i. Contract R&D Company

A contract R&D company is a company which provides R&D services in Malaysia to companies other than its related companies. Under the PIA 1986, a related company is defined as a company where at least 20% of its issued share capital is owned (directly or indirectly) by another company. The Contract R&D company is eligible for:
• Pioneer Status with income tax exemption of 100% of the statutory income for five years. Unabsorbed pioneer losses after the end of pioneer period are allowed to be carried forward for seven consecutive year of assessments ; or

• Investment Tax Allowance (ITA) of 100% of qualifying capital expenditure incurred within ten years. The ITA can be offset against 70% of the statutory income in each year of assessment. Any unutilised capital allowances can be carried forward until fully utilised.

ii. R&D Company A R&D company which provides R&D services in Malaysia to its related company or to any other company is eligible for an ITA of 100% on the qualifying capital expenditure incurred within ten years. The allowance can be offset against 70% of the statutory income for each year of assessment. Any unutilised allowances can be carried forward to subsequent years until fully utilised. The PIA 1986 defines a related company as a company where at least 20% of its issued share capital is owned (directly or indirectly) by another company.

Should the R&D company opt not to avail itself of the allowance, its related companies can enjoy double deduction for payments made to the R&D company for services rendered. Applications should be submitted to MIDA.

iii. In-house Research
A company that carries out R&D within the company in Malaysia for the purpose of its own business can apply for an ITA of 50% of the qualifying capital expenditure incurred within ten years. The ITA can be offset against 70% of the statutory income for each year of assessment. Any unutilised allowances can be carried forward until fully absorbed.

iv. Incentives for Reinvestment in R&D Activities Existing R&D
companies undertaking reinvestments are eligible for Pioneer Status or Investment Tax Allowance as follows:

a) Contract R & D companies
i. PS with full tax exemption (100%) of statutory income for a period of five years. Unabsorbed income losses after the end of income period are allowed to be carried forward for seven consecutive year of assessments; or
ii. ITA of 100% of additional qualifying capital expenditure incurred within a period of ten years from the date the first qualifying capital expenditure is incurred. The allowance can be offset against 70% of the statutory income for each year of assessment. Unutilised allowances can be carried forward until fully utilised.

b) R&D Companies:
ITA of 100% of additional qualifying capital expenditure incurred within a period of ten years from the date the first qualifying capital expenditure is incurred. The allowance can be offset against 70% of statutory income for each year of assessment. Unutilised allowances can be carried forward until fully utilised.

c) In-house R&D:
ITA of 50% of additional qualifying capital expenditure incurred within a period of ten years from the date the first qualifying capital expenditure is incurred. The allowance can be offset against 70% of the statutory income for each year of assessment. Unutilised allowances can be carried forward until fully utilised

v. Incentives for Commercialisation of Public Sector R&D
To encourage commercialisation of resource-based R&D findings of public research institutes, the following incentives are given:

a) A company that invests in its subsidiary company engaged in the commercialisation of the RD findings is eligible for a tax deduction equivalent to the amount of investment made in the subsidiary company; and

b) The subsidiary company that undertakes the commercialisation of the R&D findings is eligible for Pioneer Status with income tax exemption of 100% of statutory income for ten years. Unabsorbed capital incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company. Unabsorbed pioneer losses after the end of pioneer period are allowed to be carried forward for seven consecutive years of assessments. The commercialisation of non-resource-based findings is subject to the list of promoted activities/ products under the Promotion Investment Act, 1986

5.2 Additional Incentives for Research and Development
i. Double Deduction for Research and Development
• A company can enjoy a double deduction on its non-capital expenditure incurred on research and development approved by the Minister of Finance.
• Payment for use of services of approved research institutions approved R&D companies or contract R&D companies.
• Approved R&D expenditure incurred during the tax relief period for companies granted Pioneer Status can be accumulated and deducted after the tax relief period.
• Expenditure on R&D activities undertaken overseas, including the training of Malaysian staff, will be considered for double deduction on a case- by-case basis.
ii. Incentives for Researchers to Commercialise Research Findings
Researchers who undertake research focused on value creation will be given a 50% tax exemption for five years on the income that they receive from the commercialisation of their research findings. The undertaking has to be verified by the Ministry of Science, Technology and Innovation.