TAX

INCENTIVE
S
Purposes of Tax Incentives
To stimulate domestic private sector investments and to
attract foreign direct investments.
Tax and non-tax incentives have been employed by the
government:
• To encourage the growth of new industries;
• To sustain the growth of existing industries; and
• To structure the development of identified locations.
 Pioneer Status (PS)
- PIA 1986

Major Tax Investment Tax

Incentives in Allowance (ITA)
- PIA 1986
Malaysia

Reinvestment
Allowance (RA)
- Income Tax Act 1967
1)Pioneer Status
 What is Pioneer Status(PS)?
Company that desire to participate in promoted activity

1 1
or product may make an application to Malaysian
Investment Development Authority (MIDA) for pioneer
status incentive.

2 2
Given under Promotional Investment Act 1986.
PS is available for manufacturing, agriculture, hotel &
tourism, research & development companies, Islamic
financial services, ICT, education and health companies.

2 3
Tax relief for 5 years or 10 years and can extend the
tax relief period in respect of application for pioneer
status on or after 1/11/1991.
 Participate
in
promoted
activity
Eligibility

Produce
promoted
products

Examples:
Manufacturing rubber products, Semiconductor products,
Processing of agriculture products
Hotel and tourism industry
 YA Basis Period Remarks
1.4.2017 (commence) to Pre Pioneer
2018
30.6.2017 Business

1.7.2017 (production date) to

2018 Pioneer Business
31.3.2018
2019 1.4.2018 to 31.3.2019 Pioneer Business

2020 1.4.2019 to 31.3.2020 Pioneer Business

2021 1.4.2020 to 31.3.2021 Pioneer Business

5
Years
2022 1.4.2021 to 31.3.2022 Pioneer Business

1.4.2022 to 30.6.2022 (end of

2023 Pioneer Business
incentive)
2023 1.7.2022 onwards Post Pioneer Business
Requirements for the Extension for another 5yrs
(either ONE)
Must have incurred a ‘capital expenditure’ of RM 25
million.

Must have employed 500 employees( full time

Malaysian) by the end of the tax relief period.

Promote /Enhance
economic and technological
development of Malaysia.
 Capital Expenditure

Include any factory building and Excludes expenditure on

plant & machinery used in land (land cost).
Malaysia for the purposes of the
promoted product or promoted
activity.
 Determination of Tax Relief Exemption
Period

01
Tax relief exemption period of a
pioneer company begins on its
production date and continues
for a period of 5 or 10 years.

MIDA would issue a pioneer

certificate where the company has
achieved 30% production of the
installed capacity, which will be
determined as production day.
02
Nature / Mechanism Of PS

Income tax exemption for pioneer business is

based on statutory income, where 70% of the
statutory income will be exempted from tax. The
balanced 30% is taxable at 24%.
In certain cases, it is 100% exemption(refer pg
19)

Adjusted income of pioneer company in respect of

pioneer business is reduced by capital allowances
deducted under schedule 3 of ITA 1967.
 Treatment of Pioneer Income

The standard PS incentive is a partial exemption from the payment of income tax for a
period of 5 years up to 70% of a company’s statutory income(SI) . The balance 30% of SI
is deemed to be Total Income and to be taxed at 24% tax rate.
Notwithstanding the standard rate, some PS companies enjoy 100% tax exemption over a
period of 5 or 10 years.
Treatment of Pioneer losses
1 3

CANNOT be used ANY EXCESS will be

MUST be used to
to set off against allowed to be carried
set off against
non pioneer forward to the post
pioneer income
income pioneer period

2
 Unabsorbed pioneer losses
In the event that a PS company makes losses during the pioneer period, the unutilised losses and
capital allowances may be carried forward to the post-pioneer period for set off against future
business income of the company.
The unabsorbed pioneer losses available as at the end of the pioneer period are allowed to be
carried forward up to a maximum of 10 consecutive years of assessment only, with effect from Y/A
2022.
 Treatment of Capital Allowances

a)Pre-Pioneer b)Post-Pioneer
Asset Business
[s 18(3)(a)] [s 18(3)(b)]
 ii)Unabsorbed Capital Allowance

Pre-Pioneer [s 18(5)] Pioneer Period [s 18(7)]

Any unabsorbed capital allowances
at the end of the pre-pioneer is
allowed to be carried forward to
the pioneer period.
Any unabsorbed capital
allowances at the end of
pioneer period is allowed to be
carried forward to the post-
pioneer
i) Separation of pioneer biz with non-pioneer biz
-The biz of providing promoted products/activities(known as
pioneer biz) must be separated form biz which is NOT related
to promoted products /activities(known as non-pioneer biz)

ii)Exempt income account(EIA)

◦ Portion of 70% of SI being exempted can be credited to EIA
and use to declare exempted dividend(i.e first-tier dividend
or two-tier dividend)
Two-tier dividend
 70% Exemption on Statutory Income
Hotel & Tourism projects

Resource based Machinery and equipment

industries, industry, cold chain facilities
integrated logistic and services for perishable
services, integrated
agricultural produce
market support
services and Food processing
integrated central
industry
utility facilities

Heavy machinery
industry
 Variations to 70% Exemption

RESTRICTIONS %
QUALIFYING
OF STATUTORY
PERIOD
INCOME(SI)
Within 5 years + 5 extension yrs
Project of National and Strategic Importance(NSI) 100%

High technology companies or medical devices company Within 5 years 100%

Contract research and development(R&D) company Within 5 years + 5 extension yrs 100%

Approved Research institute or company Within 5 years 100% at AI level

 100% Exemption of Statutory Income
1 2 3 4 5
S5(1DB) S5(1DC) S5(1DD) S5(1DF) S5(1)

Specialised Industries Automative Reinvestment in Commercialising Small scale

component promoted company
a) Machinery & R&D findings in the
activity/product for the
equipment. modules industry resource-based (shareholder’s
purpose of expanding,
b) Specialised modernizing and industries wholly fund up to
machinery & automating of owned by a public RM500k and at
equipment. production facilities research institute or least 60%
c) Utilisation of a) R&D activity public institute of Malaysia-owned
biomass to produce higher learning in
b) Utilisation of oil OR
value added Malaysia.
palm biomass to
products. produce value Rm2.5m and
d) Generation of added products 100% Msian
renewable energy. owned
 Example
Moltex Sdn Bhd located at Merbok, Kedah, was incorporated on 1 November 2018. the company applied for pioneer status and
was approved by MIDA on 1 January 2019. the production day was determined to be on 1 May 2019. the company prepares its
accounts up to 31 October every year.
Details of the company’s budgeted income and expenditure for the first year of assessment as pioneer status are as follows:
Year of Assessment 2019
RM
Business income:
Adjusted income 35,000
Capital allowances 25,000
Other income:
Interest from CIMB 15,000
Donation to approved institutions 7,500
Required:
Compute the chargeable income and amount transferred to exempt income account for the year of assessment 2019.
 Answer for Example
2019
RM

Adjusted income 35,000

Less: Capital allowances (25,000)
Statutory Business Income (SI) 10,000
Less: 70% Exemption of SI (7,000)
30% Deemed Total Income 3,000
 Answer for Example (cont.)

Other income:
Interest income from CIMB 15,000
Aggregate Income (AI) 15,000
Less: Approved Donation (7500 vs 10% of AI) (1,500)
Total Income 13,500
Add: Deemed Total Income 3,000
Chargeable Income 16,500
Tax Panning
2)Investment Tax
Allowance
(ITA)
 Eligibility of ITA

01
Alternative to pioneer
status incentive (Mutually
exclusive).Given under PIA
Company carrying on
1986.

ITA is available to
02 promoted activities or
carrying on product of
promoted products may
manufacturing, agriculture, make an applications to
hotel, tourism business etc MIDA for ITA.
Suitable for co that have
large capital investment
and long development
period.
03
 Scope of ITA
Manufacturing Agriculture
Capital expenditure Capital expenditure incurred:
incurred:
• Clearing and preparation
of land and planting of
• Factory or any plant
crops.
and machinery used
• The provision of plant and
in Malaysia in
machinery for the
connection for the purposes of crop
purposes of the cultivation and animal
promoted activity or farming.
promoted products. • Construction of access
roads and the
construction or purchase
of building.
Hotel Business Tourism Project
Capital expenditure Capital expenditure
incurred: incurred:
• Purchase of buildings or
• Planting of trees and
constructuring of a hotel
building of the approved plants and clearing
standard in Malaysia. the land.
• Alteration, extension and • Provision of
renovation or on the birds,animals exhibits
provision on other & plant and
facilities used in
connection with the hotel
machinery and
business. building.
 Nature/ Mechanism of ITA
• 60% of qualifying capital expenditure incurred on promoted activity or promoted product

LOREM IPSUM
and set off against 70% of SI. ITA is given for 5 yrs or 10 yrs.
• The amt of ITA can be credited to an exempt income account(EIA).

i) ITA
ITA
Exceeds
70% of
SI
• i)The excess will be carried forward to
the subsequent YA to be utilized
against future statutory income.
The unabsorbed ITA can be carried
forward even after the tax relief period.
• ii)The remaining 30% of statutory will
be taxed at current tax rate of 24%.
ii)ITA Less
70% of SI
• i)The excess of 70% of statutory income over
the ITA is added on the 30% of statutory
income which will be taxed at 24%.
• ii)The amount of ITA is credited to an exempt
income account(EIA) when the amount of ITA
is less than the 70% of statutory income.
Unabsorbed ITA
• The excess will be carried forward to the subsequent
YA to be utilized against future statutory income.
The unabsorbed ITA can be carried forward even
after the tax relief period of 5 yrs or 10yrs.
 Variation
RESTRICTED
QUALIFYING RATE OF % OF
PERIOD ALLOWANCE STATUTORY
INCOME
Within 5 years
Project of National and Strategic Importance(NSI) 100% 100%

High technology companies or medical devices company Within 5 years 60% 100%

Contract research and development(R&D) company Within 10 years 100% 70%

Research and development company Within 10 years 100% 70%

In- house research Within 10 years 50% 70%

Technical & Vocational training Within 10 years 100% 70%

 Example:

Siew Sian Sdn Bhd submitted an application for incentives on 5.1.2018 and received approval for
investment tax allowance (of 60%) on 1.3.2018.
The relevant information is as follows:
y.e. 30.9.2018 y.e. 30.09.2019

RM RM

Qualifying capital expenditure 1,000,000 600,000

Adjusted income from business 900,000 1,800,000

Capital allowances 500,000 600,000

Interest income 10,000 80,000

Required: Compute the total income of Siew Sian Sdn Bhd and state the amount to be credited to the
exempt income account for the relevant YAs.
 Answer for Example
Siew Sian Sdn Bhd
Computation of Total Income and Exempt Income Account

YA 2018 RM’000 RM’000 RM’000

Adjusted income 900
Less: capital allowance (500)
Statutory Income 400

70% of statutory income 280

Less: Investment tax allowance(ITA)*
(60% X RM1000) 600
(280) (280)
Unabsorbed ITA c/f 320
30% Statutory income 120
+ Interest income 10
Total income 130

Amount credited to exempt income account (EIA) 280

 YA 2019 RM’000 RM’000 RM’000
Adjusted income 1,800
Less: capital allowance (600)
Statutory Income 1200

70% of statutory income 840

Less: Investment tax allowance(ITA)* 360
(60% X RM600)
Unabsorbed ITA b/f 320 (680) 160
30% of statutory income 360
520
+ Interest income 80
Total income 600

Amount credited to exempt income account(EIA) 680

Balance b/f 280
Balance c/f 960

Eligible product or activity
Tax relief period (TRP)
Capital intensive
Approval needed
Pioneer Status (PS)
Must be promoted product
or promoted activity
5 /10 yrs from the
production day
Not relevant
(PS is suitable for company
who have substantial
income or profit)
Approval by MIDA
Investment Tax
Allowances (ITA)
Must be promoted product
or promoted activity
5/10 yrs from the agreed
effective date of approval
Must have substantial
capital expenditure, and
must be incurred during the
five or 10 year TRP
Approval by MIDA
Reinvestment
Allowances (RA)
Need not be promoted
product. Must have
'qualifying project', as
defined, for manufacturing
or agriculture business
15 consecutive years from
the first claim of RA
Must have substantial
capital expenditure
No prior approval from any
authority is needed. But the
claim is subject to DGIR's
scrutiny and interpretation
THANK YOU…