisedwithin 3 years (initial allowance 40%, annualallowance 20%) will be given upon expiry of theRA [Income Tax (Accelerated Capital Allowance)(Reinvestment in a Qualifying Project) Rules2000]Effective Y/A 1998, RA period is limited to15 consecutive years commencing from the yearthe first RA is claimedCompany that intends to surrender itsPioneer Status for cancellation and undertakereinvestment before the expiry of its PioneerStatus incentive5. Abatement of Adjusted Income for ExportsAbolished w.e.f. YA 2003Can opt for Reinvestment Allowance with effectfrom 21.9.02 (2003 Budget)Please refer to 2004 Budget Commentary & TaxInformation for details233

B16.2 MANUFACTURING SECTOR (CONT’D)Eligibility6. Abatement of Statutory Income for ExportsAbolished w.e.f. 1.1.19947. Industrial Adjustment Allowance (IAA)Companies participating in approvedindustrial adjustment activities which incurcapital expenditure in respect of theirmanufacturing activity or manufacturedproducts8. Promotion of ExportsCompanies engaged in the promotion ofexports which incur approved outgoings andexpensesCompanies engaged in the promotion ofexports which incur outgoings and expensesprovided to potential importers who havebeen invited to MalaysiaCompanies which pay export creditinsurance premiums to approved companyCompanies which incur qualifying capitalexpenditure on construction or purchase ofwarehouse buildings for storage of goods forexport or for storage of imported goods to beprocessed and re-exportedCompanies whose exported manufacturedgoods attain at least 30% value addedTax ReliefsPlease refer to 2004 Budget Commentary & TaxInformation for detailsTax exemption of up to 100% of adjusted incomefor each year of assessment from IAA computed at100% on capital expenditure incurred within5 years from the date which the approval is to takeeffectDouble deduction of approved outgoings andexpenses [Income Tax (Promotion of Exports)Rules 1986; Income Tax (Promotion of Exports)(Amendment) Rules 2001; Income Tax(Deduction For Promotion Of Exports) Rules2002; and Income Tax (Promotion of Exports)(Amendment) Rules 2003]Single deduction of outgoings and expenses inrespect of registration of patents, trademarks andproduct licensing overseas [Income Tax(Deduction For Promotion Of Exports) (No. 2)Rules 2002]Single deduction of outgoings and expensesincurred in respect of hotel accommodation andsustenance up to a maximum of 3 nights, subjectto a maximum of RM300 and RM150 per dayrespectively [Income Tax (Deduction ForPromotion Of Exports) (No. 3) Rules 2002]Double deduction of premiums paid [Income Tax(Deduction of Premiums for Export CreditInsurance) Rules 1985]Industrial building allowance of 10% for each Y/Aw.e.f. Y/A 1998Tax exemption of statutory income equivalent to10% of the value of increased exports ofmanufactured goods w.e.f. 1.1.98. Unabsorbedallowance can be carried forward to subsequentyears [Income Tax (Allowance for IncreasedExports) Rules 1999]234

B16.2 MANUFACTURING SECTOR (CONT’D)EligibilityCompanies whose exported manufacturedgoods attain at least 50% value addedCompanies whose manufactured goodsachieve a significant increase in exports(ie at least 50%)Companies which succeed in penetratingnew export marketsCompanies which have been awarded theExport Excellence Award (given by MITI)9. Approved Industrial AdjustmentCompanies participating in approvedindustrial adjustment activities and whichincur qualifying expenditure on buildings forresearch or training within 10 years of thedate of approvalCompanies participating in approvedindustrial adjustment activities undertakingprojects in expanding existing business ormodernising production techniques orprocessesCompanies participating in approvedindustrial adjustment activities and whichincur research and development expenses ofa revenue nature10. Research And DevelopmentAny company participating in an activityrelating to in-house research anddevelopment within the company inMalaysia for the purposes of its ownbusinessCompanies which contribute in cash toresearch institutesTax ReliefsTax exemption of statutory income equivalent to15% of the value of increased exports ofmanufactured goods w.e.f. 1.1.98. [Income Tax(Allowance for Increased Exports) Rules 1999]Unabsorbed allowance can be carried forward tosubsequent yearsTax exemption of statutory income (restricted to70% in a year of assessment) equivalent to 30% ofthe value of increased exports of manufacturedgoods w.e.f. Y/A 2003 [Income Tax (Exemption)(No. 17) Order 2005]Tax exemption of statutory income (restricted to70% in a year of assessment) equivalent to 50% ofthe value of increased exports of manufacturedgoods w.e.f. Y/A 2003 [Income Tax (Exemption)(No. 17) Order 2005]Full tax exemption of statutory income onincreased export value w.e.f. Y/A 2003 [IncomeTax (Exemption) (No. 17) Order 2005]Industrial building allowance of 10% (initial) and2% (annual)Reinvestment allowance of 50% (40% prior to1.1.94) on qualifying expenditureDouble deduction of approved training and R&Dexpenses [Income Tax (Deduction for ApprovedTraining) Rules 1992]Tax exemption of up to 70% of statutory incomefor each Y/A from ITA computed at 50% onresearch capital expenditure incurred within10 years from the date from which approval is totake effectDouble deduction of cash contributions235

B16.2 MANUFACTURING SECTOR (CONT’D)EligibilityCompanies which contribute to or pay forservices of approved research institutes orcompaniesCompanies which incur expenditure (notbeing capital expenditure) on approvedresearchPioneer companies which incur approvedR&D expenditureCompanies resident in Malaysia that investin subsidiary that undertakes thecommercialisation of R&D findings inresourced based industry11. Companies which incur expenditure inobtaining certification for recognised qualitysystems and standards, and halalcertification, evidenced by a certificateissued by a certification body as determinedby the Minister12. Training of EmployeesCompanies which incur expenses onapproved training of employees for thepurpose of upgrading and developing theemployees’ craft, supervisory and technicalskills or increasing the productivity orquality of its productsCompanies (other than those which havecontributed to Human ResourceDevelopment Fund) which before thecommencement of its business, incurexpenditure in training its employees for theacquisition of craft, supervisory or technicalskills which will contribute directly to thefuture production of its productsCompanies which incur expenses on trainingof potential employees within one year priorto commencement of business13. Training of Non-EmployeesCompanies which incur expenses onpractical training for non-employees who areresidents S. 34(6)(n)Tax ReliefsDouble deduction of payments for servicesrenderedDouble deduction of expenditure on approvedresearchDouble deduction of approved R&D expenditurecan be accumulated and claimed in post pioneerperiod [S. 34A(4A)]Effective from 11 September 2004, singlededuction is given on the value of investment upto the year of assessment prior to thecommencement of the commercialization of theproject i.e. tax relief period of related company[Income Tax (Deduction for Investment in aProject of Commercialisation of Research andDevelopment Findings) Rules 2005]Double deduction of expenditure incurred [S.34(6)(ma)]Double deduction of training expenses incurred[Income Tax (Deduction for Approved Training)Rules 1992]Double deduction of training expenses incurred tobe allowed in the year of assessment in which thegross income first arises [Income Tax (Deductionfor Approved Training) Rules 1992]Single deduction of training expenses incurred[Income Tax (Deduction of Pre-Commencementof Business Training Expenses) (Rules) 1996]Single deduction of training expenses incurred236

B16.2 MANUFACTURING SECTOR (CONT’D)Eligibility14. Training of Handicapped PersonsCompanies which incur expenditure intraining handicapped persons who are nottheir employees15. Technical Assistance to Small and MediumScale Industries (SMIs)Large companies participating in anindustrial linkages scheme and incurringexpenditure for the training of employees,product development and testing and factoryauditing to ensure the quality of vendors’products16. Acquisition of Proprietary RightsCompanies (at least 70% owned byMalaysian citizens) which incur cost onacquisition of proprietary rights, i.e. patents,industrial design or trade marks which aregranted or registered under the relevantwritten laws17. Promotion of Malaysian Brand Name GoodsCompanies (at least 70% Malaysian owned)which incur expenditure on advertisingMalaysian brand name goods locallyExpenses on advertising of Malaysian brandnames registered overseasTax ReliefsDouble deduction of training expenses incurred[Income Tax (Deduction for Approved Training)Rules 1992]Single deduction for the expenditure incurredeffective from Y/A 1997. Previously, thisexpenditure was not deductibleDeduction of an amount equal to one-tenth of thecost incurred on payment for the purchase of theproprietary rights, inclusive of consultancy fees,legal fees and stamp duties but excluding royaltypayments, will be given in determining theadjusted income for that year of assessment andfor each of the nine following years of assessment.[Income Tax (Deduction for Cost of Acquisitionof Proprietary Rights) Rules 1999]No deduction will be given for a year ofassessment in the basis period where theproprietary rights ceased to be used. When theproprietary rights are transferred from the holdingcompany, amount claimed will be restricted to theremaining portion unallowed to the holdingcompanyWith effect from Y/A 2002, deduction of anannual amount equal to 20% (for a period of 5years) of cost incurred to acquire proprietaryrights is given [Income Tax (Deduction for Cost ofAcquisition of Proprietary Rights) Rules 2002]Double deduction of advertising expenses incurred[Income Tax (Deduction for AdvertisingExpenditure on Malaysian Brand Name Goods)Rules 2002]Double deduction of expenses incurred [IncomeTax (Deduction for Advertising Expenditure onMalaysian Brand Name Goods) Rules 2002]237

B16.2 MANUFACTURING SECTOR (CONT’D)Eligibility18. Exemption of Import Duty and Sales TaxExemption of Import Duty and Sales Tax forImport of Spares and Consumables (2001Budget)Owners of Malaysian brand names whooutsource their manufacturing activitiesLocal manufacturers of medical devicesLocal vehicle assemblers/manufacturers19. Accelerated Capital AllowancesCompanies which Incur Capital Expenditurefor Conserving Their Own EnergyConsumptionCompanies which incur capital expenditureon equipment (certified by the Ministry ofEnergy, Water and Communications) forgenerating energy for their own consumptionfrom resources that are renewable andenvironment friendly such as biomass,hydropower and solar energyTax ReliefsExemption of import duty and sales tax until31.12.03Exemption of import duty and sales tax on rawmaterials which are not manufactured locally andon semi-finished goods imported from contractmanufacturers abroad [for applications receivedby MIDA from 11.9.04 (2005 Budget)]Full import duty exemption on imported medicaldevices used for the purpose of kitting orproducing complete procedural sets, provided thatthese medical devices are not manufacturedlocally [for applications received by MIDA from11.9.04 (2005 Budget)]Exemption of import duty on chassis fitted withengines for NGV monogas buses and motorvehicles for transportation of goods [forapplications received by Ministry of Finance from1.10.05 (2006 Budget)]Exemption of import duty on NGV monogasengines to replace diesel engines for buses andmotor vehicles for transportation of goods [forapplications received by Ministry of Finance from1.10.05 (2006 Budget)]Effective Y/A 2001, accelerated capitalallowances on related equipment to be fullywritten off within a period of 3 years (initial 40%;annual 20%) [Income Tax (Accelerated CapitalAllowances) (Conservation of Energy) Rules2001]Effective Y/A 2003, the write-off period on capitalexpenditure incurred on the related equipment beaccelerated from 3 years to 1 year [Income Tax(Accelerated Capital Allowances) (Conservationof Energy) Rules 2003].Import duty and sales tax exemption on equipmentthat is not produced locally. For equipment that isproduced locally, sales tax exemption will begivenEffective Y/A 2005, accelerated capitalallowances on the related equipment be allowed in1 year (initial allowance 20%; annual allowance80%) [Income Tax (Accelerated CapitalAllowance) (Renewable Energy) Rules 2005]238

B16.2 MANUFACTURING SECTOR (CONT’D)EligibilityCompanies which incur capital expenditureon purchase of moulds used in theproduction of Industrialised Building System(IBS) in the construction industry20. Locally Owned Companies which Acquire aForeign Company to acquire hightechnology for production in Malaysia or togain new export markets for local products21. Group relief of adjusted loss for selectedproducts (such as biotechnology, nanotechnology,optics and photonics) under thepre-package schemeTax ReliefsEffective Y/A 2006, accelerated capitalallowances on related equipment to be fullywritten off within a period of 3 years (2006Budget)Deduction of an amount equal to one-fifth of theacquisition cost incurred for 5 years [Income Tax(Deduction for Cost of Acquisition of a ForeignOwned Company) Rules 2003]For further details on group relief (EconomicStimulus Package 2003)B16.3 TRADING SECTOR22. Freight chargesManufacturers incurring freight charges forthe shipment of their manufactured goodsfrom Sabah or Sarawak to any port inPeninsular Malaysia23. Export AllowanceAbolished w.e.f. 1.1.199424. Exemption of Statutory IncomeInternational Trading Company whichsatisfies the following criteria:(i) Incorporated in Malaysia;(ii) Achieve an annual sales turnover ofmore than RM25 million (reduced toRM10 million with effect fromY/A 2002) [Income Tax (Exemption)(No. 12) Order 2002];(iii) 70% of its equity owned byMalaysians (reduced to 60%)[Income Tax (Exemption) (No. 12)Order 2002];(iv) Market manufactured goodsespecially those from small andmedium scale industries. EffectiveY/A 2002, export of goods of relatedcompanies is allowed without anyrestriction [Income Tax (Exemption)(No. 12) Order 2002]; and(v) Registered with MATRADE andfulfils the following conditions:Double deduction of freight charges incurredw.e.f. Y/A 2000 (current year basis) [Income Tax(Deduction for Freight Charges from Sabah orSarawak to Peninsular Malaysia) Rules 2000]Please refer to 2004 Budget Commentary & TaxInformation for detailsTax exemption of 70% of the statutory incomearising from increased export sales for 5 yearsEffective Y/A 2002, tax exemption of 10% of theincreased export value for a period of 5 years willbe given [Income Tax (Exemption) (No. 12) Order2002]The exemption is increased to 20% of the value ofincreased exports with effect from Y/A 2003.[Income Tax (Exemption) (Amendment) Order2003]239

B16.3 TRADING SECTOR (CONT’D)Eligibility(a) not more than 20% of annualsales is derived from trading ofcommodities;(b) not more than 20% of annualsales is derived from the salesof goods of related companies.Effective Y/A 2002, export torelated companies is allowedwithout any restriction [IncomeTax (Exemption) (No. 12)Order 2002]; and(c) uses local services for banking,finance, insurance and useslocal ports and airportsThe incentive is extended to hypermarketsand direct-selling companies25. Approved offshore trading companyOffshore trading means buying from andselling to non-residents through a website inMalaysia of foreign goods for consumptionoutside Malaysia including goods broughtinto Malaysia for the purpose ofredistribution outside Malaysia. (forapplications received by Ministry of Financefrom 20.10.01)Tax Reliefs(Economic Stimulus Package 2003)Effective 20 October 2001, chargeable income inrespect of an offshore trading is exempted fromtax for a period of 5 consecutive YAs(commencing from YA in which the approval isgranted) based on the following formula.Exempt chargeable income= A – [ (10/B x A) @ B ]Non-exempt chargeable income = 10/B x AWhere: A is the chargeable income and B is theprevailing tax rate.Income Tax (Exemption) (No. 5) Order 2003Companies which incurred the cost ofdeveloping a website which is electroniccommerce enabled for the basis period for ayear of assessment26. Promotion of ExportsCompanies engaged in the promotion ofexports which incur approved outgoings andexpensesAnnual deduction of 20% on cost of developingwebsites for 5 years [Income Tax (Deduction forCost of Developing Website) Rules 2002]Double deduction of approved outgoings andexpenses [Income Tax (Promotion of Exports)Rules 1986; Income Tax (Promotion of Exports)(Amendment) Rules 2001; Income Tax(Deduction for Promotion of Exports) Rules 2002;and Income Tax (Promotion of Exports)(Amendment) Rules 2003]Single deduction of outgoings and expenses inrespect of registration of patents, trademarks andproduct licensing overseas [Income Tax(Deduction For Promotion Of Exports) (No. 2)Rules 2002]240

B16.3 TRADING SECTOR (CONT’D)EligibilityCompanies engaged in the promotion ofexports which incur outgoings and expensesprovided to potential importers who havebeen invited to MalaysiaCompanies which pay export creditinsurance premiums to approved companyCompanies which incur qualifying capitalexpenditure on construction or purchase ofwarehouse buildings for storage of goods forexport or for storage of imported goods to beprocessed and re-exported27. Locally Owned Companies (60%) whichAcquire a Foreign Company to acquire hightechnology for production in Malaysia or togain new export markets for local productsTax ReliefsSingle deduction of outgoings and expensesincurred in respect of hotel accommodation andsustenance up to a maximum of 3 nights, subjectto a maximum of RM300 and RM150 per dayrespectively [Income Tax (Deduction forPromotion of Exports) (No. 3) Rules 2002]Double deduction of premiums paid [Income Tax(Deduction of Premiums for Export CreditInsurance) Rules 1985]Industrial building allowance of 10% for eachY/A w.e.f. Y/A 1998Deduction of an amount equal to one-fifth of theacquisition cost incurred for 5 years [Income Tax(Deduction for Cost of Acquisition of a ForeignOwned Company) Rules 2003]B16.4 AGRICULTURAL SECTOR28. Pioneer StatusAny company participating in a promotedactivity or producing a promoted productwhich has applied for pioneer status before1.11.91Any company participating in a promotedactivity or producing a promoted product(not being an activity or a product wherepioneer status or investment tax allowancehas already been granted to the company)which applies for and is granted pioneerstatus on or after 1.11.91Tax exemption of adjusted income (forapplications received by MIDA before 1.11.91) orstatutory income (for applications received byMIDA on or after 1.11.91) for 5 years (which maybe extended to 10 years for selected activities orproducts)An exemption of 70% of statutory income for 5years with the balance of 30% of the statutoryincome taxable at current corporate tax rateAn exemption of 85% (increased to 100% forapplications received from 13.9.03 to 31.12.05 –2004 Budget) of statutory income for 5 years willbe given to pioneer companies located in Sabah,Sarawak and the Eastern Corridor ofPeninsular Malaysia. For incentives that haveexpired on 31.12.00, extension of another 5 yearsuntil 31.12.05 will be given (2001 Budget)The application period for the enhanced incentiveof 100% exemption for the promoted areas whichexpires on 31.12.05 has been extended for another5 years until 31.12.10 (2006 Budget)241

B16.4 AGRICULTURAL SECTOR (CONT’D)EligibilityEffective October 2001, rearing of chickenand ducks in the Eastern Corridor ofPeninsular Malaysia, Sabah and Sarawak iseligible for pioneer status with exemption of85% of statutory income [Promotion ofInvestments (Promoted Activities andPromoted Products) (Amendment) Order2002]Any company that reinvests in the promotedfood processing activityAny company participating in a promotedactivity or producing a promoted product ofnational and strategic importance (as may bedetermined on a case-to-case basis) toMalaysia. A company which is alreadyoperating in Malaysia may also apply if itfulfils such conditions as may be determinedby the MinisterAny company establishing forest plantation29. Investment Tax Allowance (ITA)Any company participating in a promotedactivity or producing a promoted productwhich has applied for ITA before 1.11.91Any company participating in a promotedactivity or producing a promoted product(not being an activity or a product wherepioneer status or ITA has already beengranted to the company) which applies forand is granted ITA on or after 1.11.91Effective October 2001, the rearing ofchicken and ducks in the Eastern Corridor ofPeninsular Malaysia, Sabah and Sarawak iseligible for ITA on 80% of qualifyingexpenditure [Promotion of Investments(Promoted Activities and PromotedProducts) (Amendment) Order 2002]Tax ReliefsTax relief period may be extended for another 5years (2003 Budget)Tax exemption of 100% of the statutory incomefor a period of 5 years which may be extended foranother 5 yearsTax exemption of 100% of the statutory incomefor a period of 5 years which may be extended foranother 5 yearsTax exemption of up to 100% of adjusted incomefor each year of assessment from ITA computedat 100% on qualifying capital expenditureincurred within 5 years from the date which theapproval is to take effectTax exemption of up to 70% of statutory incomefor each year of assessment from ITA computedat 60% on qualifying capital expenditure incurredwithin 5 years from the date which the approvalis to take effectTax exemption of up to 85% (increased to 100%for applications received from 13.9.03 to31.12.05 – 2004 Budget) of statutory income foreach year of assessment from ITA computed at80% (increased to 100% – 2004 Budget) onqualifying capital expenditure incurred bycompanies located in Sabah, Sarawak and theEastern Corridor of Peninsular Malaysia within 5years from the date from which approval is totake effect. For incentives that have expired on31.12.00, extension of another 5 years will begiven (2001 Budget)The application period for the enhanced incentiveof 100% ITA for the promoted areas whichexpires on 31.12.05 has been extended foranother 5 years until 31.12.10 (2006 Budget)242

B16.4 AGRICULTURAL SECTOR (CONT’D)EligibilityAny company that reinvests in the promotedfood processing activityAny company participating in producinghalal food that complies with internationalstandards (for applications received byMIDA from 11.9.04)Conditions:(a) Halal certification has been obtainedfrom Jabatan Kemajuan IslamMalaysia (JAKIM); and(b) Other quality certification has beenobtainedAny company establishing forest plantationAny company participating in a promotedactivity or producing a promoted product ofnational and strategic importance (as may bedetermined on a case-to-case basis) toMalaysia. A company which is alreadyoperating in Malaysia may also apply if itfulfils such conditions as may be determinedby the Minister30. Abatement of Adjusted IncomeAbolished w.e.f. 31.12.199131. Reinvestment Allowance (RA)A company which incurs capital expenditure(as defined in Sch 7A Para 9) from 1.1.96 ona qualifying agricultural project in Malaysia.This incentive has been extended to an agrobasedco-operative society, an area farmers’association, a national farmers’ association, astate farmers’ association, an areafishermen’s association, a nationalfishermen’s association and a statefishermen’s associationThis incentive has been further extended toan individual provided that the person is acitizen and resident in that basis yearTax ReliefsTax relief period may be extended for another 5years (2003 Budget)Tax exemption of up to 100% of statutory incomefor each year of assessment from ITA computedat 100% on qualifying capital expenditureincurred within 5 years from the date which theapproval is to take effect (2005 Budget)Tax exemption of up to 100% of statutory incomefor each year of assessment from ITA computedat 100% on qualifying capital expenditureincurred within 5 years from the date which theapproval is to take effectTax exemption of up to 100% of statutory incomefor each year of assessment from ITA computedat 100% on qualifying capital expenditureincurred within 5 years from the date which theapproval is to take effectUnutilised allowances can be carried forward tosubsequent yearsPlease refer to 2004 Budget Commentary & TaxInformation for detailsTax exemption of statutory income from RAcomputed at 60% on qualifying capitalexpenditure. However, for qualifying projectslocated outside Sabah, Sarawak and the EasternCorridor of Peninsular Malaysia, the taxexemption is restricted to 70% of statutoryincome for each year of assessmentThe RA is at the rate of 60% on qualifying capitalexpenditure incurred and is restricted to 70% ofstatutory income for each year of assessmentFor projects located in the promoted areas, thereis no restriction on the deduction of RA againstthe statutory income243

B16.4 AGRICULTURAL SECTOR (CONT’D)EligibilityWith effect from Y/A 1998, RA will only begiven to a company, an agro-based cooperativesociety, a farmers’ association or afishermen’s association which has beenoperating for not less than 12 months andincurs capital expenditure (as defined in Sch7A Para 9) on a qualifying agriculturalproject in MalaysiaCompanies producing promoted foodproducts upon expiry of RACompanies involved in the rearing ofchickens and ducks which reinvest for thepurpose of shifting from open to closedhouse systemConditions:(a) Approved by the Ministry ofAgriculture and Agro-based Industry;(b) Minimum rearing capacity:– at least 20,000 broiler chickens/ducks per cycle; or– at least 50,000 layer chickens/ducks per cycle(2003 Budget)Tax ReliefsTax exemption of up to 100% of statutory incomefor each year of assessment from RA computed at60% on qualifying capital expenditure incurred inthe basis periods for 5 consecutive years ofassessment. The period of 5 years since 1998 isextended to 15 consecutive years commencingfrom the year the first RA is claimed.However, for qualifying projects located outsideSabah, Sarawak and the Eastern Corridor ofPeninsular Malaysia, the tax exemption isrestricted to 70% of the statutory income for eachyear of assessmentWhere an asset included in the qualifying capitalexpenditure is disposed of at any time within 2years from the date of acquisition of that asset,RA given in respect of that asset shall be deemedto have not been givenUnutilised allowances can be carried forward tosubsequent years until fully utilisedEffective from Y/A 2001, accelerated capitalallowances on capital expenditure to be utilisedwithin 3 years (initial 40%; annual 20%) will begiven upon expiry of the RA [Income Tax(Accelerated Capital Allowance) (Reinvestmentin a Qualifying Project) Rules 2000] subject to aletter from MIDA confirming the promotedproduct statusThe RA is at the rate of 60% on qualifying capitalexpenditure incurred and is restricted to 70% ofstatutory income for 15 consecutive yearscommencing from the year the first RA isclaimedFor projects located in the promoted areas, thereis no restriction on the deduction of RA againstthe statutory income for 15 consecutive yearscommencing from the first year the RA isclaimed244

B16.4 AGRICULTURAL SECTOR (CONT’D)EligibilityThe above incentive has been extended torearers of parent and grand parent stock ofchickens and ducksConditions:(a) Minimum rearing capacity of at least20,000 parent or grand parent stockof chickens/ducks per cycle; and(b) Project has been approved byMinistry of Agriculture and AgrobasedIndustry;(2005 Budget)Company that intends to surrender itsPioneer Status for cancellation and undertakereinvestment before the expiry of its PioneerStatus incentive32. Abatement of Statutory Income for ExportsAbolished w.e.f. 1.1.199433. Export AllowanceAbolished w.e.f. 1.1.199434. Promotion of ExportsCompanies engaged in the promotion ofexports and which incur approved outgoingsand expensesCompanies engaged in the promotion ofexports which incur outgoings and expensesprovided to potential importers who havebeen invited to MalaysiaCompanies which pay export creditinsurance premiums to approved companyCompanies which incur qualifying capitalexpenditure on construction or purchase ofwarehouse buildings for storage of goods forexport or for storage of imported goods to beprocessed and re-exportedTax ReliefsCan opt for Reinvestment Allowance incentivewith effect from 21.9.02 (2003 Budget)Please refer to 2004 Budget Commentary & TaxInformation for detailsPlease refer to 2004 Budget Commentary & TaxInformation for detailsDouble deduction of approved outgoings andexpenses [Income Tax (Promotion of Exports)Rules 1986; Income Tax (Promotion of Exports)(Amendment) Rules 2001; Income Tax(Deduction for Promotion of Exports) Rules2002; and Income Tax (Promotion of Exports)(Amendment) Rules 2003]Single deduction of outgoings and expensesincurred in respect of hotel accommodation andsustenance up to a maximum of 3 nights, subjectto a maximum of RM300 and RM150 per dayrespectively [Income Tax (Deduction forPromotion of Exports) (No. 3) Rules 2002]Double deduction of premiums paid [Income Tax(Deduction of Premiums for Export CreditInsurance) Rules 1985]Industrial building allowance of 10% for eachY/A w.e.f. Y/A 1998245

B16.4 AGRICULTURAL SECTOR (CONT’D)EligibilityCompanies which export fresh and driedfruits, fresh and dried flowers, ornamentalplants, ornamental fish, frozen raw prawn orshrimp, frozen cooked and peeled prawn andfrozen raw cuttlefish and squidCompanies whose manufactured goodsachieve a significant increase in exports(ie at least 50%)Companies which succeed in penetratingnew export marketsCompanies which have been awarded theExport Excellence Award (given by MITI)Any company participating in a promotedactivity relating to contract research anddevelopment or providing research anddevelopment services in Malaysia only tocompany other than a related company35. Research and DevelopmentCompanies which incur expenditure (notbeing capital expenditure) on approvedresearchAny company participating in an activityrelating to technical or vocational trainingAny company participating in an activityrelating to in-house research anddevelopment within the company inMalaysia for the purposes of its ownbusinessCompanies which incur qualifyingexpenditure on buildings used for approvedresearchCompanies which incur expenditure onqualifying plant and machinery used forapproved researchTax ReliefsTax exemption of statutory income equivalent to10% of the value of increased exports w.e.f.1.1.98. Unabsorbed allowance can be carriedforward to subsequent years [Income Tax(Allowance for Increased Exports) Rules 1999;Income Tax (Allowance for Increased Exports)(Amendment) Rules 2003]Tax exemption of statutory income (restricted to70% in a year of assessment) equivalent to 30%of the value of increased exports of manufacturedgoods w.e.f. Y/A 2003 [Income Tax (Exemption)(No. 17) Order 2005]Tax exemption of statutory income (restricted to70% in a year of assessment) equivalent to 50%of the value of increased exports of manufacturedgoods w.e.f. Y/A 2003 [Income Tax (Exemption)(No. 17) Order 2005]Full tax exemption of statutory income onincreased export value w.e.f. Y/A 2003 [IncomeTax (Exemption) (No. 17) Order 2005]Tax exemption of up to 70% of statutory incomefor each year of assessment from ITA computedat 100% on qualifying capital expenditureincurred within 10 years from the date which theapproval is to take effectDouble deduction of expenditure on approvedresearchTax exemption of up to 70% of statutory incomefor each year of assessment from ITA computedat 100% on qualifying capital expenditureincurred within 10 years from the date which theapproval is to take effectTax exemption of up to 70% of statutory incomefor each year of assessment from ITA computedat 50% on research capital expenditure incurredwithin 10 years from the date which the approvalis to take effectIndustrial building allowance of 10% (initial) and2% (annual – increased to 3% w.e.f YA 2002)Claim of capital allowances on plant andmachinery246

B16.4 AGRICULTURAL SECTOR (CONT’D)EligibilityCompanies resident in Malaysia that investin subsidiary that undertakes thecommercialisation of R&D findings inresourced based industry36. Pioneer companies which incur approvedR&D expenditure37. Companies which incur expenditure inobtaining certification for recognised qualitysystems and standards, and halalcertification, evidenced by a certificateissued by a certification body as determinedby the Minister38. Qualifying Farm ExpenditurePersons who incur qualifying farmexpenditure on an approved agriculturalproject39. Group Relief of Adjusted LossA company resident in Malaysia whichincurs adjusted loss from approved foodproduction projects, has made application forsurrender of the loss not later than 31.12.2010, commenced the project within oneyear from date of approval. The relief isextended to forest and rubber plantationsunder the pre-package scheme (EconomicStimulus Package 2003)40. Exemption of Import Duty and Sales Tax(a) Import of machinery and equipmentused in plantation which are notavailable locally(b) Import of machinery and equipmentused in plantation which areproduced locally (2001 Budget w.e.f.28.10.00)This incentive requires the approval ofMIDATax ReliefsEffective from 11 September 2004, singlededuction is given on the value of investment upto the year of assessment prior to thecommencement of the commercialization of theproject i.e. tax relief period of related company[Income Tax (Deduction for Investment in aProject of Commercialisation of Research andDevelopment Findings) Rules 2005]Double deduction of approved R&D expenditurecan be accumulated and claimed in post pioneerperiod [S. 34A(4A)]Double deduction of expenditure incurred [S.34(6)(ma)]Deduction from aggregate income for qualifyingfarm expenditure incurred on approvedagricultural projects (Sch 4A, ITA)Abolished w.e.f. Y/A 2006Deduction of adjusted loss of the company(referred to as surrendering company) against theaggregate income of one or more relatedcompanies (as defined in Sch 4C and referred toas claimant companies)Adjusted loss not surrendered in the current yearwill be carried forward but cannot be surrenderedin subsequent years for deduction againstaggregate income of related companiesAbolished w.e.f. Y/A 2006. Please refer to furthercomments in item 104Exemption of import duty and sales taxExemption of sales tax only247

B16.4 AGRICULTURAL SECTOR (CONT’D)Eligibility41. Tax Deduction of Investment Amount withTax Exemption of Statutory Income ofSubsidiary (first alternative)Companies which invest in subsidiarycompanies engaged in the production ofapproved food productsTax ReliefsMutually exclusive with item 42Effective Y/A 2001, tax deduction of an amountequivalent to the amount of investment made inthe subsidiary company [Income Tax (Deductionfor Investment in an Approved Food ProductionProject) Rules 2001]The above tax deduction incentive has beenextended to consolidation of management ofsmallholdings and idle land (but not thegroup relief for losses). This incentive isapplicable for applications received from21.9.02 (2003 Budget)Wholly-owned subsidiary company involvedin the consolidation of management ofsmallholdings or idle landSubsidiary companies undertakingproduction of approved food productsConditions:(a) Investing company should own 100%(reduced to 70% w.e.f 11.9.2004 –2005 Budget) in the subsidiarycompany undertaking foodproduction;(b) Approved food products are kenaf,vegetables, fruits, herbs, spices,aquaculture, cattle, goats, sheep anddeep sea fishing [Income Tax(Approved Food Production Projects)Order 2002 and Income Tax(Approved Food Production Projects)(Amendment) Order 2003](c) Application for these incentivesshould be submitted for approval bythe Ministry of Finance through theMinistry of Agriculture and AgrobasedIndustry from 20.10.01 to31.12.05 (extended to 31.12.2010 –Finance Act 639); and(d) The food production shouldcommence within one year from theapproval date of the incentive.As proposed in the 2002 Budget, the aboveincentives can be extended to any companywhich reinvests in the same food productsfor a period of 5 years subject to samecondition as announced in the 2001 Budget.Exemption of service tax w.e.f. 1.1.03 (2003Budget)Income tax exemption of 100% of statutoryincome for 10 years commencing from the firstyear the subsidiary company records profit.Losses incurred before the tax exemption periodare allowed to be carried forward to postexemption period of 10 years and losses incurredduring tax exemption period are allowed to becarried forward to post exemption periodDividends paid out from the exempt income aretax exempt in the hands of shareholders248

B16.4 AGRICULTURAL SECTOR (CONT’D)Eligibility42. Group Relief of Losses with Tax Exemptionof Statutory Income of Subsidiary (secondalternative)Companies that invest in subsidiarycompanies engaged in the production ofapproved food productsSubsidiary companies undertakingproduction of approved food productsConditions:(a) Investing company should own 70%in the subsidiary companyundertaking food production;(b) Approved food products are kenaf,vegetables, fruits, herbs, spices,aquaculture, cattle, goats, sheep anddeep sea fishing [Income Tax(Approved Food Production Projects)Order 2002 and Income Tax(Approved Food Production Projects)(Amendment) Order 2003](c) Application for these incentivesshould be submitted for approval bythe Ministry of Finance through theMinistry of Agriculture and AgrobasedIndustry from 20.10.01 to31.12.05 (extended to 31.12.2010 –Finance Act 639); and(d) The food production shouldcommence within one year from theapproval date of the incentive.As proposed in the 2002 Budget, the aboveincentives can be extended to any companywhich reinvests in the same food productsfor a period of 5 years subject to samecondition as announced in the 2001 Budget.43. Accelerated Capital AllowancesCompanies which Incur Capital Expenditurefor Conserving Their Own EnergyConsumptionTax ReliefsMutually exclusive with item 41Group relief of losses incurred by subsidiarycompanies before it records any profitIncome tax exemption of 100% of statutoryincome for 10 years commencing from the firstyear the subsidiary company records profit.Losses incurred during tax exemption period of10 years are allowed to be carried forward to postexemption periodDividends paid out from the exempt income aretax exempt in the hands of shareholdersEffective Y/A 2001, accelerated capitalallowances on related equipment are to beallowed over a period of 3 years [Income Tax(Accelerated Capital Allowances) (Conservationof Energy) Rules 2001]249

B16.4 AGRICULTURAL SECTOR (CONT’D)EligibilityTax ReliefsEffective Y/A 2003, the write-off period oncapital expenditure incurred on the relatedequipment be accelerated from 3 years to 1 year[Income Tax (Accelerated Capital Allowances)(Conservation of Energy) Rules 2003Effective 28.10.00, import duty and sales tax areexempted on equipment that is not producedlocally. For equipment that is produced locally,only sales tax exemption will be givenCompanies which incur capital expenditureon machinery and equipment (to bedetermined by the Minister of Finance) usedin the agricultural sector excluding forestplantationsCompanies which incur capital expenditureon equipment (certified by the Ministry ofEnergy, Water and Communications) forgenerating energy for their own consumptionfrom resources that are renewable andenvironment friendly such as biomass,hydropower and solar energy44. Non-Rubber Plantation Companies whichPlant Rubberwood Trees45. Locally Owned Companies which Acquire aForeign Company to acquire hightechnology for production in Malaysia or togain new export markets for local productsEffective Y/A 2005, accelerated capitalallowances on the related machinery andequipment are to be allowed over a period of 2years [Income Tax (Accelerated CapitalAllowance) (Machinery and Equipment forAgriculture Sector) Rules 2005]Effective Y/A 2005, accelerated capitalallowances on the related equipment are to beallowed in 1 year (initial allowance 20%; annualallowance 80%) [Income Tax (AcceleratedCapital Allowance) (Renewable Energy) Rules2005]The write-off period on capital expenditureincurred on the qualifying capital expenditure beaccelerated from 2 years to 1 year(This proposal is applicable to applicationsreceived from 21.9.02 onwards by the Ministry ofPrimary Industries) (2003 Budget)Deduction of an amount equal to one-fifth of theacquisition cost incurred for 5 years [Income Tax(Deduction for Cost of Acquisition of a ForeignOwned Company) Rules 2003]B16.5 TOURISM SECTOR46. Pioneer StatusCompanies involved in the hotel and touristindustry and participating in establishment orexpansion/modernisation/renovation of hotelor participating in establishment orexpansion/modernisation of tourism projectwhich have applied for pioneer status before1.11.91. As proposed in the 1997 Budget,this incentive for the expansion ormodernisation of existing hotels would bere-introducedTax exemption of adjusted income (forapplications received by MIDA before 1.1.91) orstatutory income (for applications received byMIDA on or after 1.1.91) for 5 years (which maybe extended to 10 years)250

B16.5 TOURISM SECTOR (CONT’D)EligibilityCompanies in the hotel and tourism industryand investing in expansion, modernisationand renovation [for applications receivedfrom 13.9.03 by MIDA (2004 Budget)]Any company participating in a promotedactivity or producing a promoted product(not being an activity or a product wherepioneer status or investment tax allowancehas already been granted to the company)which has applied for and is granted pioneerstatus on or after 1.11.91Any company involved in the followingtourism projects:(a) construction of medium and low costhotels of up to three-star category ascertified by the Ministry of Culture,Arts and Tourism provided that theprojects have not commencedoperation as at 25.10.96 (effectivefrom 1.1.96)(b) construction of holiday camps andrecreational projects includingsummer camps (effective forapplications received after 25.10.96)(c) construction of convention centreswith a hall capable ofaccommodating at least 3,000participants (w.e.f. Y/A 1997)47. Investment Tax Allowance (ITA)Companies involved in hotel and tourismindustry participating in establishment orexpansion/modernisation/renovation of hotelor participating in establishment orexpansion/modernisation of tourism projectCompanies in the hotel and tourism industryand investing in expansion, modernisationand renovation [for applications receivedfrom 13.9.03 by MIDA (2004 Budget)]Tax ReliefsAnother round of Pioneer Status with a taxexemption of 100% of statutory incomeAn exemption of 70% of statutory income for 5years with the balance of 30% of the statutoryincome taxable at current corporate tax rateAn exemption of 85% (increased to 100% forapplications received from 13.09.03 to 31.12.05 -2004 Budget) of statutory income will be given topioneer companies located in the Eastern Corridorof Peninsular Malaysia, Sabah, Sarawak and theFederal Territory of LabuanThe application period for the enhanced incentiveof 100% exemption for the promoted areas whichexpires on 31.12.05 has been extended for another5 years until 31.12.10 (2006 Budget)Tax exemption of 70% (85% for projects locatedin the Eastern Corridor of Peninsular Malaysia,Sabah, Sarawak and the Federal Territory ofLabuan) of statutory income for 5 years with thebalance of 30% (15%) of the statutory incometaxable at current corporate tax rate. For incentivethat has expired on 31.12.00, extension of another5 years until 31.12.05 will be given (2001 Budget)Allowance of up to 100% on qualifying capitalexpenditure incurred within 5 years from the datefrom which approval is to take effectAnother round of ITA at the rate of 100% andoffsetted against 100% of statutory income for 5years251

B16.5 TOURISM SECTOR (CONT’D)EligibilityAny company participating in a promotedactivity or producing a promoted product(not being an activity or a product wherepioneer status or investment tax allowancehas already been granted to the company)which applies for and is granted investmenttax allowance on or after 1.11.91Any company involved in the followingtourism projects:(a) construction of medium and low costhotels of up to three-star category ascertified by the Ministry of Culture,Arts and Tourism provided that theseprojects have not commencedoperation as at 25.10.96 (effectivefrom 1.1.96)(b) construction of holiday camps andrecreational projects includingsummer camps (effective forapplications received after 25.10.96)(c) construction of convention centreswith a hall capable ofaccommodating at least 3,000participants (w.e.f. Y/A 1997)48. Industrial Building AllowancePioneer companies or companies grantedinvestment tax allowance which incurqualifying capital expenditure on a hotelbuilding including expenditure on extensionand modernisation of existing hotel building(extended to Company not granted pioneerstatus/ITA effective YA2002)Airport and motor racing circuit are treatedas industrial buildings effective Y/A 2001Tax ReliefsTax exemption of up to 70% of statutory incomefor each year of assessment from ITA computed at60% on qualifying capital expenditure incurredwithin 5 years from the date which the approval isto take effectTax exemption of up to 85% (increased to 100%for applications received from 13.09.03 to31.12.05 – 2004 Budget) of statutory income foreach year of assessment from ITA computed at80% (increased to 100% – 2004 Budget) onqualifying capital expenditure incurred bycompanies located inthe Eastern Corridor ofPeninsular Malaysia, Sabah, Sarawak and theFederal Territory of Labuan within 5 years fromthe date from which approval is to take effectUnutilised allowance can be carried forward tosubsequent yearsThe application period for the enhanced incentiveof 100% ITA for the promoted areas whichexpires on 31.12.05 has been extended for another5 years until 31.12.10 (2006 Budget)Tax exemption of up to 70% (85% for projectslocated in the Eastern Corridor of PeninsularMalaysia, Sabah, Sarawak and the FederalTerritory of Labuan) of statutory income for a yearof assessment from ITA computed at 60% onqualifying capital expenditure incurred within 5years from the date which the approval is to takeeffectInitial allowance of 10% and annual allowance of2%With effect from Y/A 1994, 10% annualallowance on building for accommodation fornon-managerial, non-administrative and nonclericalemployeesEffective Y/A 2002, initial allowance of 10% isextended to purchased buildings and an increasedannual allowance of 3% is extended to bothconstructed and purchased buildings252

B16.5 TOURISM SECTOR (CONT’D)Eligibility49. Tour operators bringing in at least 500tourists from outside Malaysia through groupinclusive tours50. Companies carrying on hotel or touroperating business which are not registeredwith the HRDF and have incurred expensesfor training of employees and also training ofhandicapped personsTax ReliefsExemption of tax from Y/A 1986 to Y/A 2000.Extended to Y/A 2001. Extended from Y/A 2002to Y/A 2006 [(Income Tax (Exemption) (No. 11)Order 2002]Double deduction of the training expensesincurred [Income Tax (Deduction for ApprovedTraining) Rules 1992]51. Overseas promotion expenses Double deduction of overseas promotion expenses[Income Tax (Deduction for Overseas Expensesfor Promotion of Tourism) Rules 1991; andIncome Tax (Deduction for Overseas Expenses forPromotion of Tourism) (Amendment) Rules 2003]52. Double deduction on leave passage fordomestic travel for employees53. Local companies organising conferences inMalaysia bringing in at least 500 foreignparticipants54. Any promoter of car or motorcycle raceswho organises races of international standardheld in Malaysia55. Local companies organizing exhibition,festival or conference including game orsports competition of international standardand held in Malaysia56. Promotion of Domestic TourismCompanies organising domestic tourpackages (inclusive of transportation by air,land or sea and accommodation) withinMalaysia which are participated by at least1,200 local tourists (who are Malaysiancitizens or individuals residing in Malaysia)per year57. Income Tax ExemptionCompanies providing chartering services ofluxury yachts [(Income Tax (Exemption)(No. 23) Order 2002]Double deduction for a year from 1.6.03 [IncomeTax (Deduction for Expenditure on LeavePassage) Rules 2003]Tax exemption on statutory income relating to thebringing in of the participants will be given w.e.f.Y/A 1997 [Income Tax (Exemption) (No. 53)Order 2000]Tax exemption on 50% of statutory income ofpromoters [Income Tax (Exemption) (No. 54)Order 2000]Tax exemption on 50% of statutory income ofpromoters [Income Tax (Exemption) (No. 55)Order 2000]Tax exemption for foreign nationals participatingin such activities Income (Tax Exemption)(No. 55) Order 2000Exemption of income derived from domestic tourpackages for Y/A 1999 and Y/A 2000.Extended to Y/A 2001. Extended from Y/A 2002to 2006 [(Income Tax (Exemption) (No. 10) Order2002]Income tax exemption of 100% for a period of 5years effective 20.10.01253

B16.5 TOURISM SECTOR (CONT’D)Eligibility58. Exemption of Excise DutyCar Rental OperatorsTax ReliefsExcise duty exemption on purchase of national carB16.6 RESEARCH AND DEVELOPMENT SECTOR59. Pioneer StatusAny contract research and developmentcompany participating in an activity relatingto research and development and providesresearch and development services inMalaysia only to companies other thanrelated companiesAny subsidiary company that undertakes thecommercialisation of R&D findings(applications through a committee at theMIDA that includes a representative fromthe Ministry of Science, Technology andInnovation received from 11.09.04)Conditions:(a) At least 70% of its equity is ownedby Malaysians;(b) Only resource-based R&D findingsare eligible; and(c) The commercialisation of the R&Dfindings should be implementedwithin 1 year from the date ofapproval of the incentive60. Investment Tax Allowance (ITA)Any contract research and developmentcompany participating in an activity relatingto research and development and providesresearch and development services inMalaysia only to companies other thanrelated companiesAny research and development companyparticipating in an activity relating toresearch and development and providesresearch and development services inMalaysia to its related company or to anyother companyAny company participating in an activityrelating to in-house research anddevelopment within the company inMalaysia for the purposes of its ownbusinessTax exemption of 100% of statutory income for5 years. Unabsorbed business loss of contract R &D company can be carried forward to post-pioneerperiod for utilisation in subsequent years untilfully utilisedTax exemption of 100% of statutory income for10 years (2005 Budget).Tax exemption of up to 70% of statutory incomefor each year of assessment from ITA computed at100% on qualifying capital expenditure incurredwithin 10 years from the date which the approvalis to take effectTax exemption of up to 70% of statutory incomefor each year of assessment from ITA computed at100% on qualifying capital expenditure incurredwithin 10 years from the date which the approvalis to take effectTax exemption of up to 70% of statutory incomefor each year of assessment from ITA computed at50% on research capital expenditure incurredwithin 10 years from the date from which approvalis to take effectUnutilised allowances for the above can be carriedforward to subsequent years254

B16.6 RESEARCH AND DEVELOPMENT SECTOR (CONT’D)EligibilityWith effect from Y/A 1998, the aboveresearch and development incentives will beextended to companies which carry outdesigning or prototyping as an independentactivity (research and development activityencompasses designing, prototyping, andtesting)Tax Reliefs61. Double Deduction of Expenses For donor or user of services62. Double deduction on approved R&Dexpenditure incurred during pioneer period isallowed to be accumulated and claimed inpost pioneer period63. R&D Companies granted either PS/ITA willbe given second round of incentives.64. Deduction on Investment in SubsidiaryCompany Engaged in the Commercialisationof R&D FindingsCompanies resident in Malaysia that investin subsidiary that undertakes thecommercialisation of R&D findings.(applications through a committee at theMIDA that includes a representative fromthe Ministry of Science, Technology andInnovation received from 11.09.04)Conditions:(a) The company should own at least70% of the equity of the subsidiarythat commercialises the R&Dfindings;(b) Only resource-based R&D findingsare eligible; and(c) The commercialisation of the R&Dfindings should be implementedwithin 1 year from the date ofapproval of the incentiveS. 34A(4A)Economic Stimulus Package 2003Effective from 11 September 2004, the value ofinvestment in subsidiary shall be given as adeduction in ascertaining the adjusted income ofthe company up to the year of assessment prior tothe commencement of the commercialization ofthe project i.e. tax relief period of related company[Income Tax (Deduction for Investment in aProject of Commercialisation of Research andDevelopment Findings) Rules 2005]B16.7 OIL AND GAS SECTOR65. Export of ServicesCompanies which export services in the oiland gas industry50% exemption on income remitted to MalaysiaY/A 1993 – 50%Y/A 1994 – 70%[Income Tax (Exemption) (No. 13) Order 1995]255

B16.8 CONSTRUCTION SECTOR66. Overseas Construction ProjectsCompanies resident in Malaysia which carryon construction projects outside MalaysiaTax exemption of 70% (Y/A 1993 and prior –50%) on income derived from overseasconstruction projects and remitted to Malaysiafrom the commencement date of the projects[Income Tax (Exemption) (No. 5) Order 1989]B16.9 EDUCATION SECTOREligibility67. Investment Tax Allowance (ITA)Any technical or vocational trainingcompany which provides technical orvocational training in MalaysiaAny private institutions of higher learning(IPTS) which provides courses in the field ofscience and existing IPTS in the field ofscience undertaking additional investmentfor upgrading of equipment or expandingcapacityQualifying science courses (to be reviewedfrom time to time):(i) Biotechnology(ii) Medical and health science(iii) Molecular biology(iv) Material sciences and technology(v) Food science and technology68. Industrial Building AllowanceAny person who owns buildings used forindustrial, technical or vocational trainingapproved by the MinisterAny company who owns buildings used for aschool or an educational institution approvedby the Minister of Education or any relevantauthorityTax ReliefsTax exemption of up to 70% of the statutoryincome for a year of assessment from ITAcomputed at 100% on qualifying capitalexpenditure incurred within 10 years from the datewhich the approval is to take effectUnutilised allowances can be carried forward tosubsequent yearsTax exemption of up to 70% of the statutoryincome for a year of assessment from ITAcomputed at 100% on qualifying capitalexpenditure incurred within 10 years from the datewhich the approval is to take effect forapplications received by MIDA from 1.10.05(2006 Budget)Initial allowance of 10% and annual allowance of2%Annual allowance of 10% on qualifyingexpenditure incurred w.e.f. Y/A 1996Effective from Y/A 2002, initial allowance of 10%is extended to purchased buildings and anincreased annual allowance of 3% is also extendedto all buildings used.Annual allowance of 10% on qualifyingexpenditure incurred w.e.f. Y/A 1996256

B16.9 EDUCATION SECTOR (CONT’D)Eligibility69. Promotion of ExportsCompanies involved in the export ofeducation servicesCompanies incurring export promotionexpenses70. Multimedia Faculties in Institutions ofHigher LearningTax incentives accorded to MSC companieswill be extended to multimediafaculties (providing courses in media,computer, information technology,telecommunications, communications andcontents relating to data, voice, graphics andimages) in institutions of higher learning(1998 Budget w.e.f. Y/A 1998)71. Abatement of Adjusted IncomeAbolished w.e.f. Y/A 200172. Deduction of expensesIPTS which incur expenses on thedevelopment of new courses and compliancewith regulatory requirements in introducingnew courses73. Exemption of Import Duty, Sales Tax andExcise DutyIPTS undertaking vocational and technicaltraining for applications received from20.10.01Tax ReliefsEffective from YA2002, the tax exemption on70% of statutory income has been increased to50% of the value of increased exports [IncomeTax Exemption (No. 9) Order 2002]Double deduction for export promotional expenseseffective Y/A 1996Income Tax (Deductions for Promotion of Exportof Higher Education) Rules 2001 and Income Tax(Deductions for Promotion of Export of HigherEducation) (Amendment) Rules 2003Refer to Pioneer Status and Investment TaxAllowance under High Technology andMultimedia SectorPlease refer to 2004 Budget Commentary & TaxInformation for detailsEffective Y/A 2006, the following expenses areallowed to be amortised for a period of 3 years:(i) Expenses on the development of newcourses (commencing from the year ofcompletion of the process of developingthe course); and(ii) Expenses on the regulatory compliance(commencing from the year of completionof the exercise)(2006 Budget)Exemption on import duty, sale tax and exciseduty on all educational equipment includinglaboratory equipment, workshop, studio andlanguage laboratory257

B16.9 EDUCATION SECTOR (CONT’D)74. Exemption of Tax on Royalty IncomeNon-resident franchisors providingfranchised education programmes approvedby the Ministry of EducationTax exemption on royalty [Income Tax(Exemption) (No. 16) Order 2002]B16.10 COMMUNICATIONS, UTILITIES AND TRANSPORTATION SECTORSEligibility75. Exemption of Statutory IncomeCompanies undertaking approved serviceprojects (ASP) of national and strategicimportanceCompanies undertaking approved serviceprojects (ASP) in Sabah, Sarawak and theEastern Corridor of Peninsular MalaysiaCompanies undertaking approved serviceprojects (ASP) in other areas in MalaysiaTax ReliefsExemption of income tax on 100% of statutoryincome for 10 yearsExemption of income tax on 85% of statutoryincome for 5 yearsExemption of income tax on 70% of statutoryincome for 5 yearsUnabsorbed capital allowances and losses are notallowed to be carried forward to post exemptionperiodCompanies undertaking generation of energyusing biomass. Applicable to applicationsreceived from 28.10.00 to 31.12.02. Theincentive is extended to 31.12.05 and thecompany is required to implement theproject within 1 year from the date ofapproval (2003 Budget). This incentive isfurther extended to 31.12.10 (2006 Budget)Exemption of income tax of 70% (increased to100% - 2006 Budget) of statutory income for 5yearsPromotion of Investments (Promoted Activitiesand Promoted Products) (Amendment) Order 200lThe sources of renewable energy areextended to hydropower (not exceeding10 megawatts) and solar power. Thecompany is required to implement theproject within 1 year from the date ofapproval (2003 Budget)A resident person carrying on the business oftransporting passengers or cargoes by sea ona Malaysian ship or letting out on charter aMalaysian ship owned by him on a voyageor time charter basisExemption of statutory income258

B16.10 COMMUNICATIONS, UTILITIES AND TRANSPORTATION SECTORS(CONT’D)Eligibility76. Investment Allowance (IA)Companies undertaking approved serviceprojects in the service sector in relation totransportation, communications, utilities orany other sub-sector approved by theMinister77. Double Deduction of ExpensesCompanies incurring expenses pertaining topromotion of export of services, and researchand development and training78. Industrial Building AllowanceCompanies undertaking approved serviceprojects (ASP) incurring capital expenditureon construction or purchase of a buildingwhich is used for the purpose of theprovision of services and modernisation ofoperationsAirport is treated as industrial buildingeffective Y/A 200179. Exemption of Import Duty and Sales Tax(a) Import of prime movers and trailersby hauliers which are not producedlocally(b) Import of prime moves and trailersby hauliers produced locally (2001Budget effective from 28.10.00)(c) Import of machinery and equipmentfor the generation of energy usingbiomass which are:(i) Not produced locally(ii) Produced locally (2001Budget effective 28.10.00)Tax ReliefsTax exemption of up to 70% of the statutoryincome for a year of assessment from IAcomputed at 60% on qualifying capitalexpenditure incurred within 5 years from the datewhich the approval is to take effectUnutilised allowances can be carried forward tosubsequent yearsDouble deduction of eligible expenses forpromotion of export of services and expenses ofresearch and development and training [IncomeTax (Deduction for Promotion of Export ofServices) Rules 2002; Income Tax (Deduction forApproved Training) Rules 1992; and Income Tax(Deduction for Approved Training) (Amendment)Rules 1995]An initial allowance of 10% and an annualallowance of 2% (increased to 3% w.e.f YA 2002)10% annual allowance w.e.f. Y/A 1994 forbuilding used as accommodation living for nonmanagerial,non-administrative and non-clericalemployeesEffective from Y/A 2002, initial allowance of 10%is extended to purchased buildings and anincreased annual allowance of 3% is extended toall buildings usedExemption of import duty and sales taxExemption of sales tax onlyExemption of import duty and sales taxExemption of sales tax only259

B16.11 HIGH TECHNOLOGY AND MULTIMEDIA SECTOR80. Investment Tax Allowance (ITA)Companies undertaking generation of energyusing biomass. Applicable to applicationsreceived from 28.10.00 to 31.12.02. Theincentive is extended for another 3 years until31.12.05 (2003 Budget). This incentive isfurther extended to 31.12.10 (2006 Budget)The sources of renewable energy are extendedto hydropower (not exceeding 10 megawatts)and solar power. The company is required toimplement the project within 1 year from thedate of approval (2003 Budget)Tax exemption of 70% (increased to 100% -2006 Budget) of statutory income for a year ofassessment computed at 60% (increased to100% - 2006 Budget) on capital expenditureincurred within 5 years from the date on whichapproval is to take effectPromotion of Investments (Promoted Activityand Promoted Products) (Amendment) Order200181. Pioneer StatusNew or existing MSC status multimediacompanies operating in Cybercities (Cyberjaya,Kuala Lumpur City Centre, Technology ParkMalaysia, Bayan Lepas in Penang and KulimHi-Tech Park in Kedah) approved by theMultimedia Development Corporation (MDC)and subject to compliance of conditions to beimposedSelected companies undertaking multimediaactivities operating outside the Cybercitiesrecommended by the MDC and subject tocompliance of conditions to be imposedCompanies granted “Strategic KnowledgebasedStatus Company”(a) Characteristics:– Potential to generate knowledgecontent– High value added operations– High technology– A large number of knowledge workers(b) Condition:– Must have a Corporate KnowledgebasedMaster Planfor applications received by MIDA from21.09.02 (2003 Budget)Tax exemption of 100% of statutory income fora period of 10 years. In the case of an existingcompany, tax exemption applies to the relatedadditional statutory incomeTax exemption of 50% of statutory income for aperiod of 5 years from the date which theapproval is to take effect [for applicationsreceived by MDC from 1.10.05 (2006 Budget)]Tax exemption of 100% of statutory income for aperiod of 5 years from the date which theapproval is to take effect [for applicationsreceived by MIDA from 21.09.02 (2003Budget)]With effect from YA2003, expenditure incurredon drafting the individual Corporate KnowledgebasedMaster Plan be allowed as a deduction andbe claimed when the company begins toimplement the Master Plan82. Investment Tax Allowance (ITA)New or existing MSC status multimediacompanies operating in Cybercities(Cyberjaya, Kuala Lumpur City Centre,Technology Park Malaysia, Bayan Lepas inPenang and Kulim Hi-Tech Park in Kedah)approved by the Multimedia DevelopmentCorporation (MDC) and subject to complianceof conditions to be imposedTax exemption of up to 100% of statutoryincome for a year of assessment from ITAcomputed on capital expenditure incurred. In thecase of an existing company, tax exemptionapplies to the related additional statutory income260

B16.11 HIGH TECHNOLOGY AND MULTIMEDIA SECTOR (CONT’D)EligibilitySelected companies undertaking multimediaactivities operating outside the Cybercitiesapproved by the MDC and subject tocompliance of conditions to be imposedCompanies granted “Strategic KnowledgebasedStatus Company”(a) Characteristics:(b) Potential to generate knowledgecontent(b) High value added operations(b)(b)High technologyA large number of knowledgeworkers(b) Condition:– Must have a Corporate KnowledgebasedMaster Plan83. Deduction on cost for acquisition of a foreignowned companyA locally owned company which acquires aforeign owned company abroad for thefollowing purposes for applications receivedby MIDA from 21.9.02:(b) to acquire high technology forproduction within the country, or(b) to gain new export markets for localproductsTax ReliefsTax exemption of up to 50% of statutory incomefor a year of assessment from ITA computed at50% on capital expenditure incurred within 5years from the date on which approval is to takeeffect [for applications received by MDC from1.10.05 (2006 Budget)]With effect from Y/A 1998, the above incentiveswill be extended to multimedia faculties(providing courses in media, computer,information technology, telecommunications,communications and contents relating to data,voice, graphics and images) in institutions ofhigher learning operating outside the CybercitiesIn addition to the tax exemption under PioneerStatus or ITA as stated above, exemption of alltaxes on multimedia equipment and a specialincentive for companies whose presence willattract other companies to establish theiroperations in the IT City will be givenTax exemption of up to 100% of statutoryincome for each Y/A for ITA computed at 60%on the qualifying capital expenditure incurredwithin 5 years from the date which the approvalis to take effect [for applications received byMIDA from 21.09.02 (2003 Budget)]With effect from YA2003, expenditure incurredon drafting the individual Corporate KnowledgebasedMaster Plan be allowed as a deduction andbe claimed when the Company begins toimplement the Master PlanAn amount equal to 20% of the cost ofacquisition will be given as a deduction inascertaining the adjusted income for 5 years ofassessment. This incentive is applicable forapplications received from 21.9.02 [Income Tax(Deduction for Cost on Acquisition of a ForeignOwned Company) Rules 2003]B16.12 SERVICE SECTOR84. Incentive for Approved InvestmentsOverseasCompany must be of Malaysian origin and atleast 70% of its equity is owned byMalaysiansIncome earned abated by 70% as proposed in the1994 Budget (Y/A 1993 and prior – 50%)261

B16.12 SERVICE SECTOR (CONT’D)EligibilityThe Malaysian company holds at least 30%in the overseas companyThe Board of Directors reflects the equitystructure of the overseas companyThe project is either undertaken to overcomemarket access problem and will utiliseMalaysian raw materials or components or tosupply inputs required by domestic industryin Malaysia or to contribute to “South-SouthCo-operation”85. Infrastructure Allowance (IA)Any company which has incurred capitalexpenditure on infrastructure in anyconstruction, reconstruction, extension orimprovement of any permanent structureincluding a bridge, jetty, port or road inrespect of a business or businesses inoperation in a promoted area. Qualifyingcapital expenditure excludes those qualifyingfor investment tax allowance, capitalallowance or reinvestment allowance andcapital expenditure incurred on wastedisposal or for the use of management,administrative or clerical staff86. Exemption of Statutory IncomeCompanies providing cold room andrefrigerated truck facilities (i.e. cold chainfacilities) and related services for perishablefood products (applications received from28.10.00 to 31.12.02)Existing companies which reinvest in coldchain facilities and services for perishableagricultural produce (applications receivedby MIDA from 13.9.03)Companies providing energy conservationservicesTax ReliefsPre-operating expenses allowed as a deductionExemption is for a period of 5 years after theinvesting company commences operations andmakes profit. This 5 year condition is to beremoved as per the 1994 BudgetTax exemption of up to 85% of the statutoryincome for a year of assessment from IAcomputed at 100% on capital expenditure oninfrastructure incurred. For incentive that hasexpired on 31.12.00, extension of another 5 yearsuntil 31.12.05 will be given (2001 Budget)Unabsorbed allowance can be carried forward tosubsequent years until it is fully utilisedPioneer status with tax exemption on 70% (85%for promoted areas) of statutory income for aperiod 5 years [Promotion of Investments(Promoted Activities and Promoted Products)(Amendment) Order 2001]Pioneer status with tax exemption of 70% (100%for promoted areas) on increased statutoryincome arising from reinvestment for a period of5 years (2004 Budget)Exemption of income tax on 70% of statutoryincome for 5 years. This incentive is applicableto applications received from 28.10.00 to31.12.02 and the project must be implementedwithin 1 year from the date of approval[Promotion of Investments (Promoted Activityand Promoted Products) (Amendment) Order2001]. The application date is extended until31.12.05 (2003 Budget). The application date isfurther extended until 31.12.2010 (2006 Budget)262

B16.12 SERVICE SECTOR (CONT’D)EligibilityCompanies providing manufacturing relatedservices in total chemical managementsystem, integrated logistic, marketing supportand utility services for applications receivedby MIDA from 20.10.01 [Promotion ofInvestments (Promoted Activities andPromoted Products) (Amendment) Order2002]A body of persons or a trust or a companylimited by guarantee (resident and notoperated or conducted primarily for profit)providing activity related to the managementof the public cemeterial ground as follows:• maintenance of the cemeterial groundincluding the maintenance of facilitiesand infrastructure;• religious or cultural and traditionalceremony;• purchase of new cemeterial ground;• administrative expenditure;• building or maintenance of a building forprayer or a building which is needed inaccordance to the specific tradition orculture of each specific race;• building or maintenance of thecrematorium or funeral parlour; or• building or maintenance of acolumbarium building for storage of thedeceased’s ash87. Investment Allowance (IA)Any private hospital which incurs qualifyingcapital expenditure in providing specialwards to lower income earners (1998Budget)Companies providing energy conservationservicesTax ReliefsIncome Tax exemption of 70% of the statutoryincome for a period of 5 years. Income taxexemption of 85% of the statutory income for aperiod of 5 years for projects located in theEastern Corridor of Peninsular Malaysia, Sabahand SarawakEffective YA 2004, tax exemption of statutoryincome in relation to the following:• performance fees/donation whether in cash orkind;• cemetery bookings deposits;• service fees for the burial or cremation of thedeceased, the provision for the storage of thedeceased’s ash, grave maintenance or theprovision of the place and facilities for thepraying ceremony;• sale proceeds of the cemetarial plot;• sale proceeds of the columbarium site forstorage of the deceased’s ash;• member’s subscription fees received;• interest from fixed deposit; and• rental of the praying hall/funeral parlour or abuilding or real property owned by it.Income Tax (Exemption) (No. 36) Order 2005Tax exemption from IA computed at 60% onqualifying capital expenditureTax exemption of up to 70% of the statutoryincome for a year of assessment from IAcomputed at 60% of capital expenditure incurredwithin a period of 5 years. This incentive isapplicable for applications received from28.10.00 to 31.12.02 and the project must beimplemented within one year from the date ofapprovalThe application period has been further extendedfor an additional 3 years until 31.12.05 (2003Budget)Promotion of Investments (Promoted Activity andPromoted Products) (Amendment) Order 2001263

B16.12 SERVICE SECTOR (CONT’D)Eligibility88. Investment Tax Allowance (ITA)Companies providing cold room andrefrigerated truck facilities (i.e. cold chainfacilities) and related services for perishablefood products (applications received from28.10.00 to 31.12.02)Companies providing energy conservationservicesExisting companies which reinvest in coldchain facilities and services for perishableagricultural produce (applications receivedby MIDA from 13.9.03)89. Promotion of ExportsCompanies involved in the export of servicesin the legal, accounting, architecture,marketing, business consultancy, officeservices, construction management, buildingmanagement, plantation management,private healthcare and private educationsectors [Income Tax (Exemption) (No. 2)Order 2001]Companies involved in the export ofpublishing and information andcommunication technology (ICT) services[Income Tax (Exemption) (No. 2) Order2001]Tax ReliefsTax exemption of up to 70% (85% for promotedareas) of statutory income for each year ofassessment from ITA computed at 60% ofqualifying capital expenditure incurred within 5years from the date which the approval is to takeeffectPromotion of Investments (Promoted Activitiesand Promoted Products) (Amendment) Order2001Tax exemption of up to 70% of the statutoryincome for a year of assessment from ITAcomputed at 60% of capital expenditure incurredwithin a period of 5 years. This incentive isapplicable for applications received from28.10.00 to 31.12.02 and the project must beimplemented within one year from the date ofapproval [Promotion of Investments (PromotedActivity and Promoted Products) (Amendment)Order 2001]The application period has been extended for anadditional 3 years until 31.12.05 (2003 Budget)and further extended for another 5 years until31.12.2010 (2006 Budget)Tax exemption of up to 70% (100% for promotedareas) of statutory income for each year ofassessment from ITA computed at 60% (100%for promoted areas) of additional qualifyingcapital expenditure incurred within 5 years fromthe date which the approval is to take effect(2004 Budget)Tax exemption on 70% of statutory incomeequivalent to 10% of the value of increasedexports w.e.f. 1.1.98Effective Y/A 2002, tax exemption of 70% ofstatutory income is increased from 10% to 50% ofthe value of increased exports for all sectors[(Income Tax (Exemption) (No. 9) Order 2002]Tax exemption on 70% of statutory incomeequivalent to 10% of the value of increasedexports w.e.f. Y/A 2001264

B16.12 SERVICE SECTOR (CONT’D)EligibilityCompanies which have incurred expenses forpromotion of export of servicesThis incentive has been extended toPartnerships and Sole Proprietorships[Income Tax (Deduction for Promotion ofExports of Professional Services) Rules2003]90. Repairs and Maintenance of Luxury Boatsand Yachts in LangkawiActivities undertaken in Langkawi for therepair and maintenance of luxury boats andyachts (1999 Budget)91. Exemption of Import Duty and Sales Tax(a) Import of spares and consumables forservice sectors(b) Import of machinery used in projectproviding energy conservationservices which are not producedlocally(c) Import of machinery used in projectproviding energy conservationservices which are produced locally(d) Import of equipment for projects onmanufacturing related services92. Deduction on Investment in VentureCompanyA company or a resident individual (with abusiness source) which makes an investmentin a venture companyConditions:(a) The investment in the venturecompany is in the form of shareswhich at time of acquisition are notlisted on a stock exchangeTax ReliefsDouble deduction of expenses for promoting theexport of services w.e.f. Y/A 1996 [Income Tax(Deduction for Promotion of Export of Services)Rules 2002; Income Tax (Deduction forPromotion of Export of Services) (Amendment)Rules 2003; Income Tax (Deduction forPromotion of Export of Services) (Amendment)Rules 2005 and Income Tax (Deduction forPromotion of Export of Services) (Amendment)(No. 2) Rules 2005] and Income Tax (DeductionFor Promotion Of Exports Of ProfessionalServices) Rules 2003Effective YA 2005, the double deduction has beenextended to expenses incurred in preparingmodels for participating in competitions atinternational level as verified by the ProfessionalServices Development Corporation Sdn. Bhd.[Income Tax (Deduction for Promotion of Exportof Professional Services) (Amendment) Rules2005]Income tax exemption for a period of5 years w.e.f. 24.10.98Exemption of import duty and sales tax until31.12.03Exemption of import duty and sales taxExemption of sales tax onlyExemption of import duty and sales taxThe amount on investment shall be given as adeduction in ascertaining the adjusted income ofthe company or individualThis takes effect from Y/A 2001, PU (A) 212,Income Tax (Deduction for Investment in aVenture Company) Rules 2001; Revoked byIncome Tax (Deduction for Investment in aVenture Company) Rules 2005 which takes effectfrom YA 2003.265

B16.12 SERVICE SECTOR (CONT’D)Eligibility(b) The investment is made for financingor funding at seed-capital, start-up orearly stage(c) The venture company is not a relatedcompany of the venture capitalcompany at the point of initialinvestment(d) Where early stage financing isprovided to a venture company whichis involved in technology-basedactivities not listed under theMESDAQ Market, the investmentmust be made from the seed capital orstart-up stage and the early stagefinancing is provided as:(i) additional capital expenditure oradditional working capital toincrease production capacity,marketing or productdevelopment; or(ii) an interim financing for thepurpose of being listed on theofficial list of a stock exchange(e) The investment is made at least twoyears prior to the date of its disposal93. Venture Capital CompaniesExemption from taxConditions:(a) At least 70% of the funds invested inventure company should be in the formof seed capital. With effect from yearof assessment 2003, the funds investedin the venture company have beendefined to exclude cash, fixed depositsand interest earned (2004 Budget)(b) Venture capital company should notinvest in a related company at the pointof the first investment(c) The venture company is resident inMalaysia(d) The venture company utilises thefinancing at seed-capital, start-up orearly stage for –Tax ReliefsIncome tax exemption on statutory income fromall sources, other than interest income arisingfrom savings or fixed deposits and profits fromsyariah-based deposits for 10 years or the lifespan of the fund, whichever is the lesserLosses from the disposal of shares in a venturecompany within the exempt period can becarried forward to post-exempt periodThis takes effect from Y/A 2000(cyb), PU (A)211, Income Tax (Exemption) (No. 3) Order2001; Revoked by Income Tax (Exemption)(No. 11) Order 2005 which takes effect from YA2003266

B16.12 SERVICE SECTOR (CONT’D)Eligibility(i) Activities or productspromoted under the PIA 1986(ii) Technology-based activitieslisted on MESDAQ(iii) Industrial Research andDevelopment Grant Scheme(iv) Multimedia Super CorridorResearch and DevelopmentGrant Scheme(e) Where early stage financing isprovided to a venture company whichis involved in technology-basedactivities not listed under theMESDAQ Market, the investmentmust be made from the seed capital orstart-up stage and the early stagefinancing is provided as:(i) additional capital expenditureor additional working capital toincrease production capacity,marketing or productdevelopment; or(ii) an interim financing for thepurpose of being listed on theofficial list of a stock exchangeExemption given under the repealed Ordershall continue to remain in full force andeffect and that Order shall be deemed tocontinue to apply for the remaining years ofassessment of the exempt period of thatventure capital company unless an electionhas been made to apply the new Order.94. Venture Capital Management Companies(VCMC)95. Operational Headquarters (OHQ)Conditions:(a) Incorporated under the MalaysianCompanies Act 1965(b) Minimum paid up capital of RM0.5million(c) Minimum total business spending ofRM1.5 million per yearTax ReliefsEffective Y/A 2003, exemption from tax onstatutory income from the share of profitsreceived by it from a venture capital company onany investment made by the venture capitalcompany as stipulated in the agreement enteredinto between them Income Tax (Exemption)(No. 12) Order 2005(a) Concessionary tax rate of 10% on incomederived from the provision of qualifyingservices to its offices or relatedcompanies outside Malaysia(b) Interest income derived from foreigncurrency loans extended to its offices orrelated companies outside Malaysia taxedat 10%267

B16.12 SERVICE SECTOR (CONT’D)Eligibility(d) Carry out a minimum of 3 qualifyingactivities(e) Serve a minimum of 3 relatedcompanies outside Malaysia(f) Appoint a minimum of 3 seniorprofessional or management personnel(g) A sizeable network of companiesoutside Malaysia which includes theparent company or its head office andrelated companies(h) A well established network ofcompanies with significant andsubstantial employment of qualifiedprofessionals, technical and supportingpersonnelNon-application:OHQ which has been granted anyincentives (except deductions for promotionof exports) under the Promotion ofInvestments Act 1986 or any exemption orallowances or deductions given under theIncome Tax Act 1967 in respect of its nonqualifyingincomeTax Reliefs(c) Royalties received from R&D carried outin Malaysia on behalf of its offices orrelated companies outside Malaysia taxedat 10%(d) Dividends received from relatedcompanies overseas are exempt from tax(e) Effective YA 2003, income taxexemption on statutory income from allincome from the provision of qualifyingservices and a part of the income fromthe provision of services in Malaysia (notexceeding 20%) for 10 yearscommencing from a year of assessmentin which the date of approval of suchOHQ falls in the basis period of that yearof assessment.[Income Tax (Exemption) (No. 40) Order2005](f) Losses (current year as well asunabsorbed losses) in respect of theprovision of qualifying services shall bedisregarded from the source consisting ofthe provision of services in Malaysia andother businesses.(g) Dividends paid out from the exemptincome are tax exempt in the hands ofshareholders [this incentive is applicablefor applications received by MIDA on orafter 21.9.02 [Income Tax (Exemption)(No. 40) Order 2005](h) Expatriates working in an OHQ are taxedonly on that portion of their chargeableincome attributable to the number of daysthat they are in the country [this incentiveis applicable for applications received byMIDA on or after 21.9.02 [Income Tax(Exemption) (No. 66) Order 2003]Key non-fiscal incentives:(a) 100% foreign equity allowed(b) Borrow freely in foreign currency to fundtreasury and fund management services(c) Number of expatriate posts allowed willbe based on skills and requirements(d) Borrow freely in Ringgit up to RM50million for local use(e) Open foreign/multi foreign currencyaccounts with onshore licensed bank inMalaysia to retain export proceeds inforeign currency up to an aggregateovernight balance of USD100 million268

B16.12 SERVICE SECTOR (CONT’D)Eligibility96. International Procurement CentreConditions:A. Incentives(a) Makes procurement from and sale toits related and unrelated companieswithin or outside Malaysia at marketprice(b) Minimum annual sales turnover ofRM100 million with export sales ofat least RM80 million (out of whichdirect export sales must be at leastRM50 million) in respect of thequalifying activitiesNot sell more than 20% of its products tolocal market [local sales include sale to freezones (free industrial zone or freecommercial zone) or licensed manufacturingwarehouse (LMW)].B. Status(a) Minimum paid up capital of RM0.5million(b) Minimum total operating expenditureof RM1.5 million per yearTax Reliefs(f) Open foreign currency accounts withonshore licensed banks, licensed offshorebanks in Labuan or overseas banks forcrediting foreign currency receivables,other than export proceeds, with no limiton the overnight balances(g) Obtain any amount of foreign currencycredit facilities from onshore licensedbanks and licensed merchant banks inMalaysia and from any non-residents fortheir own use(h) Invest freely in foreign securities andlend to related companies outsideMalaysia with limitations of RM50million domestic borrowing and theremittances are made in foreign currencyequivalent(i) Use the professional services of a foreignfirm provided that such services are notavailable locally(j) Allowed to acquire fixed assets as long asit is used for the purpose of carrying outthe operations of the OHQEffective YA 2003, tax exemption on thefollowing statutory income for10 years:(a) all income from the qualifying activitiesin respect of its direct export sales;(b) a part of the income from the qualifyingactivities in relation to its drop shipmentexport sales; and(c) a part of the income from the qualifyingactivities in relation to its local salesDividend paid out from the exempt income areexempt from tax in the hands of the shareholderLosses (current year as well as unabsorbedlosses) in respect of the provision of qualifyingactivities shall be disregarded from the sourceconsisting of other businesses (i.e. nonqualifyingactivities)The above incentives are applicable forapplications received by MIDA on or after21.9.02 [Income Tax (Exemption) (No. 42)Order 2005]269

B16.12 SERVICE SECTOR (CONT’D)Eligibility(c) Minimum annual sales turnover ofRM50 million by the third year(d) Incremental usage of Malaysianports/airports(f) Drop shipment permitted up to 30% ofannual sales turnover97. Regional Distribution Centre (RDC)Same conditions as IPC except that the RDCis allowed to deal with its own brand of goodsonly and must be located in free zones (freeindustrial zones or free commercial zones) orlicensed warehouses (public and private) orlicensed manufacturing warehouses98. Industrial Building AllowanceOld Folks Care Centre is treated as industrialbuilding effective Y/A 2003Tax ReliefsKey non-fiscal incentives:(a) Number of expatriate posts allowed willbe based on requirements(b) Open one or more foreign currencyaccounts to retain export proceedswithout any limits imposed(c) Enter into foreign exchange forwardcontracts with licensed commercial banksto sell export proceeds based on projectedexports(d) Exempt from foreign equity requirementsof Ministry of Domestic Trade andConsumer Affairs(e) Allowed to bring in raw materials,components or finished products withoutpayment of customs duties into FreeZones or Licensed ManufacturingWarehouses for repacking, cargoconsolidation or integration beforedistribution to final consumersSame tax incentives as IPC10% annual allowance on qualifying expenditureincurred [Income Tax (Industrial BuildingAllowance) (Old Folks Care Centre) Rules 2003]B16.13 WASTE RECYCLING SECTOR99. Pioneer StatusCompanies undertaking waste recyclingactivities which are of high value added usinghigh technology in the following areas:(i) recycling of agricultural waste oragricultural by-products;(ii) recycling of chemicals; and(iii) recycling of reconstituted wood-basedpanel board or productsTax exemption of 70% of statutory income for5 years with the balance of 30% of statutoryincome taxable at corporate tax rateTax exemption of 85% of statutory income for5 years for pioneer companies located in thepromoted areas270

B16.13 WASTE RECYCLING SECTOR (CONT’D)Eligibility100. Investment Tax Allowance (ITA)Companies undertaking waste recyclingactivities which are of high value added usinghigh technology in the following areas:(i) recycling of agricultural waste oragricultural by-products(ii) recycling of chemicals; and(iii) recycling of reconstituted wood-basedpanel board or products101. Accelerated Capital AllowanceCompanies undertaking waste recyclingactivities102. Exemption of Import Duty and Sales Tax(a) Import of machinery and equipment forwaste recycling activities not producedlocally(b) Import of machinery and equipment forwaste recycling activities producedlocallyTax ReliefsTax exemption of up to 70% of statutoryincome for each year of assessment from ITAcomputed at 60% of qualifying capitalexpenditure incurred within 5 years from thedate which the approval is to take effectTax exemption of up to 85% of statutoryincome for each year of assessment from ITAcomputed at 80% of qualifying capitalexpenditure incurred by companies located inthe promoted areasCapital expenditure incurred for the purchase ofwaste recycling machinery and equipment to befully utilised within a period of 3 years [IncomeTax (Accelerated Capital Allowances)(Recycling of Wastes) Rules 2000]Exemption of import duty and sales taxExemption of sales tax onlyB16.14 ALL SECTORS103. Companies which incur capital expenditureon equipment (to be certified by the Ministryof Energy, Water and Communications) toensure quality of power supply104. Group Relief of Adjusted LossAll locally incorporated companies residentin Malaysia which fulfill the followingconditions(a) Both the claimant and thesurrendering companies must each hasa paid up of ordinary share capital ofmore than RM2.5 million(b) Both companies must have the sameaccounting periodEffective Y/A 2005, accelerated capitalallowances on the related equipment are to beallowed over a period of 2 years [Income Tax(Accelerated Capital Allowances) (PowerQuality Equipment) Rules 2005]Effective Y/A 2006, deduction of up to 50% ofthe adjusted loss from the surrendering companyagainst the aggregate income of claimantcompany (2006 Budget)Tax treatment for existing claimant companiescurrently deducting 100% of adjusted loss of thesurrendering company will be continued (2006Budget)271

B16.14 ALL SECTORS (CONT’D)Eligibility(c) Both companies must be related withat least 70% shareholding owned,whether through direct or indirectshareholding with respect to eachother(d) The shareholding of 70% forcompanies must be on continuousbasis during the preceding year andthe relevant year(e) Losses from the acquisition ofproprietary rights or foreign-ownedcompanies are disregarded for grouprelief105. Pioneer StatusAny companies enjoying pioneer statuswhose pioneer period expires on or after1.10.2005 (2006 Budget)106. Double deductionAny companies listed on the stock exchangeendorsed by the Securites Commissionproviding employment opportunities forunemployed graduates107. Investment Tax Allowance (ITA)Any companies which incur capitalexpenditure for conserving energy for ownconsumption108. Industrial Building AllowanceNew buildings to be occupied by MSC statuscompanies in Cyberjaya are treated asindustrial buildingTax ReliefsUnabsorbed losses and unabsorbed capitalallowances incurred during pioneer period beallowed to be carried forward and deducted frompost-pioneer statutory income of a businessrelating to the same promoted activity orpromoted product (2006 Budget)Double deduction of allowances paid toparticipants of Unemployed Graduate TrainingProgramme from 1.10.2005 to 31.12.2008 for aperiod of 3 years w.e.f Y/A 2005 (2006 Budget)Tax exemption of up to 70% of the statutoryincome for each year of assessment from ITAcomputed at 60% of qualifying capitalexpenditure within 5 years from the date whichthe approval is to take effect [for applicationsreceived by MIDA from 1.10.2005 to31.12.2010 (2006 Budget)]10% annual allowance on qualifying expenditureincurred by owners of the buildings w.e.f. Y/A2006 (2006 Budget)272

B16.15 SUMMARYSummary of pioneer status, investment tax allowance and reinvestment allowancePSRate ofexemption- Outsidepromotedarea- PromotedareaManufacturing/processing/agriculturalcompanySee thefollowingcolumnsPromotedproduct/PromotedactivityPromotedproduct/Promotedactivity ofnational orstrategicimportance70% on SI 100% on SIor VI ifexistingcompany85% on SI(100%w.e.f. YA2004)100% on SIor VI ifexistingcompanyHightechnologycompany/company inIndustrialLinkageprogrammeTechnicalorvocationaltrainingcompanySelectedMultimediaactivitiesoutsidecybercitiesContractR&D100% on SI – 50% 100%on SI100% on SI – 50% 100%on SIR&DcompanyIn-houseR&D– –– –Tax reliefperiod- Outsidepromotedarea- PromotedareaITAITA rate- Outsidepromotedarea- Promotedarea5 5 – 10 5 5 55 5 – 10 5 5 560% 100% 60% 100% 50% 100% 100% 50%See thefollowingcolumns 80% 100% 60% 100% 50% 100% 100% 50%(100%w.e.f. YA2004)Rate ofexemption- Outsidepromotedarea- Promotedarea70% of SI 100% of SI 100% of SI 70% of SI 50% 70% ofSI85% of SI(100%w.e.f. YA2004)100% of SI 100% of SI 70% of SI 50% 70% ofSI70% ofSI70% ofSI70% ofSI70% ofSITax reliefperiod- Outsidepromotedarea- Promotedarea5 5 5 10 5 10 10 1010 5 5 10 5 10 10 10273

B16.15 SUMMARY (CONT’D)RAManufacturing/processing/agriculturalcompanyPromotedproduct/PromotedactivityPromotedproduct/Promotedactivity ofnational orstrategicimportanceHightechnologycompany/company inIndustrialLinkageprogrammeTechnicalorvocational trainingcompanySelectedMultimediaactivitiesoutsidecybercitiesContractR&DR&DcompanyRA rate 60% – – – – – – – –In-houseR&DRate ofexemption- Outsidepromotedarea- PromotedareaTax reliefperiod70% of SI100% of SI15SI = Statutory incomeVI = Value added income (SI minus inflation-adjusted base income)CA = Capital allowancesPS = Pioneer statusITA = Investment tax allowanceRA = Reinvestment allowance274