1.1 Main Incentives for Manufacturing Companies
The major tax incentives for companies investing in the manufacturing sector are the Pioneer Status and the Investment Tax Allowance.
Eligibility for Pioneer Status and Investment Tax Allowance is based on certain priorities, including the level of value-added, technology used and industrial linkages. Eligible activities and products are termed as “promoted activities” or “promoted products”. (See Appendix I: List of Promoted Activities and Products – General)

The company must submit its application to MIDA before commencing operation/production.

(i) Pioneer Status
A company granted Pioneer Status (PS) enjoys a five year partial exemption from the payment of income tax. It pays tax on 30% of its statutory income*, with the exemption period commencing from its Production Day (defined as the day its production level reaches 30% of its capacity).
Unabsorbed capital allowances incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company. Accumulated losses incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company for a period of seven consecutive years.
(ii) Investment Tax Allowance
As an alternative to Pioneer Status, a company may apply for Investment Tax Allowance (ITA). A company granted ITA is entitled to an allowance of 60% on its qualifying capital expenditure (factory, plant, machinery or other equipment used for the approved project) incurred within five years from the date the first qualifying capital expenditure is incurred.
The company can offset this allowance against 70% of its statutory income for each year of assessment. Any unutilised allowance can be carried forward to subsequent years until fully utilised. The remaining 30% of its statutory income will be taxed at the prevailing company tax rate.
-Investment Tax Allowance As an alternative to Pioneer Status, a company may apply for Investment Tax Allowance (ITA).
A company granted ITA is entitled to an allowance of 60% on its qualifying capital expenditure (factory, plant, machinery or other equipment used for the approved project) incurred within five years from the date the first qualifying capital expenditure is incurred. The company can offset this allowance against 70% of its statutory income for each year of assessment. Any unutilised allowance can be carried forward to subsequent years until fully utilised. The remaining 30% of its statutory income will be taxed at the prevailing company tax rate. Applications should be submitted to MIDA.
-A small scale company is eligible for the following
incentives:
i. Pioneer Status with income tax exemption of 100% of the statutory income for a period of five years. Unabsorbed capital incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company. Accumulated losses incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company for a period of seven consecutive years

ii. Investment Tax Allowance of 60% on the qualifying capital expenditure incurred within five years. This allowance can be offset against 100% of the statutory income for each year of assessment. Any unutilised allowances can be carried forward to subsequent years until fully utilised.
1.2 Incentives for High Technology Companies

A high technology company is a company engaged in promoted activities or in the production of promoted products in areas of new and emerging technologies (See Appendix II: List of Promoted Activities and Products – High Technology Companies). A high technology company qualifies for:

i. Pioneer Status with income tax exemption of 100% of the statutory income for a period of five years. Unabsorbed capital allowances incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company.
Accumulated losses incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company for a period of seven consecutive years
;or
ii. Investment Tax Allowance of 60% on the qualifying capital expenditure incurred within five years from the date the first qualifying capital expenditure is incurred. The allowance can be utilised to offset against 100% of the statutory income for each year of assessment. Any unutilised allowances can be carried forward to subsequent years until fully utilised.
1.3 Incentives for Strategic Projects
Strategic projects involve products or activities of national importance. They generally involve heavy capital investments with long gestation periods, have high levels of technology, are integrated, generate extensive linkages, and have significant impact on the economy. Such projects qualify for:
i. Pioneer Status with income tax exemption of 100% of the statutory income for a period of ten years; Unabsorbed capital allowances incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company. Accumulated losses incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company for a period of seven consecutive years
;or

ii. Investment Tax Allowance of 100% on the qualifying capital expenditure incurred within five years from the date the first qualifying capital expenditure is incurred. This allowance can be offset against 100% of the statutory income for each year of assessment. Any unutilised allowances can be carried forward to subsequent years until fully utilised.
1.4 Incentives for Small and Medium Enterprises
Small and Medium Enterprise (SMEs)
Effective from the Year Assessment 2009, for the purpose of imposition of income tax and tax incentives, the definition of SMEs is reviewed as a company resident in Malaysia with a paid up capital of ordinary shares of RM2.5 million or less at the beginning of the basis period of a year of assessment whereby such company cannot be controlled by another company with a paid up capital exceeding RM2.5 million and income from business sources not more than RM50 million (SME companies).

SMEs are eligible for a reduced corporate tax 17% on chargeable incomes of up to RM600,000. The tax rate on the remaining chargeable income is maintained at 24%.
Currently, small scale companies incorporated in Malaysia with shareholders’ fund not exceeding RM600,000 and having at least 60% Malaysian equity are eligible for tax incentives for small scale companies under the Promotion of Investments Act (PIA), 1986. Effective from 3 July 2012, small scale companies are redefined as companies incorporated in Malaysia with shareholders’ fund not exceeding RM2.5 million and having 60% to 100% Malaysian equity.
The small scale company must fulfil the following criteria:-
i. Incorporated under the Companies Act, 2016.
ii. Shareholders’ funds not exceeding RM2.5 million with the following Malaysian equity ownership:
• Companies with shareholders’ fund of up to RM500,000 with at least 60% Malaysian equity
• Companies with shareholders’ fund of above RM500,000 and not exceeding RM2.5 million with 100% Malaysian equity.
A small scale company is eligible for the following incentives:
i. Pioneer Status with income tax exemption of 100% of the statutory income for a period of five years. Unabsorbed capital incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company.
Accumulated losses incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company for a period of seven consecutive years
Or
ii. Investment Tax Allowance of 60% on the qualifying capital expenditure incurred within five years. This allowance can be offset against 100% of the statutory income for each year of assessment. Any unutilised allowances can be carried forward to subsequent years until fully utilised.
A sole proprietorship or partnership is eligible to apply for this incentive provided a new private limited/limited company is formed to take over the existing production/activities.
i. For small scale companies with shareholders’ fund of RM500,000 and less and engaged in promoted activities or producing promoted products in the small company promoted list (See Appendix III: Small Scale Companies) or in the General List (See Appendix I: List of Promoted Activities and Products – General).
ii. For small scale companies with shareholders’ fund of above RM500,000 and not exceeding RM2.5 million and engaged in promoted activities or producing promoted products in the small company promoted list (See Appendix III: Small Scale Companies)
iii. For small scale companies with shareholders’ fund of above RM500,000 and not exceeding RM2.5 million and engaged in promoted activities or producing promoted products in the general promoted list (See Appendix I: List of Promoted Activities and Products – General).:
1.5 Incentives for Investments in Selected Industries
Specialised Machinery and Equipment
-Specialised process machinery or equipment for specific industries, packaging machinery and modules and components for specialised process machinery or equipment for specific industry and packaging machinery. Companies undertaking activities in the production of selected machinery and equipment are eligible for:
I. Pioneer Status with income tax exemption of 100% of the statutory income for a period of ten years. Unabsorbed capital allowances incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company.

Accumulated losses incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company for a period of seven consecutive years.

II. Investment Tax Allowance of 100% on the qualifying capital expenditure incurred within five years from the date the first qualifying capital expenditure is incurred. This allowance can be offset against 100% of the statutory income for each year of assessment.

1.6 Incentives for the Automotive Industry

Promoting the assembly and manufacturing of Energy Efficient Vehicles and its critical components/systems is crucial to enhance the development of Malaysia’s automotive industry.

MIDA provides incentives in the form of income tax exemption or income tax exemption equivalent of Investment Tax Allowance (ITA) for a period of five or ten years to companies which have plans to undertake the following activities-
i. Assembly of Energy Efficient Vehicles;
ii. Manufacturing of Critical Components/Systems for Energy Efficient Vehicles or Non-Energy Efficient Vehicles such as transmission, engines, airbag & components, handling & control mechanism and brake mechanism; and
iii. Manufacturing of components for Hybrid and Electric Vehicles such as electric motors, electric batteries and battery management systems.
1.7 Incentives for the Utilisation of Oil Palm Biomass to Produce Value-Added Products

Companies that utilise oil palm biomass to produce value-added products such as bio-based chemicals, biofuel, particleboard, medium density fibreboard; plywood; and pulp and paper are eligible for the following incentives:

i. New Companies
a) Pioneer Status with income tax exemption of 100% of the statutory income for a period of ten years. Unabsorbed capital allowances incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company.
Accumulated losses incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company for a period of seven consecutive years.
Or;
b.) Investment Tax Allowance of 100% on the qualifying capital expenditure incurred within a period of five years. The allowance can be offset against 100% of the statutory income for each year of assessment. Any unutilised allowances can be carried forward to subsequent years until fully utilised.

ii. Incentive for Existing Companies that Reinvest
a) Pioneer Status with income tax exemption of 100% of the increased statutory income arising from the reinvestment for a period of ten years. Unabsorbed capital allowances incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company.
Accumulated losses incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company for a period of seven consecutive years.
b) Investment Tax Allowance of 100% on the additional qualifying capital expenditure incurred within a period of five years. The allowance can be offset against 100% of the statutory income for each year of assessment. Any unutilised allowances can be carried forward to subsequent years until fully utilised.
1.9 Incentive for Industrialised Building System (IBS)

Basic components/products and systems
Columns, beams, slabs, wall, roof trusses, precast concrete system, formwork system, steel framing system, blockwork system, timber framing system, innovative system. Companies undertaking activities in the manufacturing of Industrialised Building System (IBS) are eligible for:
i. Income tax exemption between 70% – 100% of the statutory income for a period of five years.
;or
ii. Income tax exemption equivalent to Investment Tax Allowance of 60% on the qualifying capital expenditure incurred within five years from the date the first qualifying capital expenditure is incurred. This allowance can be offset against 70% – 100% of the statutory income for each year of assessment.
1.10 Definition of Desirous for the Granting of Tax Incentives under the Promotion of Investments Act, 1986 for Malaysian- Owned Companies

Under the Promotion of Investments Act (PIA), 1986, the main criterion for a company to enjoy tax incentives is that the company must be ‘desirous’ in establishing or participating in a promoted activity or producing a promoted product which has not started production.

i. Definition of production:
a. Manufacturing Company – Company has started to produce products (including trial production).
b. Services Company – Company has issued first invoice for the services rendered.
ii. Companies in Production
Malaysian-owned manufacturing and services companies that are already in production do not comply with the ‘desirous’ clause under the PIA, 1986. However effective from 3 July 2012, Malaysian-owned companies that have commenced its production within one year from the date of application to MIDA are eligible to be considered for tax incentives.
iii. Incentives
Tax exemptions equivalent to Pioneer Status or Investment Tax Allowance based on the prevailing rates and eligibility criteria under the PIA, 1986.
1.11 Additional Incentives for the Manufacturing Sector

i. Reinvestment Allowance
Reinvestment Allowance (RA) is available for existing companies engaged in manufacturing and selected agricultural activities that reinvest for the purposes of expansion, automation, modernisation or diversification into any related products within the same industry on condition that such companies have been in operation for at least 36 months.
The RA is given at the rate of 60% on the qualifying capital expenditure incurred by the company, and can be offset against 70% of its statutory income for the year of assessment. Any unutilised allowance can be carried forward to maximum period of seven consecutive years of assessments and the period commences immediately after the end of fifteen year. A company can offset the RA against 100% of its statutory income for the year of assessment if the company attains a productivity level exceeding the level determined by the Ministry of Finance. For further details on the prescribed productivity level for each sub-sector, please contact the Inland Revenue Board
ii. Accelerated Capital Allowance
a) Reinvestment for promoted activities or products
After the fifteen year period of eligibility for RA, companies that reinvest in the manufacture of promoted products are eligible to apply for Accelerated Capital Allowance (ACA). The ACA provides a special allowance, where the capital expenditure is written off within three years, i.e. an initial allowance of 40% and an annual allowance of 20%.
Applications should be submitted to the IRB accompanied by a letter from MIDA certifying that the companies are manufacturing promoted activities or products.
iii. Incentive for Industrial Building System
Industrial Building System (IBS) will enhance the quality of construction, create a safer and cleaner working environment as well as reduce the dependence on foreign workers. Companies which incur expenses on the purchase of moulds used in the production of IBS components are eligible for Accelerated Capital Allowances (ACA) with effect from year of assessment 2006 at rate of 40% for Initial Allowance and 20% for Annual Allowance.
iv. Group Relief
Group relief is provided under the Income Tax Act 1967 to all locally incorporated resident companies. Effective from year 2019, a company that qualifies for group relief may surrender a maximum of 70% of its adjusted losses to be offset against the income of another company within the same group for three consecutive years of assessment.
The following conditions must be met by both the claimant and surrendering companies:
a) The claimant and the surrendering companies each has paid-up capital of ordinary shares exceeding MYR 2.5 million at the beginning of the basis period;
b) Both the claimant and the surrendering companies must have the same accounting period.
c) The shareholding, whether direct or indirect of the claimant and the surrendering companies in the group must not be less than 70%;
d) The 70% shareholding must be on a continuous basis during the preceding year and the relevant year;
e) Losses resulting from the acquisition of proprietary rights or foreign-owned companies should be disregarded for the purpose of group relief;
f) Companies currently enjoying the following incentives are not eligible for group relief:
– Pioneer Status
– Investment Tax Allowances/ Investment Allowance
– Reinvestment Allowance
– Exemption of shipping profits
– Exemption of Income Tax under Section 127 of the Income Tax Act 1967
Claims should be submitted to IRB.

v. Automation Capital Allowance (Automation CA)
Manufacturing company (labour and non-labour intensive industry) operating at least 36 months in Malaysia is eligible for:
Category 1: High labour intensive industries (rubber products, plastics, wood, furniture and textiles)
i. Automation Capital Allowance of 200% on the first RM4 million expenditure incurred within five (5) year of assessment from 2015 to 2020; and
Category 2: Other industries
ii. Automation Capital Allowance of 200% will be provided on the first RM2 million expenditure incurred within five (5) year of assessment from 2015 to 2020.