> 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 5-year partial exemption from the payment of income tax. It will pay 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 products.
     
   
*
 Statutory Income is derived after deducting revenue expenditure and capital gross
allowances from the income.
 
 
    * Applications should be submitted to MIDA.
   
(ii) Investment Tax Allowance (ITA)
As an alternative to Pioneer Status, a company may apply for Investment Tax Allowance (ITA). A company granted ITA gets an allowance of 60% of qualifying capital expenditure (such as factory, plant, machinery or other equipment used for the approved project) incurred within 5 years from the date on which the first qualifying capital expenditure is incurred.
 
Companies can offset this allowance against 70% of their statutory income for each year of assessment. Any unutilised allowance can be carried forward to subsequent years until fully utilised. The remaining 30% of statutory income will be taxed at the prevailing company tax rate.
 
 
* Applications should be submitted to MIDA.
     
   
   
> 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. A high technology company qualifies for:
 
(i)
 Pioneer Status with tax exemption of 100% of its statutory income for a period of
  five years;
or 
(ii)
 Investment Tax Allowance of 60% on the qualifying capital expenditure incurred
within five years from the date the first qualifying capital expenditure is incurred. Any unutilised allowance can be carried forward to subsequent years until the whole amount has been fully utilised. The allowance can be utilised to offset against 100% of its statutory income for each year of assessment .
 
The high technology company must fulfill the following criteria:
 
-
 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.
-
 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 total workforce.
 
* Applications should be submitted to MIDA.
     
   
   
> Incentives For Strategic Project
     
   
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 tax exemption of 100% of the statutory income for a period of 10 years; or 
 
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.
(ii)
 
* Applications should be submitted to MIDA.
 
 
   
   
> Incentives for Small- and Medium- Scale Companies
     
   

Small and medium-scale companies with 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% Malaysia equity are eligible for the following incentives.

(i) Pioner Status with an income tax exemption of 100% of the statutory income for a period of 5 years.

(ii) Investment Tax Allowances of 60% on the qualifying capital expenditure incurred with 5 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 incentives provided a new private limited/limited company is formed to take over the existing production/activities.
 
To qualify for the incentive, the 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 activitis listed as promoted products and activities for small-scale companies.
     
   
   
> Incentives to Strengthen Industrial Linkages
     
   
To encourage large companies to participate in an Industrial Linkages 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 industries (SMIs) that propose to manufacture promoted products or participate in promoted activities in an ILP, are eligible for the following incentives:
 
(i)
 Pioneer Status with tax exemption of 100% of their statutory income  for a period of
  five years;
or 
(ii)
 Investment Tax Allowance of 100% on the qualifying capital expenditure incurred
within five years from the date on which the first qualifying capital expenditure is incurred. This allowance can be offset against 100% of statutory income for each year of assessment.
 
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 tax exemption of 100% of their statutory income  for a period of 10 years; or
 
ii.Investment Tax Allowance of 100% on the qualifying capital expenditure incurred within a period of 5 years which the company can offset against 100% of the statutory income for each year of assessment.
 
* Applications should be submitted to MIDA.
   
   
> Incentives for the Manufacture of 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, 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 tax exemption of 100% of the statutory income for a period of 10 years; or
(ii)
 Investment Tax Allowance of 100% on the qualifying capital expenditure incurred within five years from the date on which the first qualifying capital expenditure is incurred. This allowance can be offset against 100% of statutory income for each year of assessment.
 
>Additional Incentives for the production of Heavy Machinery
 
Application received from existing locally owned companies that reinvest in the production of heavy machinery such as cranes, quarry machinery, batching plants and port material handling equipment are eligible for the following incentives;
 
(i) Pioner Status with a tax exemption of 70% on the increased statutory income arising from the reinvestment for a period of 5 years; or
 
(ii) Investment Tax allowance of 60% on the additional qualifying capital expenditure incurred within a period of five years. The allowance can be offset against 70% of the stautory income for each of assessment. Any unutilised allowances can be carried forward to subsequent years until the whole amount has been fully utilised.
 
>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) Pioner Status with a tax exemption of 70% on the increased statutory income arising from the reinvestment for a period of 5 years; or
 
(ii) Investment Tax allowance of 60% on the additional qualifying capital expenditure incurred within a period of five years. The allowance can be offset against 70% of the statutory income for each 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.
     
>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) Pioner Status with a tax exemption of 100% of the statutory income for a period of 5 years; or
 
(ii) Investment Tax allowance of 60% on the qualifying capital expenditure incurred within five years from the date first capital expenditure is incurred. The allowance can be offset against 100% of the statutory income for each year of assessment.
 
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, air bag systems, audio systems, heater ventilation air-conditioning 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 application received by MIDA from 21 September 2002.
 
   
   
> Additional Incentives for the Manufacturing Sector
     
   
Companies investing in Malaysia's manufacturing sector are also eligible for the following incentives :
 
(i)
 Reinvestment Allowance
   
  All manufacturing companies that have been in operation for at least 12 months and incur qualifying capital expenditure to expand production capacity, modernise and upgrade production facilities, diversify into related products, and automate its production facilities can obtain a Reinvestment Allowance (RA).
  The RA is 60% of qualifying capital expenditure incurred by the company, and can be offset against 70% of its statutory income for the year of assessment. Any unutilised allowances can be carried forward to subsequent years until fully utilised.
 
 
-
 The company undertakes reinvestment projects in the promoted areas i.e. the state of Sabah, Sarawak and the designated "Eastern Corridor" of Peninsular Malaysia.
 
-
 The company attains a productivity level exceeding the level determined by the Ministry of Finance.
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 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 allowances of 20% .
  Applications should be submitted to the IRB accompanied with a letter from MIDA certifying that the companies are producing promoted manufactured products.
   
(iii)
 Tax Exemption on the Value of Increased Exports
   
  To promote exports, manufacturing companies in Malaysia qualify for:
   
 
-
 A tax exemption on statutory income equivalent to 10% of the value of
  increase exports, provided that the goods exported attain at least 30% value-added; or 
-
 A tax exemption on 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 Malaysian-Owned Manufacturing
  company is eligible for:
   
 
-
 A tax exemption on statutory income equivalent to 30% of the value of
  increased exports, provided the company achieves a significant increase in exports;
-
 A tax exemption on 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.
 
  Note: For other incentives and more details, please refer to http://www.mida.gov.my