Introduction
The Malaysian government offers a range of special tax incentives to companies in various industries in order to combat the effects of the volatile economy during the global Covid-19 pandemic.
One of the most attractive special tax incentives is for new and existing companies to relocate their manufacturing businesses to Malaysia. This special tax incentive is also extended to certain non-citizen individuals who hold C-suite positions in the manufacturing companies in Malaysia.
This special tax incentive may encourage manufacturing businesses in overseas to relocate their manufacturing operations to Malaysia for capacity expansion or tap into Malaysia’s highly skilled workforce to enhance their business operations.
Through this special tax incentive, the Malaysian government seeks to enhance Malaysia’s competitiveness as an investment destination and to stimulate job creation opportunities and overall industrial development.
In this article, we shall discuss the rules and guidelines in relation to the special tax incentives for relocation of new and existing manufacturing companies to Malaysia and for non-citizen individuals who hold C-suite positions in the manufacturing companies.
The special tax incentive for relocating manufacturing businesses into Malaysia
The special tax incentive (i.e. STI) for relocating manufacturing businesses into Malaysia was announced by the Government through the announcement of PENJANA on 5 June 2020 which aims to address the economic challenges of Covid-19. The STI is intended to promote high-quality investments that align with the following investment priorities:
- Vendor Development Programs [i.e. to develop Small and Medium Enterprises (“SME”) entrepreneurs to become competitive suppliers and manufacturers of component / services at domestic and global markets];
- Fostering job creation;
- Business operating expenditures, including local auxiliary services
- Facilitating internship opportunities for Malaysian graduates;
- Encouraging collaboration with local universities in relevant fields.
Companies interested in applying for the STI should consider sharing and discussing their commitment level in Malaysia with the Malaysian Investment Development Authority (“MIDA”) during the application phase. Specific conditions related to the agenda shall be imposed upon the incentive approval.
However, in order for a company to enjoy the STI, the relevant application has to be approved by the National Committee of Investment (“NCI”) and subsidiary legislation under the Malaysia Income Tax Act, 1967 (“MITA”) has to be gazetted.
In view of this, subsidiary legislation or the Pemberitahu Undangan (“PU”) Order, needs to be gazetted as part of the STI mechanism. On 15 August 2023, the relevant PU Orders have been published by the Attorney General’s Chambers as follows:
- P.U. (A) 240 – Income Tax (Exemption) Order 2023 (For existing manufacturing companies)
- P.U. (A) 241 – Income Tax (Relocation of Manufacturing Business Incentive Scheme) Rules 2023 (For new manufacturing companies)
The MIDA has also published an updated guideline on the STI dated 14 August 2023 – Guidelines and Procedures for the Application of STI (Relocation) for the Manufacturing Sector (i.e. MIDA Guideline).
We have summarised the salient points of the PU Orders 240 and 241 for ease of reference.
Summary of PU Orders 240 and 241
| Reference | P.U. (A) 240 | P.U. (A) 241 |
| Type of Company | Existing Company | New Company |
|
Qualifying Company (“QC”) |
An existing company which qualifies for exemption (i.e. fulfilling all the Conditions imposed by the Minister). An existing company means a company that:
|
Refers to a new company:
|
| Qualifying Activity (“QA”) | A new manufacturing activity (not an expansion of existing project of existing product) undertaken by a QC but does not include any activity specified in Appendix A. | A manufacturing activity undertaken by the QC but does not include any activity specified in Appendix A. |
| Qualifying Capital Expenditure (“QCE”) | QCE may refer to factory (excluding living accommodation), machinery or plant (excluding any machinery or plant provided wholly or partly for the use of a director, management / administration of the company or clerical staff) used in Malaysia. The date of first QCE made by the QC shall not be earlier than 1 July 2020. QCE may be withdrawn in the basis period of disposal, if the QCE is disposed of at any time within the period of 5 years from the date of acquisition. |
The Order did not specify the meaning of QCE. |
| Conditions |
Including but not limited to the following:
|
Including but not limited to the following:
|
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