5 Underutilised Corporate Tax for Malaysian Companies to Leverage On
In an effort to stimulate certain sectors of the economy, the Malaysian government has introduced a wide variety of tax incentives. These incentives provide local companies with many opportunities to grow, both direct and indirectly. There are currently over 100 different tax incentives covering a broad range of industries in Malaysia. Most of these incentives are disbursed in three main types: Pioneer Status, Investment Tax Allowance and Reinvestment Allowance.
Generally speaking, tax incentives can be granted through income exemption, which grants partial or total relief from income tax payment for a specified period or by way of allowances related to capital expenditure and enhanced tax deductions. The general rate of taxation is 24% for companies with a paid-up capital of more than MYR 2.5 million.
The tax revenue in Malaysia was reported at 11.1% (of GDP) in 2021 and contributes 38.9% of the total tax collected in a year. Typically, corporate tax is a significant line item in most companies in Malaysia. Thus, it is good practice to look for corporate tax incentives that a company might be eligible for as part of prudent financial management.
Here are five corporate tax incentives opportunities for Malaysian companies to start exploring:
1. Industry-Specific Incentives
Every industry has its own unique corporate tax incentives it can claim. Take higher education, for example. Private institutions and providers of higher education can claim tax deduction on expenses incurred towards the development of new courses, provided that it is compliant with regulatory requirements. These development expenses can be deducted over a period of three years.
There are also incentives for businesses involved in medical tourism. Tax exemption of up to 100% of statutory income computed at 100% of Qualifying Capital Expenditure (QCE) over five years if any new or existing healthcare companies that are planning to expand, modernise or refurbish their healthcare facilities upon approval from the Ministry of Health and verified by Malaysian Healthcare Travel council respectively. One of the conditions to be eligible, the applicant company has a minimum of five per cent (5%) of total patients to be qualified healthcare travellers.
Another industry-specific incentive to look out for is food manufacturing. If a company invests in its operations in designated Halal Parks promoted by the Halal Development Corporation in specific sectors of food production, it can claim a series of tax deductions ranging from up to 100% of QCE incurred within 10 years, income tax exemption on the incremental increase in export sales for 5 years, exemption of import duties on the production of promoted halal products and double deductions on expenses incurred in obtaining international quality standards like HACCP, GMP etc.
2. Green Technology Tax
The Green Technology Tax incentive was introduced in 2014 in tandem with the Malaysian government’s agenda to drive growth for the country’s green economy in renewable energy, waste and water sectors listed under the MyHIJAU Directory as well as solar leasing activities under the certification by Sustainable Energy Development Authority (SEDA).
Companies seeking to acquire green technology assets for a business or own consumption can apply to the Green Investment Tax Allowance (GITA) or Green Income Tax Exemption (GITE) to set off against 70% of statutory income in the year of assessment. This is to encourage companies to implement green and sustainable measures, in line with the environmental, social, and corporate governance practices (ESG).
3. e-Commerce & Digitalisation Incentives
The COVID-19 pandemic brought about significant growth for the e-commerce sector, particularly companies that have been relying on e-commerce channels ever since. The introduction of tax incentives such as the Digital Ecosystem Acceleration (DESAC) aims to encourage and nurture the growth of the Malaysian Digital Technology Providers and Digital Infrastructure Providers where a tax rate of 0 to 10% may be granted for a period of up to ten years.
For businesses with e-commerce websites, the costs incurred towards the development of the website may be eligible for an annual exemption of 20% for a period of five years. This would allow companies to claw back some of the development costs it incurred for them to digitalise their business through e-commerce.
4. Reinvestment Allowance
Reinvestment Allowance (RA) is an incentive that allows Malaysian resident companies that are involved in manufacturing and selected agricultural sectors to reinvest and grow their business.
To be eligible, the company must have been in operation for more than 36 months. Said company would have already incurred capital expenditure to expand, modernise, automate, or diversify its existing manufacturing business or approved agricultural project. The allowance is given for 15 years from the first year of claim, computed at 60% of QCE incurred and can be utilised against 70% of statutory income.
5. Incentives for Foreign Companies
In order to boost the local economy and create more job opportunities, the government realised the need to attract foreign interests. Hence, several tax incentive opportunities are introduced for international companies to set up an entity in Malaysia.
Some of these incentives are made to encourage the relocation of manufacturing or service operations into Malaysia. With this incentive, there will be a zero (0%) tax rate for 10 or 15 years for new companies that invest a minimum of MYR 300 million or MYR 500 million, respectively, in the manufacturing sector in Malaysia.
There will also be a zero (0%) to ten (10%) tax rate for up to 10 years for new companies that relocate their services facility or establish new services in Malaysia. For existing companies that undertake services activities for a new business segment in Malaysia, they are eligible for a ten (10%) tax rate for up to 10 years.
It is clear that Malaysia offers a myriad of corporate tax incentives for many promoted industries and types of expenses. These incentives can provide businesses with great leverage to achieve sustainable growth and are not greatly impacted by the initial investment costs.
Navigating and pursuing these tax break opportunities could take time and need wise decision-making. Therefore, it is advisable to engage with a qualified tax consultant to guide your company on matters pertaining to corporate tax.
Our tax professionals at Ledgen Group have helped clients from a wide range of industries to file and maintain their tax returns with reliability and accuracy. We have also assisted clients to solve a variety of tax-related issues that serve the best of their interests while also complying with local regulations.
Contact Ledgen today to get started with the best corporate tax for your organisation.