A tax incentive is an aspect of a country’s tax code designed to incentivize economic activities. Examples of tax incentives in existence today include deductions, exemptions, and credits. One important benefit of tax incentives is that when designed and implemented properly, tax incentives can attract a great deal of investment to a country. Therefore, the government of Malaysia has provided its tax residents with several tax incentives so that both they and the country will receive economic and financial benefits.

Malaysian Tax Resident Companies

 

Tax Resident Status in Malaysia

Every citizen of Malaysia is automatically defined as a tax resident of the country. However, 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 in order to be regarded as a tax resident.

Furthermore, a non-citizen would also be regarded as a tax resident if the 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. The Malaysian government classify a non-resident as an individual who primarily resides in an area outside Malaysia but has tax or other interests in Malaysia.

For one’s tax residence status in Malaysia to be verified and thus allow one to claim credits through tax treaties, one must apply for a Certificate of Residence in Malaysia. To apply for a Certificate of Residence, one must contact tax authorities and present the passport and documentation of travel into and out of Malaysia over the past one year. There is no cost of receiving a Certificate of Residence.

Tax resident status is just one element of the tax system of Malaysia. If you have any difficulties understanding your rights and obligations as a taxpayer of Malaysia, we at Paul Hype Page & Co are always ready to assist. Our tax experts will work with you so that you will overcome any tax-related difficulties which you may have. We will also help you make plans regarding the payment of taxes so that you will be able to save money while remaining within the boundaries of Malaysia’s tax laws.

Thinking of incorporating in Malaysia? Let’s get started.

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Companies’ Tax Incentives

There are different types of tax incentives in Malaysia that are available to tax resident companies. These tax incentives include tax exemptions, allowances related to capital expenditure, and enhanced tax deductions. Although income might be exempted from taxation, the necessary amount of tax will have to be paid with regard to dividends related to tax-exempt income. Unutilized allowances may also be carried forward until they are fully utilized. Any of these tax incentives may be used by individuals or companies who are tax residents of Malaysia.

 

Manufacturing/Service/Trading Companies

Manufacturing, service, and trading sector companies of Malaysia are entitled to tax incentives related to areas such as pioneer status, investment tax allowance, reinvestment allowance, food production, allowance for increased export, and the Special Incentive Scheme as well as the Approved Services Project.

Manufacturing, service, or trading sector companies which are tax residents of Malaysia, have been in operation for less than a year, and are part of the the manufacturing, food processing, agricultural, hotel, tourism or other similar sectors will be permitted to claim specific tax incentives.

A tax resident is granted an investment tax allowance on 60% of qualifying capital expenditure which is incurred for a period of five years and will be utilized against 70% of the corresponding amount of statutory income. Pioneer status is provided to a tax resident company by way of an exemption on 70% of its statutory income for five years from the date of production. Companies may also opt to receive a reinvestment allowance by surrendering pioneer status or investment tax allowance status.

 

Biotechnology Companies

In Malaysia, biotechnology companies which have received approval as Bionexus status companies 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. 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 which are part of mergers or acquisitions with other biotechnology companies. Exemptions are given on import duty for raw materials as well as components which have been imported by such companies. Furthermore, in the company’s initial stage of operation, the total investment made towards the seed capital of a Bionexus company is exempted from tax.

 

Education Companies

Companies in the education sector are entitled to tax incentives if they are private higher education institutions, non-profit oriented schools, profit-oriented private or international schools, or kindergartens. Malaysian tax resident companies of any sector are also entitled to green incentives. Green technology and equipment receive an investment tax allowance when purchased. 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.

 

Financial Services Companies

Tax resident companies of Malaysia’s financial services sector may also receive tax exemptions. A full income tax exemption for 10 years is granted to Islamic banks licensed under the Islamic Financial Services Act 2013. This exemption relates to income earned from Islamic banking activities conducted in international currencies as well as takaful, which is a form of insurance designed to be compliant with Islamic banking requirements.

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 alike. Other companies in Malaysia’s financial sector which may benefit from tax incentives include Special Purpose Vehicles for Islamic financing, companies related to the operation of the Tun Razak Exchange, real estate investment trust funds, property trust funds, and foreign fund management companies.

 

ICT Companies

In Malaysia, tax incentives for tax resident companies may also be received by companies in the information and communications technology (ICT) sector. ICT companies may receive tax exemptions for expenses related to the cost of developing websites, offshore trading via websites based in Malaysia, investments and expenditures related to MSC Malaysia or international trading companies, and business activities related to principal hubs and integrated logistics services. Integrated logistics services are defined as activities such as transportation, warehousing, and freight forwarding.

 

Additional Information

Not all expenditures and investments related to international trading companies are eligible to receive a tax exemption in Malaysia. In order to do so, there are certain criteria to be fulfilled.

The criteria are as follows:

  • 60% Malaysian-owned equity
  • Has been registered with the Malaysia External Trade Development Corporation (MATRADE)
  • Value of annual sales exceeds RM10 million
  • Trading of commodities does not account for more than 20% of the annual sales of the company
  • The international trading company involved makes use of local services for insurance, transport, and finances

Other sectors to which tax incentives apply to tax resident companies include those in the petroleum and shipping sectors. Companies related to special economic regions and Mines Wellness City may also receive tax incentives.

 

Regional Operations and Tax Incentives

Certain companies based in Malaysia are located there for the purposes of regional operations. Such companies use Malaysia as a base for the conducting of their regional and global business operations through management, control, and support of critical functions. Among the functions which may be considered to be among these critical functions include the management of risk as well as the making of strategic decisions, especially those related to finances and human resources. All such companies which operate from Malaysia as a regional hub are classified as principal hub companies.

The tax incentives which may be received by companies which are Malaysian tax residents and conduct their regional operations in Malaysia include those related to the following matters:

  • 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

Now that you have seen the eligible tax incentives in Malaysia, you might have become interested in starting one of your own. We at Paul Hype Page & Co are always willing to provide our assistance. We will help you incorporate a company based in Malaysia and thus allow you to operate it however you deem fit. We will also manage all the licensing-related matters of your company on your behalf if you require any assistance in this area.