Market Entry

Tax Incentives available for Various Sectors in Malaysia

October 10, 2025

Malaysia’s incentive framework reflects a sector-specific, investment-driven strategy. Anchored in the Promotion of Investments Act 1986 and the Income Tax Act 1967, the system rewards companies that align with national priorities: high technology, sustainability, strategic value creation, and regional service based development.

Key Topics

Pioneer Status (PS): Malaysia’s Strategic Tax Incentive
Investment Tax Allowance (ITA): Capital-Driven Tax Relief
ITA and PS at a glance
Malaysia’s Green Technology Incentives: Driving
Incentives Available For Other Industries

Key Takeaways

Malaysia’s tax incentives are sector-specific and pre-approval based, rewarding companies that align with national priorities such as high-tech manufacturing, sustainability, and strategic services.
Pioneer Status (PS) offers income tax exemptions for profit-generating projects, while Investment Tax Allowance (ITA) provides capital expenditure-based deductions—each suited to different business models.
Both PS and ITA require engagement in promoted activities or products, with eligibility determined by MIDA and outlined in official sectoral PDFs.
Specialized incentives exist for industries like aerospace, biotechnology, environmental management, and R&D, with tailored benefits and conditions.
A New Investment Incentive Framework is expected in Q3 2025, focusing on high-value clusters and economic spillovers—making strategic alignment more critical than ever.

Pioneer Status (PS): Malaysia’s Strategic Tax Incentive

Pioneer Status is Malaysia’s flagship tax exemption for companies engaged in promoted activities or producing promoted products. It’s granted under the Promotion of Investments Act 1986, and signals alignment with national development priorities such as high-tech manufacturing, sustainability, and strategic services.

Key Benefits

Income Tax Exemption: Companies enjoy a partial exemption—typically up to 70% of statutory income—for a period of 5 to 10 years, depending on sector and strategic value.
Loss & Allowance Carryforward: Any unabsorbed capital allowances and accumulated losses during the pioneer period can be carried forward and deducted from post-pioneer income,extending the financial runway.
Dividend Flexibility: Tax-exempt dividends may be declared from exempted income, enhancingshareholder returns.

To qualify for Pioneer Status

The company must undertake a promoted activity or produce a promoted product as defined by Malaysian authorities.
Applications must be submitted before operations or production commence.
Approval is granted by MIDA or other relevant bodies, based on factors such as capital investment, job creation, and strategic alignment.

Note: Terms and conditions vary by industry. Companies must demonstrate substantive contribution to Malaysia’s economic goals.

Strategic Context

Malaysia’s incentive framework is evolving. A New Investment Incentive Framework is expected in Q3 2025, with a sharper focus on high-value clusters, regional specialization, and economic spillovers. Pioneer Status remains a powerful tool—but must be weighed against alternatives like the InvestmentTax Allowance (ITA), which may suit capital-intensive projects better.

Investment Tax Allowance (ITA): Capital-Driven Tax Relief

Investment Tax Allowance (ITA) is Malaysia’s strategic incentive for companies investing in capital-intensive projects aligned with promoted activities or products. It’s governed by the Promotion of Investments Act 1986 and administered by MIDA and the Inland Revenue Board (LHDN).

What It Offers

Allowance Rate: Typically 60% to 100% of qualifying capital expenditure (QCE).
Utilization Period: Over 5 years from the date of first qualifying expenditure.
Offset Mechanism: The allowance can be used to offset up to 70%–100% of statutory income annually.
Carryforward: Unused allowances can be carried forward indefinitely until fully utilized.

What Counts as Qualifying Capital Expenditure?

Machinery, equipment, and industrial buildings directly used in promoted activities.
Excludes land, working capital, and general administrative assets—unless specified under special conditions.

To qualify for ITA

The company must be engaged in a promoted activity or produce a promoted product.
Applications must be submitted before operations or production commence.
Approval is granted by MIDA, based on sectoral alignment, investment scale, and strategic impact.

Policy Posture

Malaysia’s tax incentive regime is undergoing transformation:

A New Investment Incentive Framework is expected in Q3 2025, focusing on high-value clusters, regional specialization, and economic spillovers.
Malaysia has aligned its incentives with OECD BEPS Action 5, excluding IP and royalty incometo ensure substance and transparency.
Special ITA schemes are emerging for sectors like aerospace, green technology, and advanced manufacturing, with tailored rates and conditions.

ITA and PS at a glance

Common Ground: What PS and ITA Share

Both incentives are governed by the Promotion of Investments Act 1986 and administered by MIDA.They are designed to attract investments in promoted activities or products, and share several structural features:

Pre-Approval Required: Applications must be submitted before operations or production begin.
Mutually Exclusive: Companies must choose either PS or ITA—not both.
Strategic Alignment: Both incentives reward businesses that contribute to Malaysia’s national priorities: sustainability, innovation, and economic spillovers.
Sector-Specific Eligibility: Only companies aligned with promoted sectors (e.g., high-tech manufacturing, green energy, biotech) qualify, listed below:

Promoted Activities for PS and ITA

Under the Promotion of Investments Act 1986, Malaysia has designated specific manufacturing and service activities as national priorities. Only companies engaged in these promoted activities orproducing promoted products are eligible for Pioneer Status (PS) or Investment Tax Allowance (ITA).

These activities are categorized into five major groups, each detailed in official documents published by MIDA:

General Promoted Activities & Products (PDF)
High Technology Companies (PDF)
Small Scale Companies (PDF)
Selected Industries (PDF)
Promoted Activities for Reinvestment (PDF)

Key Differences: PS vs. ITA

1. Form of Incentive

PS: Offers a partial exemption from income tax (typically 70%, up to 100%) on statutory income.
ITA: Provides a tax allowance on qualifying capital expenditure (typically 60%–100%), which isused to offset statutory income. ITA is often preferred for capital-heavy projects with longer ramp-up periods and lower initial profitability.

2. Financial Suitability

PS: Ideal for profit-generating projects from the outset.
ITA: Better suited for capital-intensive projects with longer ramp-up periods and delayed profitability.

3. Carryforward Rules

PS: Unabsorbed capital allowances and losses can be carried forward for up to 7 years post-pioneer period.
ITA: Unused allowances can be carried forward indefinitely until fully utilized.

4. Dividend Treatment

PS: Allows tax-exempt dividends to be paid from exempted income.
ITA: No specific dividend exemption; benefits are realized through income offset.

Malaysia’s Green Technology Incentives: Driving Sustainable Investment

Malaysia’s green incentive framework is designed to accelerate the country’s transition to a low-carbon economy while attracting high-value investments in renewable energy, energy efficiency, and circular economy technologies. Two Main Incentives available:

Green Investment Tax Allowance (GITA)

Who it’s for

Companies investing in qualifying green technology assets or projects.

What it offers

100% tax allowance on qualifying capital expenditure.
Can offset up to 70% of statutory income annually.
Unused allowances can be carried forward until fully absorbed.

Categories

GITA Project for Business Purposes: Includes green hydrogen, EV charging stations, integrated waste management.
GITA Asset for Own Consumption: For internal use of green tech assets like solar panels, biomass systems.

Green Income Tax Exemption (GITE)

Who it’s for

Green technology service providers listed under the MyHIJAU Directory.

What it offers

100% income tax exemption on statutory income from qualifying services.
Duration ranges from 5 to 10 years, depending on project scale (e.g., solar leasing tiers).

To qualify for GITA or GITE

Must be a locally incorporated company under the Companies Act 2016.
Activities must fall under promoted green sectors, such as:
- Renewable energy (solar, wind, biomass, mini hydro)
- Energy efficiency
- Green buildings
- Waste-to-energy and circular economy technologies
Applications must be submitted to MIDA or MGTC before project commencement.

Strategic Policy Context

Under the 13th Malaysia Plan (13MP) and National Energy Transition Roadmap (NETR), Malaysia aims to:
- Achieve 70% renewable energy mix by 2050
- Attract RM637 billion in green investments
- Create 310,000 high-skilled jobs
New initiatives include:
- Corporate Renewable Energy Supply Scheme (CRESS)
- Community Renewable Energy Aggregation Mechanism (CREAM)
- Local equity requirement of at least 51% in green energy projects to ensure technology transfer and local workforce development.

Other Eligible Sectors and Industries

Beyond the core promoted activities, Malaysia offers sector-specific incentives under various frameworks, including:

Investment Incentives for Specific Industries:

Aerospace Industry
Automotive Industry
Shipbuilding & Ship Repair (SBSR)/Shipping Industry
Machinery and Equipment (M&E) Industry
Industrialised Building System (IBS)
Biotechnology and Bio-Based Industry
Agricultural Produce (Food Production chain – Upstream and Downstream)
Utilization of Oil Palm Biomass to Produce Value-Added Products

Incentives for Environmental Management:

Waste Recycling Activities
Green Technology Incentives
Incentives for Research and Development (R&D)

Services Sector:

Regional Operations
Research and Development (R&D)
Oil and Gas (O&G) Services
Hospitality Services
Education and Industrial Training Services
Medical and Healthcare Services
Logistics and Supply Chain Services
Digital Services

For a full breakdown of incentives by industry, refer to MIDA’s official policy booklet:

MIDA Policy Booklet – Chapter 2 (PDF)

Conclusion

Malaysia’s tax incentive ecosystem is designed to reward businesses that align with national priorities—whether through Pioneer Status (PS), Investment Tax Allowance (ITA), or sector-specific schemes in green tech, aerospace, biotech, and R&D. But eligibility alone doesn’t unlock value.

Success depends on how well a company navigates regulatory complexity, structures its operations, and times its applications.

These incentives are pre-approval based, sector-specific, and strategically selective. They demand precision—not just in compliance, but in how your business is positioned from day one.

How XpatMobi Team Can Help

XpatMobi specializes in business license registration and regulatory consultancy—ensuring your market entry is not just compliant, but strategically optimized.

We help you:

Identify the right incentive path based on your sector, structure, and investment profile.
Prepare and submit applications with full regulatory alignment.
Structure your entity to maximize incentive access.
Navigate licensing frameworks across federal, state, and sectoral jurisdictions.

Whether you’re launching a manufacturing hub, setting up a regional service center, or investing in green technology, XpatMobi ensures your business is built on solid regulatory ground—with incentives that work for you.