Tax Incentives & Tax Reliefs in Malaysia

7 min read|Last Updated: April 16, 2024|

Malaysia grants tax incentives through income exemptions or allowances, and individuals can carry forward unutilized allowances indefinitely to offset 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 have to identify as a tax resident in Malaysia. Every citizen of Malaysia is automatically as a tax resident of the country. However, foreigners will only receive the tax resident status after they have resided in Malaysia for more than 182 days.

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 necessary, 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 in Malaysia?

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

Tax Incentives for Manufacturing/Service/Trading Companies in Malaysia

Companies in these three sectors qualify for 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 above:

Tax Incentives Benefits
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 utilise 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. The  income that can earn 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 Malaysia

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
  • To get tax incentives as an IT company in Malaysia, the company must register with the Malaysia Digital Economy Corporation (MDEC) to obtain the Malaysia Digital (MD) status.

Tax Incentives for Biotechnological Companies in Malaysia

Biotech companies which have approval as Bionexus status are eligible for a complete offset of income 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 is 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-exempted 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 will receive an investment tax allowance when purchased. By the Malaysian tax resident companies of any sector.

The 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% tax exemption on qualifying capital expenditures incurred on statutory income for a period of up to five [5] 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

Malaysia Income Tax Reliefs

Tax relief allows one to reduce their chargeable income, subject to different requirements and conditions. The following is a non-exhaustive list of tax reliefs that a person can claim:

1. Individual & dependent relatives

Claim: RM9000

Granted automatically to an individual for themselves and their dependents.

2. Medical treatment, support needs and expenses for parents

Claim: Up to RM8000

This sum is inclusive of care and treatment by nursing homes and non-cosmetic dental treatment. It must be conducted by a registered medical practitioner or written certification of a qualified carer. Parents must reside and treatment must be provided in Malaysia.

3. Husband or Wife or Alimony

Claim: Up to RM 4000

This claim can only be made if your spouse has no source of income, or they can choose to set up a joint assessment in your name. You cannot claim this relief if your spouse has a gross income of more than RM4000 derived from sources outside of Malaysia.

4. Breastfeeding equipment

Claim: Up to RM1000 per mother

This claim for an individual is a breastfeeding mother and has purchased breastfeeding equipment for her own use, on her own child ages 2 years or younger. This claim can only be made once every 2 years.

5. Ordinary child relief

Claim: RM2000 per child

This claim can for each unmarried child below the age of 18, at any time during the year of assessment.

6. Education and medical insurance

Claim: Up to RM3000

This relief can be claimable for the payment of insurance premiums for the education or medical benefits. This is applicable to yourself, your spouse, or your child. Each of them is subjected to his/her own sum of RM3000. Couples who opt for a joined assessment, however, will face a deduction limit of RM3000.

7. Child in full-time education

Claim: RM2000 or RM8000 per child

A deduction of RM2000 can be claimed for each unmarried child of age 18 years and above, who is receiving full-time education. A deduction of RM8000 can be made if an unmarried child is 18 years of age and above, and is not in full-time education, is not serving under articles of indentures to qualify in a trade or profession in Malaysia, and is not pursuing a full-time degree outside Malaysia.

Malaysia Corporate Secretary Eric

GET STRATEGIC TAX PLANNING FROM REGIONAL TAX EXPERTS

Come down to our office or connect with us virtually for strategic tax consultations and other corporate services today.

FAQs

Can I appeal for tax?2024-04-16T13:46:00+08:00

Yes you can! You can find out more here.

How do I know if I am not taxable?2024-04-16T13:48:28+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?2024-04-16T13:53:29+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?2024-04-16T13:48:36+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.

Share This Story, Choose Your Platform!

More Business Insights

Undecided or got questions

Got other questions?

Drop us a message on WhatsApp or connect with us through our contact form.

Join the discussions

Go to Top