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General procedures involved in setting up a new business
Procedure 1.Application to the Companies Commission of Malaysia (CCM)on the prescribed form (13A) to ensure the availability of the proposed company's name
Time to complete:7 days
Cost to complete:MYR 30 per name
Procedure 2.Stamp the company documents
Time to complete:1 day
Cost to complete:MYR 220
Comment:Company needs to stamp the memorandum and articles of association at the stamp office, an original copy is required for registering with CCM
Procedure 3.File necessary documents with the CCM within three months after name reservation
Time to complete:9 days
Cost to complete:MYR 3,000 (registration fee) + MYR 50 (attestation fee for Form 48A)
Comment:Documents needed: (a) memorandum, articles of association, statutory declaration of compliance (prepared by a lawyer or the company secretary); (b) Particulars of two subscribers holding a minimum of 1 share of RM1.00 each and a minimum of 2 first directors. Every company must have at least 2 directors who each have their principal or only place of residence in Malaysia. The directors and subscribers/promoters are required to lodge a statutory declaration, inter alia, consenting to act as a director of the company as per the prescribed Form 48A; (c) Registration fee for the authorized share capital is charged on a scale fee basis at the following rates (payable to the CCM):RM 1,000 for capital up to RM 100,000; RM 3,000 for capital RM 100,000-500,000; RM 5,000 for capital RM 500,000- RM 1,000,000; RM 8,000 for capital RM 1-5m; RM 10,000 for capital RM 5-10m; RM 20,000 for capital RM 10-25m; RM 40,000 for capital RM 25-50m; RM 50,000 for capital RM 50-100m; RM 70,000 for capital over RM 100m. (d) address/location of the registered office; and (e) the company secretary will have to lodge a statutory declaration of compliance (Form 6) stating that all the requirements of the Companies Act, 1965 and the Companies Regulations in respect of matters precedent to the registration of the company and incidental to its registration have been complied with. The incorporation papers referred to in (a) – (e) are to be filed with the CCM. After submission of the incorporation papers, the CCM will issue a certificate of incorporation (Form 9) within 4 working days.
Procedure 4.Make a company seal
Time to complete:1 day
Cost to complete:MYR 150
Comment:Alternatively, the seal can be ready in 3 days for RM100. There are many shops in any twon offering this service.
Procedure 5.Purchase statutory books and share certificates books
Time to complete:2 days
Cost to complete:MYR 200
Comment:The statutory and share certificate books can be purchased from certain specialized stationery shops.
Procedure 6.Register with the Income Tax Department
Time to complete:1 day (trivial)
Cost to complete:no charge
Comment:After the company is incorporated, the company should register with the Income Tax Department to get a tax file number. The form submitted must state the registered office in Malaysia at which all books and documents required under the provisions of the Act should be kept. Small medium scale company with paid-up capital of RM2.5 million and below at the beginning of the year of assessment pay corporate tax at the rate of 20% on chargeable income of up to RM100,000. For chargeable income in excess of RM100,000, corporate tax at the of 27% is still applicable.
Procedure 7.Register for Employment Provident Fund (EPF)
Time to complete:1 day
Cost to complete:no charge
Comment:Company must register with the EPF office. Registration can be made at any of the branches. The entrepreneur must complete the Form, submit the relevant documents, and wait for the registration number by mail.
Procedure 8.Register with Social Security Organization
Time to complete:1 day
Cost to complete:no charge
Comment:The employer must compulsorily register the employee whose monthly wages is less than RM 2,000 with and contribute to the Social Security Organization (“SOCSO”) regardless of whether such employees’ employment status is permanent, temporary or casual in nature. The entrepreneur must complete the Form, submit the relevant documents and wait for registration number by mail.
Procedure 9.Notify the Director General of the Inland Revenue Board of the employment of workers
Time to complete:1 day
Cost to complete:no charge
Comment:The employer is required to notify the Director General of the Inland Revenue Board in writing of all persons employed by them.
Types of companies in Malaysia
Sole proprietorships usuallyhave just one business owner, and only Malaysian citizens or permanent residents can register. Personal names or trade names can be used as business names, and the Application of Business Name form must be filled in before a business can be registered. Certain names, like those associated with government agencies or royalty (i.e. "national", "chartered" or "di-Raja") or the name of another person who is not the owner of the business cannot be registered. The relevant authorities, like the Registrar of Business, reserve the right to reject any submitted name if it is deemed misleading or inappropriate in their opinion
Partnerships comprise two or more business partners pooling their resources in a business with a view to profit. Like sole proprietorships, only Malaysian citizens or permanent residents can register partnerships. A partnership agreement is usually drawn up by legal counsel, which outlines the responsibilities of each partner, conditions of termination and means of resolving intra-partner disputes. Personal names or trade names can be used as business names, and the Application of Business Name form must be filled in before a business can be registered. Certain names, like those associated with government agencies or royalty (i.e. "national", "chartered" or "di-Raja") or the name of another person who is not an owner of the business cannot be registered. The relevant authorities reserve the right to reject any given name if it is deemed misleading or inappropriate in their opinion.
Companies are registered legal entities formed by several persons that can own property, draw contracts and employ people. The most common type of company in Malaysia is a company limited by shares (public limited and private limited companies). Private limited companies cannot sell shares to the public, and are distinguished by the appellation "Sendirian Berhad", shortened to "Sdn Bhd" or "S/B". Public limited companies source their capital by selling shares to the public, and are distinguished by the appellation "Berhad", shortened to "Bhd". Companies in Malaysia are governed by the Companies Act 1965, which protects the rights and interests of shareholders and investors, and provides regulations for the incorporation of companies, the formulation of company constitutions, management and closures. A company must have a minimum of two members, but a private limited company is limited to 50 members (public limited companies have no member limit). A minimum paid-up capital of only RM2 is needed to start a private limited company, while public limited companies need a paid-up capital of not less than RM60mil (if it seeks to be listed on the Kuala Lumpur Stock Exchange Main Board) or not less than RM40mil (if it seeks to be listed on the KLSE Second Board).
Regulations and laws involved in setting up business
Social Security Organisation
SOCSO iscommitted to ensure socio-economic security of all working Malaysian citizens including their dependants through
The principle of Social Insurance
To provide speedy, quality and efficient services using the most cost-effective methods while utilising advanced technology and ensuring human resource development.
To review the benefit structure periodically as well as the benefit disbursement system.
As far as possible without increasing the contribution rate to secure and strengthen SOCSO's funds through prudent financial and investment management.
To promote and encourage work safety and health of workers and employers alike.
All establishments employing Malaysian workers and permanent residents earning wages not exceeding RM2,000 a month are required to insure their workers under two social security schemes:
Employment Injury Insurance Scheme
BENEFITS OF EMPLOYMENT INJURY INSURANCE SCHEME
1. Medical Benefit
2. Temporary Disablement Benefit
3. Permanent Disablement Benefit
4. Constant Attendance Allowance
5. Dependant's Benefit
6. Funeral Benefit
7. Rehabilitation Benefit
8. Education Benefit
Invalidity Pension Scheme
BENEFITS OF INVALIDITY PENSION SCHEME
1. Invalidity Pension
2. Invalidity Grant
3. Constant Attendance Allowance
4. Survivors' Pension
5. Funeral Benefit
6. Rehabilitation Benefit
7. Education Benefit
Related Legislation
Workmen's Compensation Act 1952
This Act provides for the payment of compensation benefits to a foreign worker who possesses valid employment document for injuries sustained due to accident which arises out of or in the course of employment or if death results from the accident, to the dependants.
The Occupational Safety and Health Act (OSHA) 1994
The Occupational Safety and Health Act is an Act which provides the legislative framework to secure the safety, health and welfare among all Malaysian workforce and to protect others against risks to safety or health in connection with the activities of persons at work.
This Act was gazetted on 24th February 1994. It is a practical tool superimposed on existing safety and health legislation.
Incentives for Investment
In Malaysia, tax incentives, both direct and indirect, are provided for in the Promotion of Investments Act 1986, Income Tax Act 1967, Customs Act 1967, Sales Tax Act 1972, Excise Act 1976 and Free Zones Act 1990. These Acts cover investments in the manufacturing, agriculture, tourism (including hotel) and approved services sectors as well as R&D, training and environmental protection activities.
The direct tax incentives grant partial or total relief from income tax payment for a specified period, while indirect tax incentives come in the form of exemptions from import duty, sales tax and excise duty.
1. INCENTIVES FOR THE MANUFACTURING SECTOR
1.1 Main Incentives for Manufacturing Companies
The major tax incentives for companies investing in the manufacturing sector are the Pioneer Status or Investment Tax Allowance.
Eligibility for Pioneer Status or Investment Tax Allowance is based on certain priorities, including the levels of value-added, technology used and industrial linkages. Such eligible projects are termed as “promoted activities” or “promoted products”.
(i) Pioneer Status
A company granted Pioneer Status enjoys a 5-year partial exemption from the payment of income tax. It pays tax on 30% of its statutory income*, with the exemption period commencing from its Production Day (defined as the day its production level reaches 30% of its capacity).
Accumulated losses and unabsorbed capital allowances incurred during the pioneer period by companies whose pioneer status will expire on and after 1 October 2005 are allowed to be carried forward and deducted against post-pioneer income of a business relating to the same promoted activity or promoted product.
To encourage investments in the promoted areas i.e. the States of Perlis**, Sabah and Sarawak and the designated “Eastern Corridor”+ of Peninsular Malaysia, applications received from companies located in these areas will enjoy a 100% tax exemption on their statutory income during their 5-year exemption period. All project applications received by 31 December 2010 will be eligible for this enhanced incentive.
Applications for Pioneer Status should be submitted to the Malaysian Industrial Development Authority (MIDA).
(ii) Investment Tax Allowance
As an alternative to Pioneer Status, a company may apply for Investment Tax Allowance (ITA). A company granted ITA is entitled to an allowance of 60% on its qualifying capital expenditure (such as factory, plant, machinery or other equipment used for the approved project) incurred within five years from the date on which the first qualifying capital expenditure is incurred.
The company can offset this allowance against 70% of its statutory income for each year of assessment. Any unutilised allowance can be carried forward to subsequent years until fully utilised. The remaining 30% of its statutory income will be taxed at the prevailing company tax rate.
For the promoted areas i.e. the States of Perlis** , Sabah and Sarawak and the designated “Eastern Corridor” of Peninsular Malaysia, applications received from 13 September 2003 from companies located in these areas will enjoy an allowance of 100% on the qualifying capital expenditure incurred within a period of five years. The allowance can be utilised to offset against 100% of the statutory income for each year of assessment. All project applications received by 31 December 2010 will be eligible for this enhanced incentive.
Applications should be submitted to MIDA.
1.2 Incentives for Relocating Manufacturing Activities to Promoted Areas
In order to reduce the costs of doing business and to provide a competitive business environment, existing companies which relocate their manufacturing activities to the promoted areas, are eligible for a second round of the following incentives:
(i) Pioneer Status with tax exemption of 100% of statutory income for a period of 5 years. Accumulated losses and unabsorbed capital allowances incurred during the pioneer period by companies whose pioneer status will expire on and after 1 October 2005 are allowed to be carried forward and deducted against post-pioneer income of a business relating to the same promoted activity or promoted product; or
(ii) Investment Tax Allowance of 100% of the qualifying capital expenditure incurred within a period of 5 years. The allowance can be utilised to offset against 100% of the statutory income for each year of assessment. Any unutilised allowance can be carried forward to subsequent years until fully utilised.
Applications should be submitted to MIDA.
1.3 Incentives for High Technology Companies
A high technology company is a company engaged in promoted activities or in the production of promoted products in areas of new and emerging technologies (Please refer to the List of Promoted Activities and Products - High Technology Companies ). A high technology company qualifies for:
(i) Pioneer Status with tax exemption of 100% of statutory income for a period of 5 years. Accumulated losses and unabsorbed capital allowances incurred during the pioneer period by companies whose pioneer status will expire on and after 1 October 2005 are allowed to be carried forward and deducted against post-pioneer income of a business relating to the same promoted activity or promoted product; or
(ii) Investment Tax Allowance of 60% (100% for promoted areas) on the qualifying capital expenditure incurred within five years from the date the first qualifying capital expenditure is incurred. The allowance can be utilised to offset against 100% of the statutory income for each year of assessment. Any unutilised allowances can be carried forward to subsequent years until the whole amount has been fully utilised.
Applications should be submitted to MIDA.
The high technology company must fulfil the following criteria:
(i) The percentage of local R & D expenditure to gross sales should be at least 1% on an annual basis. The company has three years from its date of operation or commencement of business to comply with this requirement.
(ii) Scientific and technical staff having degrees or diplomas with a minimum of 5 years experience in related fields should comprise at least 7% of the company's total workforce.
1.4 Incentives for Strategic Projects
Strategic projects involve products or activities of national importance. They generally involve heavy capital investments with long gestation periods, have high levels of technology, and are integrated, generate extensive linkages, and have significant impact on the economy. Such projects qualify for:
(i) Pioneer Status with a tax exemption of 100% of the statutory income for a period of 10 years; Accumulated losses and unabsorbed capital allowances incurred during the pioneer period by companies whose pioneer status will expire on and after 1 October 2005 are allowed to be carried forward and deducted against post-pioneer income of a business relating to the same promoted activity or promoted product; or
(ii) Investment Tax Allowance of 100% on the qualifying capital expenditure incurred within five years from the date the first qualifying capital expenditure is incurred. This allowance can be offset against 100% of the statutory income for each year of assessment. Any unutilised allowances can be carried forward to subsequent years until the whole amount has been fully utilised.
Applications should be submitted to MIDA.
1.5 Incentives for Small and Medium-Scale Companies
Previously, small and medium-scale companies with a paid-up capital of RM2.5 million and below are eligible for a reduced corporate tax of 20% on the chargeable income of up to RM100,000. The tax rate on the remaining chargeable income is maintained at 28%. Dividends distributed will be given a tax credit of 20% in the hands of the shareholders.
However, effective from the year of assessment 2007, the corporate tax rate has been reduced to 27% and this reduction is also extended to SMEs.
Small-scale manufacturing companies incorporated in Malaysia with shareholders' funds not exceeding RM500,000 and having at least 60% Malaysian equity are eligible for the following incentives:
(i) Pioneer Status with an income tax exemption of 100% of the statutory income for a period of five years. Accumulated losses and unabsorbed capital allowances incurred during the pioneer period by companies whose pioneer status will expire on and after 1 October 2005 are allowed to be carried forward and deducted against post-pioneer income of a business relating to the same promoted activity or promoted product; or
(ii) Investment Tax Allowance of 60% (100% for promoted areas) on the qualifying capital expenditure incurred within five years. This allowance can be offset against 100% of the statutory income for each year of assessment. Any unutilised allowances can be carried forward to subsequent years until the whole amount has been fully utilised.
A sole proprietorship or partnership is eligible to apply for this incentive provided a new private limited/limited company is formed to take over the existing production/activities.
To qualify for the incentive, a small-scale company has to comply with any one of the following criteria:
(i) The value-added must be at least 15%; or
(ii) The project contributes towards the socio-economic development of the rural population.
The company shall carry out the manufacture of products or participate in activities listed as promoted products and activities for small-scale companies (Please refer to the List of Promoted Activities and Products - Small Scale Companies ).
Applications should be submitted to MIDA.
1.6 Incentives to Strengthen Industrial Linkages
To encourage large companies to participate in an Industrial Linkage Programme (ILP), expenditure incurred in the training of employees, product development and testing, and factory auditing to ensure the quality of vendors' products, will be allowed as a deduction in the computation of income tax.
Vendors, including small- and medium-scale companies that propose to manufacture promoted products or participate in promoted activities in an ILP (Please refer to the List of Promoted Activities and Products - Industrial Linkage Programme (ILP) ),are eligible for the following incentives:
(i) Pioneer Status with a tax exemption of 100% of the statutory income for a period of five years. Accumulated losses and unabsorbed capital allowances incurred during the pioneer period by companies whose pioneer status will expire on and after 1 October 2005 are allowed to be carried forward and deducted against post-pioneer income of a business relating to the same promoted activity or promoted product ; or
(ii) Investment Tax Allowance of 60% (100% on promoted areas) on the qualifying capital expenditure incurred within five years which the company can offset against 100% of the statutory income for each year of assessment. Any unutilised allowances can be carried forward to subsequent years until the whole amount has been fully utilised.
To encourage vendors to manufacture promoted products or participate in activities for the international market, vendors in an approved ILP who are capable of achieving world-class standards in terms of price, quality and capacity, will be eligible for the following incentives:
(i) Pioneer Status with a tax exemption of 100% of the statutory income for a period of 10 years. Accumulated losses and unabsorbed capital allowances incurred during the pioneer period by companies whose pioneer status will expire on and after 1 October 2005 are allowed to be carried forward and deducted against post-pioneer income of a business relating to the same promoted activity or promoted product; or
(ii) Investment Tax Allowance of 100% for promoted areas on the qualifying capital expenditure incurred within a period of five years which the company can offset against 100% of the statutory income for each year of assessment. Any unutilised allowances can be carried forward to subsequent years until the whole amount has been fully utilised.
Applications should be submitted to MIDA.
1.7 Incentives for the Machinery and Equipment Industry
1.7.1 Incentives for the Production of Specialised Machinery and Equipment
Companies undertaking activities in the production of specialised machinery and equipment, namely, machine tools, plastic injection machines, plastic extrusion machinery, material handling equipment, packaging machinery, robotics and factory automation equipment, specialised /process machinery or equipment for specific industries, and parts and components of the mentioned machinery and equipment, are eligible for:
(i) Pioneer Status with a tax exemption of 100% of the statutory income for a period of ten years. Accumulated losses and unabsorbed capital allowances incurred during the pioneer period by companies whose pioneer status will expire on and after 1 October 2005 are allowed to be carried forward and deducted against post-pioneer income of a business relating to the same promoted activity or promoted product; or
(ii) Investment Tax Allowance of 100% for promoted areas on the qualifying capital expenditure incurred within a period of five years which the company can offset against 100% of the statutory income for each year of assessment. Any unutilised allowances can be carried forward to subsequent years until the whole amount has been fully utilised.
Applications should be submitted to MIDA.
1.7.2 Additional Incentives for the Production of Heavy Machinery
Applications received from existing locally-owned companies that reinvest in the production of heavy machinery such as cranes, quarry machinery, batching plant and port material handling equipment, are eligible for the following incentives:
(i) Pioneer Status with a tax exemption of 70% (100% for promoted areas) on the increased statutory income arising from the reinvestment for a period of five years. Accumulated losses and unabsorbed capital allowances incurred during the pioneer period by companies whose pioneer status will expire on and after 1 October 2005 are allowed to be carried forward and deducted against post-pioneer income of a business relating to the same promoted activity or promoted product; or
(ii) Investment Tax Allowance of 60% (100% for promoted areas) on the additional qualifying capital expenditure incurred within a period of five years. The allowance can be offset against 70% (100% for promoted areas) of the statutory income for each year of assessment. Any unutilised allowances can be carried forward to subsequent years until the whole amount has been fully utilised
1.7.3 Additional Incentives for the Production of Machinery and Equipment
Applications received from existing locally-owned companies that reinvest in the production of machinery and equipment, including specialised machinery and equipment and machine tools, are eligible for the following incentives:
(i) Pioneer Status with a tax exemption of 70% (100% for promoted areas) on the increased statutory income arising from the reinvestment for a period of five years. Accumulated losses and unabsorbed capital allowances incurred during the pioneer period by companies whose pioneer status will expire on and after 1 October 2005 are allowed to be carried forward and deducted against post-pioneer income of a business relating to the same promoted activity or promoted product; or
(ii) Investment Tax Allowance of 60% (100% for promoted areas) on the additional qualifying capital expenditure incurred within a period of five years. The allowance can be offset against 70% (100% for promoted areas) of the statutory income for each year of assessment. Any unutilised allowances can be carried forward to subsequent years until the whole amount has been fully utilised.
1.8 Incentives for Automotive Component Modules
New and existing companies that undertake design, R&D and production of qualifying automotive component modules or systems are eligible for:
(i) Pioneer Status with a tax exemption of 100% of the statutory income for a period of five years. Accumulated losses and unabsorbed capital allowances incurred during the pioneer period by companies whose pioneer status will expire on and after 1 October 2005 are allowed to be carried forward and deducted against post-pioneer income of a business relating to the same promoted activity or promoted product; or
(ii) Investment Tax Allowance of 60% (100% promoted areas) on the qualifying capital expenditure incurred within five years from the date the first capital expenditure is incurred. The allowance can be offset against 100% of the statutory income for each year of assessment. Any unutilised allowances can be carried forward to subsequent years until the whole amount has been fully utilised.
The qualifying modules or systems are front corner modules, rear corner modules, instrument panel modules, struts and absorbers and spring assembly modules, bumper modules, front cross member modules, function integrated door modules, fuel tank modules, seat modules, pedal modules, door trim modules, floor console modules, tyre and wheel modules, brake systems, wiper systems, exhaust systems, audio systems, heater ventilation air-conditioning systems, air bag systems, power and signal distribution systems, alarm systems, seat belt systems, exterior lighting systems, body in white modules, engine management systems, safety systems, telematics, navigational systems, engine fuel injection systems, and vehicle intelligence systems.
This incentive is for applications received by MIDA from 21 September 2002.
1.9 Enhanced Incentives for the Utilisation of Oil Palm Biomass
Applications received from companies that utilise oil palm biomass to produce value-added products such as particleboard, medium density fibreboard, plywood, pulp and paper are eligible for the following incentives:
(i) New Companies
a. Pioneer Status with a tax exemption of 100% of the statutory income for a period of 10 years. Accumulated losses and unabsorbed capital allowances incurred during the pioneer period by companies whose pioneer status will expire on and after 1 October 2005 are allowed to be carried forward and deducted against post-pioneer income of a business relating to the same promoted activity or promoted product; or
b. Investment Tax Allowance of 100% on the qualifying capital expenditure incurred within a period of five years. The allowance can be used to offset against 100% of the statutory income for each year of assessment. Any unutilised allowances can be carried forward to subsequent years until the whole amount has been fully utilised.
(ii) Existing Companies that Reinvest
a. Pioneer Status with a tax exemption of 100% on the increased statutory income arising from the reinvestment for a period of 10 years. Accumulated losses and unabsorbed capital allowances incurred during the pioneer period by companies whose pioneer status will expire on and after 1 October 2005 are allowed to be carried forward and deducted against post-pioneer income of a business relating to the same promoted activity or promoted product; or
b. Investment Tax Allowance of 100% on the additional qualifying capital expenditure incurred within a period of five years. The allowance can be used to offset against 100% of the statutory income for each year of assessment. Any unutilised allowances can be carried forward to subsequent years until the whole amount has been fully utilised.
1.10 Additional Incentives for the Manufacturing Sector
(i) Reinvestment Allowance
A manufacturing company that has been in operation for at least 12 months and incurs qualifying capital expenditure to expand, modernise or automate its existing business or diversify its existing business into any related products within the same industry can apply for Reinvestment Allowance (RA).
The RA is given at the rate of 60% on the qualifying capital expenditure incurred by the company, and can be offset against 70% of its statutory income for the year of assessment. Any unutilised allowance can be carried forward to subsequent years until fully utilised.
A company can offset the RA against 100% of its statutory income for the year of assessment if:
- The company undertakes reinvestment projects in the promoted areas i.e. the States of Perlis** , Sabah, Sarawak and the designated "Eastern Corridor" of Peninsular Malaysia; or
- The company attains a productivity level exceeding the level determined by the Ministry of Finance. For further details on the prescribed productivity level for each sub-sector, please contact the Inland Revenue Board (see Useful Addresses - Relevant Organisations)
The RA will be given for a period of 15 consecutive years beginning from the year the first reinvestment is made. Companies can only claim the RA upon the completion of the qualifying project, i.e. after the building is completed or when the plant/machinery is put to operational use. Assets acquired for the reinvestment cannot be disposed of within a period of two years from the time of the reinvestment.
Company that intends to reinvest before the expiry of its Pioneer Status can surrender its Pioneer Status for purpose of cancellation and be eligible for RA.
Applications for RA should be submitted to the Inland Revenue Board (IRB), while applications for the surrender of Pioneer Status for RA should be submitted to MIDA
(ii) Accelerated Capital Allowance
After the 15-year period of eligibility for RA, companies that reinvest in the manufacture of promoted products are eligible to apply for Accelerated Capital Allowance (ACA). The ACA on capital expenditure is to be utilised within three years, i.e. an initial allowance of 40% and an annual allowance of 20%.
Applications should be submitted to the IRB accompanied by a letter from MIDA certifying that the companies are manufacturing promoted products.
(iii) Accelerated Capital Allowance on Equipment to Maintain Quality of Power Supply
In order to reduce the cost of doing business caused by interruptions in the power supply, companies which incur capital expenses on equipment to ensure the quality of power supply, are eligible for Accelerated Capital Allowance for a period of 2 years.
This incentive is effective from the year of assessment 2005.
Applications should be submitted to the IRB.
Only equipment determined by the Ministry of Finance is eligible for the Accelerated Capital Allowance.
(iv) Incentive for Industrialised Building System
Industrial Building System (IBS) will enhance the quality of construction, create a safer and cleaner working environment as well as reduce the dependence on foreign workers. Companies which incur expenses on the purchase of moulds used in the production of IBS components are eligible for Accelerated Capital Allowances (ACA) for a period of 3 years.
This incentive is effective from the year of assessment 2006.
(v) Tax Exemption on the Value of Increased Exports
To promote exports, manufacturing companies in Malaysia qualify for:
- A tax exemption on the statutory income equivalent to 10% of the value of increased exports, provided that the goods exported attain at least 30% value-added; or
- A tax exemption on the statutory income equivalent to 15% of the value of increased exports, provided that the goods exported attain at least 50% value-added.
Claims should be submitted to the IRB.
To further encourage the export of Malaysian goods, a locally-owned manufacturing company with Malaysian equity of at least 60% is eligible for:
- A tax exemption on the statutory income equivalent to 30% of the value of increased exports, provided the company achieves a significant increase in exports;
- A tax exemption on the statutory income equivalent to 50% of the value of increased exports, provided the company succeeds in penetrating new markets;
- A full tax exemption on the value of increased exports, provided the company achieves the highest increase in export in its category.
(vi) Group Relief
To enhance private sector investment, group relief is provided under the Income Tax Act 1967 to all locally incorporated resident companies. The group relief is limited to 50% of the current year's unabsorbed losses to be offset against the income of another company within the same group (including new companies undertaking activities in approved food production, forest plantation, biotechnology, nanotechnology, optics and photonics) subject to the following conditions:
a. The claimant and the surrendering companies each has a paid-up capital of ordinary shares exceeding RM2.5 million;
b. Both the claimant and the surrendering companies must have the same accounting period;
c. The shareholding, whether direct or indirect, of the claimant and the surrendering companies in the group must not be less than 70%;
d. The 70% shareholding must be on a continuous basis during the preceding year and the relevant year;
e. Losses resulting from the acquisition of proprietary rights or a foreign-owned company should be disregarded for the purpose of group relief; and
f. Companies currently enjoying the following incentives are not eligible for group relief:
- Pioneer Status
- Investment Tax Allowance/Investment Allowance
- Reinvestment Allowance
- Exemption on shipping profits
- Exemption of income tax under section 127 of the Income Tax Act 1967; and
- Incentive Investment Company
With the introduction of the above incentive, the existing group relief incentive for approved food production, forest plantation, biotechnology, nanotechnology, optics and photonics will be discontinued. However, companies granted group relief incentive for the above activities shall continue to offset their income against 100% of the losses incurred by their subsidiaries.
This incentive is effective from the year of assessment 2006.
2.INCENTIVES FOR THE BIOTECHNOLOGY INDUSTRY
Main Incentives for the Biotechnology Industry
A company undertaking biotechnology activity and has been approved with BioNexus Status by the Malaysian Biotechnology Corporation Sdn Bhd is eligible for the following incentives:
a) 100% income tax exemption for 10 years commencing from the first year the company derives profit; or
b) Investment Tax Allowance of 100% on the qualifying capital expenditure incurred within a period of 5 years and effective fromfrom 2 September 2006, a BioNexus status company will be given a concessionary tax rate of 20% on income from qualifying activities for 10 years upon the expiry of the tax emption period. This enhanced incentive is effective from 2 September 2006.
c) Tax exemption on dividends distributed by a BioNexus status company;
d) Exemption of import duty and sales tax on raw materials/components and machinery and equipment;
e) Double deduction on expenditure incurred for R&D; and
f) Double deduction on expenditure incurred for the promotion of exports;
g) Effective from 2 September 2006, buildings used solely for the purpose of biotechnology activities will be eligible for Industrial Building Allowance to be claimed over a period of 10 years.
Incentives for Investment in a BioNexus Status Company
(i) Investment by a Parent Company to its Subsidiary
Efffective from 2 September 2006, a company that invests in its subsidiary, which is a BioNexus status company, is eligible for tax deduction equivalent to the amount of investment made in that subsidiary provided that the investing company own at least 70% of that subsidiary.
(ii) Investment by a Company or Individual to a BioNexus Status Company
Effective from 2 September 2006, a company or an individual investing in a BioNexus status company is eligible for a tax deduction equivalent to the total investment made in seed capital and early stage financing.
(iii) Tax Incentives for Mergers and Acquisitions with a Biotechnology Company
A BioNexus status company undertaking merger and acquisition with a biotechnology company is eligible for exemption of stamp duty and real property gain tax within a period of 5 years until 31 December 2011; and
Applications should be submitted to the Malaysian Biotechnology Corporation Sdn Bhd
Please click this link for other incentives related to the biotechnology industry.
APPROVAL OF MANUFACTURING PROJECTS
1.1 The Industrial Co-ordination Act 1975
Malaysia's Industrial Co-ordination Act 1975 (ICA) was introduced with the aim to maintain an orderly development and growth in the country's manufacturing sector.
The ICA requires manufacturing companies with shareholders' funds of RM2.5 million and above or engaging 75 or more full-time paid employees to apply for a manufacturing licence for approval by the Ministry of International Trade and Industry (MITI).
Applications for manufacturing licences are to be submitted to the Malaysian Industrial Development Authority (MIDA), an agency under MITI in charge of the promotion and coordination of industrial development in Malaysia.
The ICA defines:
-"Manufacturing activity" as the making, altering, blending, ornamenting, finishing or otherwise treating or adapting any article or substance with a view to its use, sale, transport, delivery or disposal; and includes the assembly of parts and ship repairing but shall not include any activity normally associated with retail or wholesale trade.
"Shareholders' funds" as the aggregate amount of a company's paid-up capital, reserves, balance of share premium account and balance of profit and loss appropriation account, where:
-Paid-up capital shall be in respect of preference shares and ordinary shares and not including any amount in respect of bonus shares to the extent they were issued out of capital reserve created by revaluation of fixed assets
-Reserves shall be reserves other than any capital reserve created by revaluation of fixed assets and provisions for depreciation, renewals or replacements and diminution in value of assets.
-Balance of share premium account shall not include any amount credited therein at the instance of issuing bonus shares at premium out of capital reserve by revaluation of fixed assets.
"Full-time paid employees" as all persons normally working in the establishment for at least six hours a day and at least 20 days a month for 12 months during the year and who receive a salary.
This includes traveling sales, engineering, maintenance and repair personnel who are paid by and are under the control of the establishment.
It also includes directors of incorporated enterprises except those paid solely for their attendance at board of directors meetings. The definition encompasses family workers who receive regular salaries or allowances and who contribute to the Employees Provident Fund (EPF) or other superannuation funds.
1.2 Guidelines for Approval of Industrial Projects
Malaysia's industrial growth has been rapid over the last decade. This has created a high demand for labour in the manufacturing sector which, in turn, has caused a tightening in the labour market situation.
In view of this, the government's guidelines for approval of industrial projects in Malaysia are based on the Capital Investment Per Employee (C/E) Ratio. Projects with a C/E Ratio of less than RM55,000 are categorised as labour-intensive and thus will not qualify for a manufacturing licence or for tax incentives. Nevertheless, a project will be exempted from the above guidelines if it fulfils one of the following criteria:
- The value-added is 20% or more
- The Managerial, Technical and Supervisory (MTS) Index is 15% or more
- The project undertakes promoted activities or manufacture products as listed in the List of Promoted Activities and Products - High Technology Companies
- It is located in the promoted areas i.e the States of Perlis, Eastern Corridor of Peninsular Malaysia (the states of Kelantan, Terengganu, Pahang and the district of Mersing in the State of Johor), Sabah and Sarawak.
Existing companies (formerly exempted) applying for a manufacturing licence.
Expansion of Production Capacity and Product Diversification
A licensed company which desires to expand its production capacity or diversify its product range by manufacturing additional products will need to apply to MIDA.
