11.1 Tax Incentive for Angel Investor
An angel investor who invests in a venture company at seed capital financing, start-up financing and early stage financing is eligible to claim deduction on the total value of investment. To attract more angel investor to provide funding to venture companies, effective from 1 January 2013 the total investment by angle investor in a venture company is allowed as a deduction against all income
11.2 Tax Incentive on Costs of Dismantling and Removing Assets
Costs of dismantling and removing assets including plant and machinery as well as restoring the site where the asset was located do not qualify for allowance under the Schedule 3, Income Tax Act 1967 since this expenditure is not deemed as cost of the asset. However, Financial Reporting Standards 116 (FRS 116) stipulates that the cost of an asset includes the estimated cost required to be incurred relating to the obligation to dismantle and remove the asset and to restore the site on which the asset was located.
Therefore, to streamline the tax treatment under the Income Tax Act 1967 and FRS 116, a special provision is introduced in Schedule 3, Income Tax Act 1967 to provide for balancing allowance* on the cost of dismantling and removing asset including plant and machinery as well as restoring the site where the asset was located.
11.3 Tariff Related Industries
i. Exemption from Import Duty on Raw Materials/ Components
Full exemption from import duty can be considered for raw materials/ components, regardless of whether the finished products are meant for the export or domestic market
Where the finished products are for the export market, full exemption from import duty on raw materials/ components is normally granted, provided the raw materials/components are not produced locally or, where they are produced locally, are not of acceptable quality and price.
Where the finished products are for the domestic market, full exemption from import duty on raw materials/ components that are not produced locally can be considered. Full exemption can also be considered if the finished products made from dutiable raw materials/ components are not subject to any import duty.
Hotel and tourism projects qualify for full exemption of import duty on identified imported materials. Applications should be submitted to MIDA.
ii. Self-Declaration Mechanism for Import Duty and/ or Sales Tax Exemption on Machinery, Equipment, Spare Parts, Consumables through the Customs Duties (Exemption) Order 2013 and Sales Tax (Exemption) Order 2013
Manufacturers in the Principal Customs Area (PCA) can benefit from these facilities by claiming the exemption on import duty and/or sales tax on machinery, equipment, spare parts, and consumables under these Orders through a self-declaration process.
Under this new self-declaration mechanism, a company is required to submit a confirmation letter issued by MIDA together with the list of machinery, equipment, spare parts and consumables, to be imported or purchased to Customs for permission to claim the exemption. Companies would be able to obtain the permission within a period of two (2) weeks from the date of complete submission received by Customs.
Prior to the introduction of this new mechanism, an application to MIDA for import duty and/or sales tax exemption on machinery, equipment, spare parts and consumables under the provisions of Section 14(2), Custom Act, 1967 and/or Section 10, Sales Tax Act, 1972 would require a processing period of four (4) weeks from the date of complete information received.
The implementation of the Customs Duties (Exemption) Order 2013 and Sales Tax (Exemption) Order 2013 took effect on 2nd May 2014.
The key areas of the exemptions are for Manufacturers in the PCA:
a) Import duty exemption on machinery and equipmen excluding spare parts and consumables imported or purchased from a Licensed Manufacturing Warehouse, Bonded Warehouse or Free Zone under item 115 Customs Duties (Exemption) Order 2013
b) Sales tax exemption on machinery, equipment, spare parts and consumables imported or purchased from a Licensed Manufacturing Warehouse, Bonded Warehouse or Free Zone under item 106 Sales Tax (Exemption) Order 2013; and
c) Sales tax exemption on machinery, equipment, spare parts and consumables purchased from a manufacturer (licensed under the Sales Tax Act, 1972) under item 106 Sales Tax (Exemption) Order 2013.
The application must be submitted prior to the importation or purchase of the machinery, equipment, spare parts and consumables. As such, companies are advised to take into consideration the duration needed for the whole process to claim the exemption. This new mechanism with a self-declaration and self-regulatory environment; and time saving measures would be able to reduce the costs of doing business without the necessity of obtaining bank guarantee facilities for the clearance of goods.
MIDA provides online applications facilities for the application of the Self Declaration Mechanism for Tax Exemption. With this facility, users will be able to use the e-filing digital certificate (from LHDN) or download the digital certificate from MIDA to digitally sign the application form prior to the submission to MIDA.
iii. Exemption from Import Duty for Outsourcing Manufacturing Activities
To reduce the cost of doing business and enhance competitiveness, owners of Malaysian brands with at least 60% Malaysian equity ownership who outsource manufacturing activities are eligible for:
a) Import duty exemptions on raw materials and components used in the manufacturing of finished products by their contract manufacturers locally or abroad.
b) Import duty and sales tax exemptions on semi-finished goods from their contract manufacturers abroad, to be used by their local contract manufacturers to manufacture the finished products
iv. Import Duty and Sales Tax Exemption for Maintenance, Repair and Overhaul (MRO) Activities Sales Tax Exemption for Maintenance, Repair and Overhaul (MRO) Activities
Under Schedule A, Sales Tax (Persons Exempted From Payment Of Tax) (Amendment) (No.2) Order 2018, a registered aerospace MRO company in Malaysia is allowed to claim for sales tax exemption on:
a) machinery, equipment, specialised tools under item 33A
b) spare parts, components, materials and specialised consumables goods under item 33B
which are directly used in MRO activities within Malaysia.
The application which is done through self-declaration process requires company to apply a confirmation letter from MIDA prior to importation or purchase. The company will then submit the confirmation letter issued by MIDA and the list of machinery, equipment, specialised tools, spare parts, components, materials and specialised consumables goods to Royal Malaysian Customs Department for sales tax exemption. Application for Letter of Confirmation should be submitted to MIDA.
Import Duty Exemption for Maintenance, Repair and Overhaul (MRO) Activities
Registered aerospace MRO company in Malaysia is also eligible for exemption for import duty exemption on machinery, equipment, specialised tools, spare parts, components, materials and specialised consumables goods. Application for import duty exemption should be submitted to MOF. v. Double Deduction on Freight Charges Manufacturers who ship their goods from Sabah or Sarawak to any port in Peninsular Malaysia qualify for double deduction on freight charges
1. Entry Requirements Into Malaysia
i. Passes Requirements
Other than application for entry for the purpose of social or business visits, application for visit passes must be made before the arrival in the country. A pass is an endorsement in the passport constituting permission to stay for an approved duration. Foreigners who visit Malaysia must obtain the pass at the point of entry besides visa (where required) which allows him to stay temporarily in Malaysia.All such applications must have sponsorship in Malaysia whereby the sponsors agree to be responsible for the maintenance and repatriation of the visitors from Malaysia if necessary.
Passes given to foreign visitors upon arrival are as follows:
I. Visit Pass (Social) Short Term
A Visit Pass is issued to foreigners for the purpose of a social or/and business visit, such as:
• Owners and company representatives entering Malaysia to attend a company meeting, conference or seminar, inspect the company’s accounts or to ensure the smooth running of the company.
• Investors or businessmen entering to explore business and investment opportunities or setting up manufacturing plant.
• Foreign representatives of companies entering to introduce goods for manufacture in Malaysia, but not to engage in direct selling or distribution.
• Property owners entering to negotiate, sell or lease properties.
• Foreign journalist or reporters from mass media agencies entering to cover any event in Malaysia (approval from Malaysia Ministry of Home Affair).
• Participants in sporting events.
• Students sitting for examinations in local university or on goodwill mission.
• Visitor entering on other activities than above as approved by the Director General of Immigration.
These passes cannot be used for employment or for supervising the installation of new machinery or the construction of a factory.
ii.Visit Pass (Social) Long Term
Social visit pass may be issued to a foreigner for temporary stay in Malaysia for a period of not less than six months. Extension may be given based on visitors’ eligibility and upon fulfilling certain conditions.
Foreign spouses to Malaysians, holding a long term social visit pass are allowed to be engaged on any form of paid employment or in any business or professional occupation without converting their Social Visit Pass status to Employment Pass or Visit Pass (Temporary Employment).
iii.Visit Pass (Temporary Employment)
This is issued to foreigners who enter the country to take up employment for less than 24 months.
iv. Employment Pass
This is issued to foreigners who enter the country to take up employment for a minimum period of two years. Employment pass is issued after the applicant has obtained the approval for expatriate post from the relevant authorised agencies.
v. Professional Visit Pass (PVP)
This is issued to foreigners for the purpose of engaging on short-term contract with any agency.
The categories of foreigners who are eligible are:
vi. Dependant Pass
This facility is accorded to families of expatriates officials. Dependant Pass is issued to spouse, children (below 18), parents and common law wife of the Employment Pass holders. This pass may be applied together with the application for an employment pass or after the employment pass is issued.
vii. Student’s Pass
This is issued to foreigners who wish to study in Malaysia in any educational institutions which courses have been approved by Malaysia’s Ministry of Higher Education and the intake of the foreign student has the approval from Malaysia’s Ministry of Home Affairs.
2. Employment Of Expatriate Personnel
The Malaysian government is desirous that Malaysians are eventually trained and employed at all levels of employment. Thus, companies are encouraged to train more Malaysians so that the employment pattern at all levels of the organisation reflects the multi-racial composition of the country. Notwithstanding this, where there is a shortage of trained Malaysians, companies are allowed to bring in expatriate personnel i.e. ‘key post’ or ‘time post’. Key posts are posts that are permanently filled by foreigners whereby time posts are positions filled within a specified period.
2.1 Types of Expatriate Posts
Expatriates are foreigners who are qualified to fulfil the following positions:
i. Key Post
These are high level managerial posts in foreign-owned private companies and firms operating in Malaysia. Key posts are posts essential for companies to safeguard their interests and investments.
The expatriates are responsible in determining the company’s policies in achieving its goal and objectives.
ii. Time Post
a) Executive Post
These are intermediate level of managerial and professional posts. The post requires professional qualifications, practical experience, skills and expertise related to the respective jobs. The expatriates are responsible in implementing the company’s policies and supervision of staff
b) Non-Executive Post
These are posts for the performance of technical jobs that require specific technical or practical skills and experience.
2.2 Guidelines on the Employment of Expatriate Personnel
There are two stages in the employment of expatriates:
i. Application for an expatriate post from relevant authorised bodies determined by the nature of the business.
ii. Upon approval of the expatriate posts by the approving bodies, the company must submit an application to the Immigration Department for endorsement of the employment pass.
Companies undertaking Manufacturing Activities, R&D Activities, Hotel and Tourism Projects and other services; and applying Tax Incentives under MIDA’s Purview.
Companies undertaking manufacturing activities, R&D activities, hotels with 4-star rating or higher; and tourism projects; and other services and applying for the tax incentives under MIDA’s purview are eligible to be considered for expatriate posts with the minimum paid up capital as follows:
i. 100% Malaysian-owned company: RM250,000
ii. Jointly-owned by foreign and Malaysian:RM350,000
iii. 100% foreign-owned company:RM500,000
The approval of key posts will be subjected to the condition that the company must be incorporated in Malaysia and must deposit its foreign paid-up capital of at least RM1,000,000. However, the number of key posts cannot be linked directly with the foreign paid-up capital.
The approval for the term posts will be imposed the following conditions:
i. Minimum basic salary of at least RM5,000;
ii. Minimum academic qualification and minimum experience;
a) Manufacturing company:-
– Degree with at least 3 years’ experience in the relevant field; and/or
– Diploma with at least 5 years’ experience in the relevant field; and/or
– Technical Certification with at least 10 years‘ experience in the relevant field; or Academic qualifications/experience proposed by companies, whichever is higher.
b) Contract R&D Company, R&D Company and in-house R&D company:-
– Degree with at least 3 years’ experience in the relevant field; and/or
-Diploma with at least 5 years’ experience in the relevant field; or academic qualifications/experience proposed by companies, whichever is higher.
c) 4-star hotel and above and tourism projects:-
– Minimum academic qualification is Degree with at least 5 years’ working experience in the hotel/tourism industry.
The number of expatriate posts will be considered based on the merits of each case. However, a wholly and majority foreign-owned contract R&D Company, R&D Company and in-house R&D Company will be subjected to the maximum of 50% of total R&D personnel i.e. in the ratio of 1 expatriate to 1 Malaysian R&D personnel. The duration of term post can be considered for a maximum of 5 years.
Applications should be submitted to MIDA
Operational Headquarters (OHQs), Regional Development Corporations (RDCs) & International Procurement Centres (IPCs) and Principal Hub
The applications for expatriate posts for OHQs, RDCs, IPCs and Principal Hub can be considered based on the criteria as follows:
i. OHQs, RDCs, IPCs can be considered on a minimum paid-up capital of RM500,000;
ii. Principal Hub can be considered on a minimum paid up capital of RM2.5 million.
The number of expatriate posts will be considered based on the company’s requirements and the duration of term posts is for a maximum of 5 years.
The approval of expatriate posts for OHQs, RDCs, IPCs and Principal Hub will be imposed the following conditions:
i. Minimum basic salary of at least RM5,000 for expatriate posts
ii. Degree with at least 5 years’ experience in the relevant field; or academic qualifications/experience proposed by companies, whichever is higher
iii. For Malaysian-owned OHQs, RDCs, IPCs companies can be considered for key posts subject to minimum paid-up capital of at least RM500,000.Applications should be submitted to MIDA.
Regional Establishments (REs)/ Regional Office(ROs)
The applications for expatriate posts (term posts) for REs/ROs can be considered based on the following criteria:
i. Minimum operating expenditure of at least RM300,000 per annum
ii. Minimum basic salary of at least RM5,000 for expatriate posts.The number of term posts will be considered based on the merits of each case. The duration for the term post approval will be in line with the duration of the RE/RO status. The approval for expatriate will be granted by both posts and individuals.
Application should be submitted to MIDA
Other services without tax incentives and unregulated services
i. Applications for expatriate posts for other services and unregulated services sub-sectors other than previously mentioned, should be directly submitted to the Immigration Department. MIDA will only facilitate the companies to apply for the expatriate posts to Immigration.
Fisheries, Livestock and Agriculture Industries
i. The applications for expatriate posts for new companies (without incentives) and existing companies in the Fisheries, Livestock and Agriculture Industries should be submitted to MIDA.
ii. The approval of expatriate posts will be considered subject to similar guidelines and conditions stipulated for the Manufacturing Sector.
3. Applying For Expatriate Posts
All applications for expatriate posts from new and existing companies (including those not involving expansion or diversification) in the manufacturing and related service sectors should be submitted to MIDA. This includes companies required to obtain manufacturing licence as well as companies exempted from the manufacturing licence
4. Employment Of Foreign Workers
In Malaysia, foreign workers can be employed in the manufacturing, construction, plantation, agricultural, services and domestic help sector.
Services sector consists of eleven sub sectors: (restaurant, cleaning services, cargo handling, launderette, caddy in golf club, barber, wholesale/retail, textile, metal/scraps/recycle activities, welfare homes and hotel/resort island.
Only nationals from the specified countries below are allowed to work in the selected sectors
Approval is based on the merits of each case and subject to conditions that will be determined from time to time. Applications to employ foreign workers will only be considered when efforts to find qualified local citizens and permanent residents have failed.
An annual levy on foreign workers is imposed as follows:
MALAYSIA TAX SYSTEM
1. PERSONAL INCOME TAX
All individuals are liable to tax on income accrued in and derived from Malaysia. The rate of tax depends on the individual’s resident status, which is determined by the duration of his stay in the country as stipulated under Section 7 of the Income Tax Act 1967. Generally, an individual who is in Malaysia for at least 182 days in a calendar year is regarded as a tax resident.
1.1 Resident Individual
A resident individual is taxed on his chargeable income after deducting personal reliefs at a graduated rate from 0% to 28% with effect from the year of assessment 2020.
1.1.1 Personal Relief
The chargeable income of resident individuals is computed by deducting the personal reliefs from the total income. The types of relief available can be found as per link attached:
1.1.2 Tax Rebate
The tax charged on a resident individual is reduced by way of the following rebates:
i. Income Tax Rebates For Resident Individual With Chargeable Income Less Than RM35,000An individual with a chargeable income not exceeding RM35,000 enjoys a rebate. Link are follows for list of rebate:
2. WITHHOLDING TAX
Non-resident individuals are subject to a final withholding tax. Details of withholding tax as follows:
3. REAL PROPERTY GAINS TAX
Capital gains are generally not subject to income tax in Malaysia. However, real property gains tax is charged on chargeable gains arising from the disposal of real property situated in Malaysia or of interest, options or other rights in or over such land as well as the disposal of shares in real property companies.
Details on real property gains tax as follows:
The RPGT rates will not burden genuine property owners as they are given exemption and the payment of RPGT is based on net gains as follows:
i. RPGT exemption on gains from the disposal of one private residence once in a lifetime by an individual who is a citizen or a permanent resident of Malaysia. Election has to be made in writing;
ii. RPGT exemption on gains from disposal of property between parents and children, husband and wife, grandparents and grandchildren for no consideration;
iii. RPGT is charged only on net gains after deducting all related costs such as purchase price, renovation costs and incidental costs e.g. legal fees and stamp duty upon submission of receipts; and
iv. Exemption up to RM10,000 or 10% of the net gains, whichever is higher, is given to an individual.
4. SALES AND SERVICE TAX
Effective from 1 September 2018, the Sales Tax Act 2018 and the Service Tax Act 2018 together with its respective subsidiary legislations are introduced to replace the Goods and Services Tax (GST) Act 2014. Further information as follows:
4.1 Sales tax
Under the Sales Tax Act 2018, sales tax is charged and levied on imported and locally manufactured goods either at the time of importation or at the time the goods are sold or otherwise disposed of by the registered manufacturer.
Sales tax administered in Malaysia is a single stage tax imposed on the finished goods manufactured in Malaysia and goods imported into Malaysia.
Sales tax is imposed on taxable goods manufactured in Malaysia by any registered manufacturer at the time the goods are sold, disposed of other than by sales or used other than as a material in the manufacture of goods.
Sales tax on imported goods is charged when the goods are declared, duty paid and released from customs control. Manufacturers who manufacture taxable goods with sales value which exceeds RM500,000 within the period of 12 months, are required to be registered pursuant to Section 12 Sales Tax Act 2018.
Manufacturers who manufacture taxable goods with sales value of RM500,000 and below, have the option to be registered on a voluntary basis under Section 14 of the Sales Tax Act 2018 to enable them to enjoy the facilities given under the Act.
Manufacturers who carry out its business as a subcontractor and the total labour charge of the subcontract works exceeds RM500,000 within 12 months, are required to be registered pursuant to Section 12 of the Sales Tax Act 2018
4.1.1 Rates of Sales Tax
Sales tax is an ad valorem tax and different rates apply (5% and 10%) based on group of taxable goods as indicated in the provision.Sales tax for petroleum is charged on a specific rate which is different from other taxable goods.
4.2 Service Tax
Service tax in Malaysia is a form of indirect single stage tax imposed on specified services termed as “taxable services”. The Service tax cannot be levied on any service which is not included in the list of taxable services prescribed by the Minister under the First Schedule of Service Tax Regulations 2018. The Service Tax Act 2018 (STA 2018) applies throughout Malaysia excluding designated areas, free zones, licensed warehouses, licensed manufacturing warehouses and Joint Development Area (JDA).
4.2.1 Taxable Service
Taxable services are any services which are listed in the various categories in the First Schedule of Service Tax Regulations 2018. Any taxable person providing taxable services and exceeding the respective thresholds is required to be registered. The categories are accommodation, food and beverage operator, night clubs, dance halls, health and wellness centres, private club, golf club and golf driving range, betting and gaming services, pr
ofessional services and other service providers such as insurance, telecommunication, parking operator, advertising and etc.
4.2.2 Charge to Tax
Service tax is charged on any provision of taxable services provided in Malaysia by a registered person in carrying on his business.The service tax is due and payable when payment is received for any taxable service provided to a customer by the registered person.
4.2.3 Rate of Service Tax
The rate of service tax is fixed under the Service Tax (Rate of Tax) Order 2018 and comes into force on 1 September 2018. The rate of service tax is 6% of the price or premium for insurance policy, value of betting and gaming, etc. of the taxable service as determined under section 9 of STA 2018
4.2.4 Rate of Service Tax for Credit and Charge Cards
The rate of service tax on the provision of credit card or charge card services is RM25 per year on the principal and supplementary card. The service tax is chargeable on the date of the issuance of the card and every 12 months thereafter or part thereof after the issuance of the card or on the date of the renewal of the card and every 12 months thereafter or part thereof after the renewal of the card.
5. EXCISE DUTY
Excise duties are levied on selected products manufactured in Malaysia, namely cigarettes, tobacco products, alcoholic beverages, playing cards, mahjong tiles and motor vehicles. While excise duties are charged at ad valorem rates for motor vehicles, playing cards and mahjong tiles, they are imposed at a combination of specific and ad valorem rates for cigarettes, tobacco products and alcoholic beverages.
7. CUSTOMS APPEAL TRIBUNAL AND CUSTOMS RULING
Customs Appeal Tribunal (CAT) is an independent body, establish to decide on appeals against the decision of the Director General of Customs pertaining to matters under the Customs Act 1967, Sales Tax Act 2018, Service Tax Act 2018 and Excise Act 1976.
In addition, Customs Ruling is introduced under the Customs Act 1967, Sales Tax Act 2018, Service Tax Act 2018 and Excise Act 1976 to provide business sectors with the elements of certainty and predictability in planning their business activities.
The ruling issued by the Customs and agreed by the applicant shall be legally binding the applicant for a specific period time. The main features of Customs Ruling are:
i. applications for Customs Ruling can be made with respect to classification of goods, determination of taxable services and the principles of determination of value of goods and services;
ii. application should be made in writing together with sufficient facts and prescribed fee;
iii. applications may be made before the goods are imported or the services are provided upon which Customs will issue an customs ruling.
8. DOUBLE TAXATION AGREEMENT
Double Taxation Agreement (DTA) is an agreement between two countries seeking to avoid double taxation by defining the taxing rights of each country with regard to cross-border flows of income and providing for tax credits or exemptions to eliminate double taxation.
The objectives of Malaysian DTA are as follows:
i. to create a favourable climate for both inbound and outbound investments;
ii. to make Malaysia’s special tax incentives fully effective for taxpayers of capital exporting countries;
iii. to obtain a more effective relief from double taxation compared to relief gained under unilateral measures; and
iv. to prevent evasion and avoidance of tax.
Further information can refer below link:
A company, whether resident or not, is assessable on income accrued in or derived from Malaysia. Income derived from sources outside Malaysia and remitted by a resident company is exempted from tax, except in the case of the banking and insurance business, and sea and air transport undertakings. A company is considered a resident in Malaysia if the control and management of its affairs are exercised in Malaysia.
Effective from the year of assessment 2016, the corporate tax rate is at 24%. This rate is also applicable to the following entities:
i. a trust body;
ii. an executor of an estate of an individual who was domiciled outside Malaysia at the time of his death;
iii. a receiver appointed by the court ; and
iv. a limited liability partnership other than a limited liability partnership to which paragraph 2D applies
Resident companies and limited liability partnership with paid-up capital/capital contribution of RM 2.5 million and less at the beginning of the basis period for a year of assessment will be tax at the following rate :
On the first RM 600,000 chargeable income – 17%
On subsequent chargeable income – 24%
A person carrying on petroleum upstream operations is subject to a Petroleum Income Tax of 38%. With effect from the year of assessment 2010, the assessment system on income derived from upstream petroleum companies under the Petroleum (Income Tax) Act 1967 is changed to the current year assessment system; and self-assessment system.
The deduction for payment of zakat made by a company, cooperative society or trust body shall not exceed 2.5% of its aggregate income in the relevant year of assessment.
Deductions are allowed for contributions made to:
i. the Government, State Government, local authorities;
ii. institutions or organisations approved by the Director General of Inland Revenue Board Malaysia;
iii. sports activities approved by the Minister of Finance or Commissioner of Sports; or
iv. project of national interest approved by the Minister of Finance.
The contributions in respect of ii, iii, and iv shall not exceed 10% of the aggregate income of the company in the relevant gains, whichever is higher, is given to an individual.