Investment Incentives

1. Investment Incentives
Lecturer
Hashamuddin bin Yaakob
2014 PA602 MALAYSIAN TAXATION Slide 1

2. Objective/Contents
1. Introduction
2. The legislation
3. Manufacturing
4. Licensing requirements
5. Equity policy
6. Incentives available to a manufacturing company
2014 PA602 MALAYSIAN TAXATION Slide 2

3. INTRODUCTION
TAX INCENTIVES FOR:
 MANUFACTURING
 AGRICULTURE
 TOURISM
INCLUDE:
 PIONEER STATUS
 INVESTMENT TAX ALLOWANCE
 REINVESTMENT ALLOWANCE
 DOUBLE DEDUCTION
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4. THE LEGISLATION
Investment incentives are available under the
Promotion of Investment Act 1986 (PIA 1986) and
Income Tax Act 1967.
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5. MANUFACTURING
The manufacturing sector is the star performer of the
Malaysian economy and is expected to spearhead to drive to
fulfill the industrialization objective.
Manufacturing is defined 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.
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6. PIONEER STATUS
Pioneer Status is a form of tax incentive which provides for
full or partial exemption from payment of Income Tax.
The profits that are exempted from tax are transferred to an
exempt income account for the purpose of franking tax-exempt
dividends. Redistribution by shareholder companies
of such exempt dividends are also exempt from tax.
Detail on pioneer status: See Promotion of Investments Act,
1986
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7. PIONEER STATUS
Or you may access this….
http://www.treasury.gov.my/index.php?option=com_co
ntent&view=article&id=279:promotion-of-investment-act-
1986&catid=92:catinsentif-cukaiundang-undang&
lang=en
2014 PA602 MALAYSIAN TAXATION Slide 7

8. INVESTMENT TAX ALLOWANCES
Eligible projects with large capital investment and long
gestation periods can consider Investment Tax Allowance as
an alternative to the Pioneer Status incentive. Investment
Tax Allowance is a tax incentive based on the qualifying
capital expenditure incurred. Investment Tax Allowance may
be applied for by any company participating or intending to
participate in a promoted activity or in the production of a
promoted product. Any unutilised allowance can be carried
forward until it is fully utilised.
2014 PA602 MALAYSIAN TAXATION Slide 8

9. REINVESTMENT ALLOWANCES
Under the Income Tax Act, 1967, a resident company
which incurs capital expenditure on a factory, plant and
machinery used for a qualifying project in Malaysia can
claim a Reinvestment Allowance equivalent to 60% of
that expenditure.
2014 PA602 MALAYSIAN TAXATION Slide 9

10. QUESTION 1
Pioneer status and investment tax allowance are two
major incentives provided for companies investing in
the manufacturing sector. Briefly explain the main
features of these incentives.
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11. ANSWER - QUESTION 1
Pioneer Status
 A form of tax exemption (either partial or full)
 Given to companies participating in promoted
product/activities (eg: …………)
 Given for an initial period of five years commencing from
production day
 Another five years extension of pioneer period is granted if
certain criteria are met.
 Rate of exemption…..
 The amount of income exempted from tax is credited to a
tax-exempt account from which exempted dividends can
be declared.
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12. ANSWER - QUESTION 1
Investment Tax Allowance
 A form of deduction against statutory income
 It is an alternative incentive to pioneer status
 Given in respect of qualifying capital expenditure
incurred within five years from the date which the
approval took effect
 Rate of deduction.....
2014 PA602 MALAYSIAN TAXATION Slide 12

13. QUESTION 2
Briefly explain the following incentives:
1. Reinvestment allowance
2. Investment allowance
3. Infrastructure allowance
ANSWER QUESTION 2
Suggestion answer: please refer notes or any handouts
given
2014 PA602 MALAYSIAN TAXATION Slide 13

14. QUESTION 3
1. Expenditure incurred on advertising Malaysian
brand names within Malaysia eligible for double
deduction. However, certain conditions need to be
fulfilled. Outline those conditions.
2. Malaysian-uuresident companies are eligible for
double deductions in respect of expenses for the
promotion of export of service. State the eligible
expenses that are given double deductions under
ITA 1967.
2014 PA602 MALAYSIAN TAXATION Slide 14

15. QUESTION 4
Salmah Holdings Bhd has been involved in business of manufacturing
two products since 2002. The company prepares its accounts up to 31st
Sept each year. On 1st Jan 2003, one of its products qualify as a promoted
product and was granted pioneer status effective from 1st Jan 2003.
2003 2004
Pioneer business
Adjusted allowance income / loss
Capital allowance
(50,000)
30,000
300,000
40,000
Non-pioneer business
Adjusted allowance income / loss
Capital allowance
100,000
20,000
(60,000)
20,000
Other income
Dividend income
Rental income
-
18,000
30,000
18,000
Approved donations 10,000 20,000
Required:
Compute the tax
payable and exempt
income (if any for
Salmah Holdings
Bhd for YA 2003 &
2004
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16. ANSWER QUESTION 4
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17. ANSWER QUESTION 4
2014 PA602 MALAYSIAN TAXATION Slide 17