The primary tax incentives available to companies investing in the manufacturing sector are the Pioneer Status and Investment Tax Allowance. The eligibility for these incentives is contingent upon specific criteria, emphasizing value addition, technological sophistication, and industrial integration. Activities and products meeting these criteria are designated as “promoted activities” or “promoted products”.
Prior to commencing operations or production, companies are mandated to submit their applications to the Malaysian Investment Development Authority (‘MIDA’), ensuring alignment with the standards for promoted activities and promoted products.
A company granted Pioneer Status (‘PS’) benefits from a five-year partial exemption from income tax payments. During this period, it is taxed on only 30% of its statutory income, calculated after deducting revenue expenditure and capital allowances from gross income. This exemption period begins from its Production Day, defined as the day when its production level reaches 30% of capacity.
Furthermore, any unabsorbed capital allowances accrued during the pioneer period can be carried forward and deducted from the company’s post-pioneer income. Similarly, accumulated losses incurred during the pioneer period can be carried forward and deducted from the post-pioneer income for a consecutive seven-year period.
As an alternative to Pioneer Status, companies have the option to apply for the Investment Tax Allowance (‘ITA’). The ITA is a tax incentive that grants a 60% allowance on qualifying capital expenditure (purchase of factory, plant, machinery or other equipment used for the approved project) incurred within a span of five years.
This means that companies can deduct 60% of their capital expenditure from their taxable income. Moreover, the ITA allows companies to offset this allowance against 70% of their statutory income each year, providing them with a substantial reduction in their tax liability.
Any unused allowance can be carried forward to subsequent years, ensuring that companies can fully utilize their tax benefits. This feature is particularly beneficial for companies with fluctuating income or those that may not be able to fully utilize the allowance in a single year.
The remaining 30% of statutory income, which is not covered by the ITA, is subject to taxation at the corporate tax rate. This ensures that companies still contribute to the national tax revenue while benefiting from the significant tax relief provided by the ITA.
Read more about Pioneer Status and Investment Tax Allowance.
Companies granted with the Manufacturing License can apply for full exemption from import duty on raw materials/components, regardless of whether the finished products are for export or the domestic market.
If the finished products are for export, exemption is granted as long as the raw materials/components are not produced locally or are of unacceptable quality and price. For products meant for the domestic market, exemption can be considered for raw materials/ components not produced locally or if the finished products made from dutiable raw materials/components are not subject to import duty.
For more information on import duty and/or sales tax exemption for other types of manufacturing, please contact us for more information.
Whether you’re launching a new facility or expanding operations, we ensure your licensing and incentive strategy are compliant, competitive, and built for scale. Let’s architect your manufacturing success in Malaysia.
