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:
- 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.
- 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 Incentives for Manufacturing/Service/Trading Companies
Companies in these 3 sectors are entitled to tax incentives related to areas such as
Here are the benefits for some of the incentives mentioned above:
|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
- 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
- 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:
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