Tax incentives in Malaysia can be granted through income exemptions or any allowances while unutilised allowances can be carried forward indefinitely to be utilised against future statutory income. These information and incentives are useful for both existing companies and investors who are thinking of setting up a company in Malaysia.

Tax Resident Status in Malaysia

In order to be eligible for incentives, you must be identified as a tax resident in Malaysia. Every citizen of Malaysia is automatically defined as a tax resident of the country. However, foreigners who lived in Malaysia or is currently living within the Malaysia territorial borders for more than 182 days will also be regarded as a tax resident in Malaysia.

Here’s a quick summary of a tax resident and non-resident:

Tax Resident
  • Malaysian Citizen
  • Foreigners who live in Malaysia, must have been within the Malaysian territorial borders for either more than 182 days of a calendar year or a rolling 12-month period
  • Foreigner in question spends 90 days or more of the current tax year in Malaysia as well as 90 days or more in three of the previous four years.
Non-Resident
  • An individual who primarily resides in an area outside Malaysia but has tax or other interests in Malaysia.

For one to be a tax resident in Malaysia, a Certificate of Residence in Malaysia is required, and the application for the certificate is free. To do so, you must contact the tax authorities and present your passport and documentations of travel into and out of Malaysia over the past year.

What are the Various Companies’ Tax Incentives

There are various types of tax incentives provided in Malaysia to tax resident companies or tax resident individuals. They include, among others:

  • Tax exemptions
  • Allowance related to capital expenditures
  • Enhanced tax deductions
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Tax Incentives for Manufacturing/Service/Trading Companies

Companies in these 3 sectors are entitled to tax incentives related to areas such as

  • Pioneer status
  • Investment tax allowance
  • Reinvestment allowance
  • Food production
  • Allowances for increased exports
  • Special Incentive Scheme
  • Approved Services Project

Here are the benefits for some of the incentives mentioned above:

Tax IncentivesBenefits
Investment Tax Allowance
  • Granted 60% of qualifying capital expenditure incurred for a period of 5 years
  • Utilised against 70% of the corresponding amount of statutory income
Pioneer Status
  • Exemption on 70% of its statutory income for 5 years from date of production
  • Can opt to receive a reinvestment allowance by surrendering the pioneer status or investment tax allowance
Export Incentives
  • For companies who export manufactured products, agricultural produce, or services
  • Entitled to allowances between 10% to 100% of value increased exports, which is deductible at up to 70% of statutory income
Approved Services Projects
  • For resident companies undertaking a project approved by the Ministry of Finance
  • Applicable for those in transportation, communications, utilities, and services subsectors
  • Investment allowance of 60% of QCE incurred within 5 years to be utilised against 70% of statutory income OR income tax exemption of 70% of statutory income for a period of 5 years
  • Buildings used solely for this purpose can qualify for an industrial building allowance

Tax Incentives for Financial Services Companies

For financial services companies, here are some tax exemptions that are available:

  • Full income tax exemption is available on to Islamic banks licensed under the Islamic Financial Services Act 2013. All income earned from Islamic banking activities conducted in international currencies will be exempted
  • A complete income tax exemption is also applied to management fees received by resident fund management companies which have been established according to Islamic principles for the management of funds of foreign and local investors.

There are some companies under the Malaysia’s financial sector that are eligible for tax incentives, which include:

  • Special Purpose Vehicles for Islamic financing
  • Companies relayed to operation of Tun Razak Exchange
  • Real estate and property trust funds
  • Foreign Fund management companies

Tax Incentives for ICT Companies

In the ICT industry, tax incentives for tax residents are also available. These expenses will be tax exempted:

  • Developing websites
  • Offshore trading via websites based in Malaysia
  • Investments and expenditures related to MSC Malaysia or international trading companies
  • Any business activities related to principal hubs and transportation, warehousing and freight forwarding

Tax Incentives for Biotechnological Companies

Biotech companies which have received approval as Bionexus status are eligible for a complete offset of income earned through an investment tax allowance on qualifying capital expenditure for companies which have been in operation for 10 years or less.

Here are some other incentives:

  • The concessional tax rate for a business which has been approved after its exempt tax period has expired for a period of up to 10 years is 0% of its statutory income
  • Profits derived from stamp duty and real property gains tax are tax-exempt for Bionexus companies
  • Exemptions are given to import duty for raw materials as well as components which have been imported by such companies.
  • Total investment made towards the seed capital of a Bionexus company is exempted from tax

Green Incentives in Malaysia

Green technology and equipment receive an investment tax allowance when purchased. Malaysian tax resident companies of any sector are entitled to it.

This same income tax incentive is also given for the usage of green technology and services. Companies in the healthcare and wellness sector receive a 100% exemption on qualifying capital expenditures incurred on statutory income for a period of up to five years.

Regional Operations and Tax Incentives

A principal hub is a locally incorporated company that uses Malaysia as a base for its Global and Regional operations through management, control, and support of critical functions. The tax incentives which are available for Malaysian tax residents and companies who conduct their regional operations in Malaysia include:

  • Equity or ownership conditions
  • Foreign exchange administration
  • Customs duty exemptions for raw materials, product components, or finished products brought into free zones
  • Licensed and bonded warehouses for production or repackaging, cargo consolidation, and integration before products are to be distributed to their final customers; this exemption only applies to goods-based companies
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TIP: Click here to find out more on the various incentives available for Malaysia’s tax resident companies!

Thinking of setting up your company in Malaysia and looking for an experienced tax agent? Reach out to us for free consultation on company incorporation and other corporate services today!

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FAQs

Can I appeal for tax?2021-09-21T11:49:17+08:00

Yes you can! You can find out more here.

How do I know if I am not taxable?2021-09-21T11:48:07+08:00

You will not be taxable if

  • Employed in Malaysia for less than 60 days
  • Employed on board a Malaysian ship
  • Age 55 years old and receiving pension from Malaysian employment
  • Receiving interest from banks
  • Receiving tax exempt dividends
How much does the certificate of residency cost?2021-09-21T11:46:59+08:00

It is absolutely free! All you have to present is your passport and any other supporting documents

How is Income Tax submitted in Malaysia?2021-09-21T11:46:26+08:00

Every individual who is to be taxed is required to declare income to IRB. The taxpayer is responsible for obtaining and forwarding the Income Tax Return Form (ITRF). The taxpayer must submit an ITRF that has been duly completed before April 30 every year.

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