Tax Guide

RSM : A, T 

C S
  
 


General Information on Malaysian Taxation

RSM Tax Consultants (Malaysia) Sdn Bhd (283706-D)
 . C  

e following classes of income are liable to income tax (pursuant to Section 4 of the Income Tax Act 1967):

a) Business;
b) Employment;
c) Dividends, interest or discounts;
d) Rents, royalities or premiums;
e) Pensions, annuities or other periodical payments not falling under any of the foregoing paragraphs;
f) Gains or prots not falling under any of the foregoing paragraphs.

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 . B   

1.2.1 Allowable expenses

Generally, only revenue expenses incurred wholly and exclusively in the production of the gross income are
allowable against the business income.

1.2.2 Current year business loss

Generally, current year business loss may be utilised against other income in the same basis year.

1.2.3 Unabsorbed business loss brought forward

Any unabsorbed business losses can only be carried forward to be absorbed against business income in
subsequent YAs up to a period of seven consecutive Years of Assessment (“YAs”) immediately following
that YA. Any amount which is not absorbed at the end of the period of seven YAs shall be disregarded.

In addition, the unabsorbed business losses brought forward shall be disregarded where there is a substantial
change in shareholding of more than 50% in the case of a dormant company.

1.2.4 Capital allowances

Provision for depreciation is not allowed as a deduction for income tax purposes. Instead, capital allowances
are granted on qualifying capital expenditure.

e types of allowances are:

a) Capital allowances for plant and machinery

b) Industrial building allowances
c) Agriculture allowances
d) Forest allowances

1.2.5 Unabsorbed capital allowances

Unabsorbed capital allowances can be carried forward indenitely to be utilised against adjusted income of
the same business source. However, the unabsorbed capital allowance brought forward shall be disregarded
where there is a substantial change in shareholding of more than 50% in the case of a dormant company.

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1.3 PRINCIPAL TAXES . P T
1.3.1 Income tax

1.3.1.1 Resident companies

Income accruing in or derived from Malaysia received by a resident company is subject to Malaysian income
tax.

Foreign income derived from sources outside Malaysia and received in Malaysia by a resident company is
exempted from Malaysian income tax. However, a resident company carrying on the business of banking,
insurance or air and sea transport operation, is taxed on its worldwide income regardless of whether the
income is or is not received in Malaysia.

A company is considered as a tax resident in Malaysia if the control and management of the company are
exercised in Malaysia at any time during the year. Generally, a company is considered resident in Malaysia if
the meetings of its board of directors are held in Malaysia, even though the company is not incorporated in
Malaysia.

e corporate income tax rate is 24% eective from YA 2017.

With eect from YA 2020, a Small and Medium Enterprise (“SME”) resident in Malaysia is taxed at the rate of
17% on the rst RM 600,000 of the chargeable income of the company. e balance of the chargeable
income is taxed at the rate of 24%.

A SME refers to a resident company incorporated in Malaysia which has a paid up capital in respect of ordinary
shares of RM 2.5 Million or less at the beginning of the basis period for a YA and having gross business income
of not more than RM 50 Million for the basis period for a YA. e reduced tax rate of 17% for SME shall not
apply where:-

a) More than 50% of the paid up capital in respect of ordinary shares of the company is directly or
indirectly owned by a related company;
b) More than 50% of the paid up capital in respect of ordinary shares of the related company is directly
c) or indirectly owned by the company; or
More than 50% of the paid up capital in respect of ordinary shares of the company and the related
company is directly or indirectly owned by another company.

For the above purpose, a “related company” refers to a company which has a paid up capital in respect of
ordinary shares of more than RM 2.5 million at the beginning of the basis period for a year of assessment.

1.3.1.2 Non-resident companies

Non-resident companies including branches of foreign companies are taxed on income accruing in or
derived from Malaysia at the rate of 24%. However, interest income is taxed at the rate of 15% which may be
reduced in accordance with the tax treaty which Malaysia has signed with the country concerned.

Foreign income derived from sources outside Malaysia and received in Malaysia by a non-resident company
is not subject to Malaysian income tax.

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 . P T (.)
1.3.1 Income tax (cont.)

1.3.1.3 Transfer Pricing

A person entering into a transaction with an associated person for the acquisition or supply of property or
services is required to determine and to apply the arm’s length price for such acquisition or supply. e
Inland Revenue Board of Malaysia (“IRBM”) is empowered to substitute the price for such transactions
where the IRBM has reason to believe that these transactions were not conducted based on the arm’s
length price.

Every person who has entered into transaction with an associated person shall keep and retain contemporaneous
transfer pricing documentation. e contemporaneous transfer pricing documentation and all the relevant
information and documents pertaining to the preparation of the said documentation shall be kept and maintained
for a period of seven years.

A person undertaking controlled transactions is required to prepare and maintain transfer pricing documentation
before the ling of the tax return for the particular YA. e transfer pricing documentation has to be submitted
when requested by the IRBM.

Penalty may be applicable to taxpayers who do not prepare Transfer Pricing Documentation or do not
submit the documentation within the stipulated time when requested by the IRBM.

1.3.2 Real Property Gains Tax (“RPGT”)

Malaysia does not impose tax on capital gains other than RPGT on gains arising from the disposal of any real
properties situated in Malaysia or any interest, option or other rights in or over such land or shares in Real
Property Companies (“Chargeable Assets”). A Real Property Company (“RPC”) refers to a controlled company,
which owns real properties or shares in another RPC or both, the market value of which is more than 75% of
its total tangible assets. A controlled company means a company having not more than fty members and
controlled by not more than ve persons.

e rate of RPGT applicable on the gains arising on the disposal depends on the period of ownership of the
real property or shares in RPC.

e rates of RPGT for disposal of chargeable assets starting from year of assessment 2020 are shown in
the table below:

Companies Individual
Disposal period / Individuals
(incorporated in (Non -citizens) / Companies
holding period (Citizens / PR)
Malaysia) (not incorporated in Malaysia)
For disposals within 3 years 30% 30% 30%
For disposals in the 4th year 20% 20% 30%
For disposals in the 5th year 15% 15% 30%
In the 6th and subsequent years 10% 5% 10%

1.3.3 Stamp duty

Stamp duty is levied on documents/instruments as provided under the Stamp Act 1949.

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 . P T (.)
1.3.4 Indirect taxes
Sales Tax and Service Tax (“SST”) came into eect in Malaysia on 1 September 2018.

1.3.4.1 Sales Tax

1.3.4.1.1 Eective date and scope of taxation

Sales tax is a single-stage tax imposed on taxable goods manufactured locally by a registered manufacturer,
and on taxable goods imported by any person.

Special treatment is given to transactions involving Designated Areas (Labuan, Langkawi, Tioman and
Pangkor) and Special Areas (free zones, licensed warehouses, licensed manufacturing warehouses and the
Joint Development Area).

1.3.4.1.2 Rates of tax

Sales tax is generally an ad valorem tax. Specic rates of sales tax are currently only imposed on certain
classes of petroleum (generally, rened petroleum). e ad valorem rates are as follows:

Class of goods Rate

Fruit juices, certain foodstu, building materials, personal computers, telephone, 5%

watches and car safety seats for infant and young children

All other goods, except petroleum subject to specic rates and goods not 10%
specically exempted

1.3.4.1.3 Taxable goods

All goods manufactured in Malaysia by registered manufacturers or imported by any person are taxable
unless they are specically exempted by order of the Minister of Finance.

1.3.4.1.4 Goods exempted

All goods manufactured for export are exempted from sales tax.

ere are other goods which are specically exempted. A complete list of goods exempted from sales tax
can be found in the Sales Tax (Goods Exempted from Tax) Order 2018.

1.3.4.1.5 Registration
A taxable person is a manufacturer who is registered or liable to be registered for sales tax. A manufacturer
is liable to be registered if the total sales value of his taxable goods for a 12-month period exceeds or is
expected to exceed RM500,000.

1.3.4.1.6 Payment of sales tax and taxable period

Sales tax is due at the time the taxable goods are sold, disposed of otherwise than by sale, or rst used
otherwise than as materials in the manufacture of taxable goods, by the taxable person. However, in
relation to the classes of petroleum that are subject to sales tax, special provisions apply regarding the time
when sales tax is due.

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 . P T (.)
1.3.4 Indirect taxes (cont.)
1.3.4.2 Service Tax

1.3.4.2.1 Eective date and scope of taxation

Service tax is a consumption tax levied and charged on:

a) any taxable services (including digital services) provided in Malaysia by a registered person in carrying
on his business;
b) any imported taxable services acquired by any person who carries on business in Malaysia; and
c) any digital services provided by a foreign registered person to a Malaysian consumer.

Special concessionary treatment is given to transactions involving Designated Areas (Labuan, Langkawi,
Tioman and Pangkor) and Special Areas (free zones, licensed warehouses, licensed manufacturing
warehouses and Joint Development Area).

1.3.4.2.2 Rate of tax

e rate of service tax is 6% ad valorem for all taxable services and digital services except for the provision
of charge or credit card services. Service tax for the provision of charge or credit card services is RM25 per
year on each principal card or supplementary card.

1.3.4.2.3 Registration
A taxable person is a person who is registered or liable to be registered for service tax. A person is liable to
be registered if the total value of his taxable services for a 12-month period exceeds or is expected to
exceed the prescribed registration threshold.

With eect from 1 January 2020, foreign digital service providers are liable to be registered if the total value
of digital services provided to Malaysian consumers for a 12-month period exceeds or is expected to exceed
the prescribed registration threshold of RM500,000.

1.3.4.2.4 Taxable persons and taxable services

Taxable services include but are not limited to the provision of accommodation premises, sale or provision of
food, drinks and alcoholic beverages, certain professional services, certain telecommunication services,
betting and gaming services, management services, security services, provision of parking space, provision
of golf course, golf driving range or services related to golf or golf driving range, courier delivery services
(other than to destinations outside Malaysia), domestic ight services, provision and issuance of charge
card or credit card whether or not annual subscription or fee is imposed, and provision of electricity to
domestic consumer.

A complete list of taxable persons and taxable services can be found in the First Schedule to the Service Tax
Regulations 2018.

1.3.4.2.5 Group relief

Service tax is not applicable to the following transactions performed among companies within a qualifying
group of companies, (i.e. subject to certain qualifying criteria):
Provision of certain professional services in Malaysia by a registered person; and
Acquisition of certain professional services from overseas by a Malaysian company.

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 . P T (.)
1.3.4 Indirect taxes (cont.)

1.3.4.2 Service Tax (cont.)

1.3.4.2.6 Exemption for specic business-to-business (B2B) services

To minimise the tax pyramiding eect on businesses, certain taxable services provided by a registered
person to another registered person who is registered for the same service are exempted from service tax
subject to certain qualifying criteria.

1.3.4.2.7 Payment of service tax by a registered person (bi-monthly)

Service tax is due when payment is received for the taxable services rendered. If payment is not received
within 12 calendar months from the date of issuance of the invoice, the tax is due on the day immediately
after the expiry of the 12-month period.

1.3.4.2.8 Payment of service tax on imported taxable service by a non-taxable person

(monthly)

A non-taxable person who acquires imported taxable services in carrying out his business is required to
account for the service tax due in a prescribed declaration to RMCD. e service tax for imported taxable
services is due at the earlier of the payment date or the date the invoice for the services is received. e
furnishing of the declaration and the payment of service tax due must be made latest by the last day of the
month following the month in which the service tax is due.

1.3.4.2.9 Payment of service tax by a foreign registered person (quarterly)

For digital services provided by a foreign registered provider, service tax is due when payment is received
for the digital services provided. Any service tax that falls due during a taxable period, is payable to the
RMCD latest by the last day of the month following the end of that taxable period. A taxable period is a
period of 3 calendar months.

1.3.5 Local taxes

In Malaysia, the Federal Government levies income tax. e State Governments impose assessments and
quit rents on properties and license fees for various businesses carried out within the states' municipalities.

1.3.6 Estate duty

ere is no estate duty in Malaysia.

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 1.4 INCOME TAX

1.4.1 Tax year

e tax year is based on the calendar year, i.e. from
1st January to 31st December. However, a company
may adopt an accounting period other than the
calendar year as its basis period.

1.4.2 Self Assessment System

Malaysian tax system is based on the Self Assessment
System (SAS).

Under the SAS, no ocial assessment will be issued

by the IRBM to taxpayers. e assessment is deemed
to be issued on the date of submission of the income
tax return.

1.4.2.1 Companies
All companies are required to le the tax returns
within 7 months from the end of the accounting
period.

1.4.2.2 Individuals
Every individual is required le a tax return to the
IRBM by 30 April of the following year. e tax ling
deadline for a person carrying on a business, such as
sole proprietor and partnership, is 30 June of the
following year.

1.4.3 Appeals
Appeals against an assessment must be lodged
within thirty (30) days after the notice of assessment
has been served by submitting a Form Q. Specic
details and the grounds of appeal should be stated in
the Form Q.

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 . P T
1.5.1 Tax residence

An individual, whether resident or not resident in Malaysia, is taxed on income accrued in or derived from
Malaysia. Foreign income derived from sources outside Malaysia and received in Malaysia is exempted from
Malaysian income tax.

An individual’s residence status is determined by reference to the number of days he is physically present in
Malaysia. Generally, an individual will be regarded as a tax resident for a calendar year if he is present in
Malaysia for a period (or periods) of 182 days or more in that calendar year.

e individual may still be considered as a tax resident for any calendar year even though he is present in
Malaysia for less than 182 days in that calendar year, if he fullls certain conditions.

Compliance requirements for an expatriate employee exercising employment in Malaysia

1.5.1.1 Upon arrival in Malaysia

An expatriate employee having a source of income in Malaysia for the rst time is required to notify the
Inland Revenue within 60 days of arrival in Malaysia.

1.5.1.2 Submission of Income Tax Return

Under the Income Tax Act 1967, all employees (regardless of whether they are resident or not for tax
purposes) are required to le their personal income tax return to the IRBM not later than 30 April in the year
following a particular YA. e obligation to le the personal income tax return would apply as long as the
employee has chargeable income for that YA.

Resident employees shall submit a Form BE (employment and non-business sources of income) whilst
non- resident employees shall submit a Form M to the IRBM not later than 30 April in the year following a
particular YA. Any additional tax payable (after deduction of Monthly Tax Deduction) should be remitted to
the IRBM on or before the submission deadline of Form BE or Form M.

An expatriate employee is required to obtain tax clearance before leaving Malaysia upon expiry of his
employment contract or cessation of employment.

Before the employee leaves Malaysia upon cessation of employment or end of contract, he is required to
obtain tax clearance from the IRBM. He is required to submit his tax return together with Notication of
cessation of employment (Leaver Form).

As part of this process, he is required to substantiate the number days he has spent in Malaysia for the
purposes of determining his tax residency status.

He must produce:

a) A travel schedule for the entire duration of his employment in Malaysia; and
b) Original passport together with a copy of the full passport (every page, including blank pages are
required to be photocopied)

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 . P T (.)
1.5.1 Tax residence (cont.)

He is required to furnish his passport to IRBM for verication. In the event, the original passport is not available,
IRBM accepts passports that have been certied by Notary Public in the home country.

Where an employee is unable to produce the above documents, he will be treated as non-tax resident and
taxed on his gross income at the rate of 30% ( w.e.f. Year of assessment 2020).

1.5.2 Rates of tax and personal reliefs

1.5.2.1 Residents

For residents, the rate of tax is on a graduated scale on the chargeable income after deduction of reliefs. e
rates of tax are as shown below:-

Individual income tax rates for residents

Year of Assessment 2020
Chargeable Income (RM) Rate % Tax Payable (RM)
First 2,500 0
Next 2,500 0 0
On 5,000 0
Next 15,000 1 150
On 20,000 150
Next 15,000 3 450
On 35,000 600
Next 15,000 8 1,200
On 50,000 1,800
Next 20,000 14 2,800
On 70,000 4,600
Next 30,000 21 6,300
On 100,000 10,900
Next 150,000 24 36,000
On 250,000 46,900
Next 150,000 24.5 36,750
On 400,000 83,650
Next 200,000 25 50,000
On 600,000 133,650
Next 400,000 26 104,000
On 1,000,000 237,650
Next 1,000,000 28 280,000
On 2,000,000 517,650
Exceeding 2,000,000 30

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 . P T (.)
e reliefs available to a resident taxpayer in Malaysia are as follows:
Personal reliefs for residents - Year of Assessment 2020
Reliefs RM
Taxpayer 9,000
Medical treatment, special needs or carer expenses for parents who are residents in
5,000
Malaysia (max); or
Parental care for father and mother (who are residents in Malaysia, aged 60 years and
above with annual income not exceeding RM24,000 per annum) Not applicable if claiming 1,500 each
medical expenses for parents.
Medical expenses for taxpayer, spouse and children on serious diseases [Include RM500
for medical examination expenses (max)] and medical expenses for fertility treatment for 6,000
taxpayer or spouse
Disabled person (further deduction):
Taxpayer 6,000
Spouse 3,500
Supporting equipment for disabled taxpayer, spouse, children or parent(max) 6,000
Wife - if she has no source of income or elects for combined assessment 4,000
Husband - if he has no source of income or elects for combined assessment 4,000
Children (claimed by either husband or wife):
Per Child (below 18 year of age, unmarried) 2,000
Disabled child (unmarried) 6,000
Per Child (over 18 years of age, unmarried)
Full-time education ("A-Level", certicate, matriculation or preparatory courses) 2,000
Overseas universities, colleges or similar establishments at degree level and
8,000
above (in addition to RM6,000 relief if for disabled child)
Local universities, colleges or similar establishments at diploma level and
8,000
above (in addition to RM6,000 relief if for disabled child)
Life insurance premiums/Approved fund contributions/Private pension fund:
Taxpayer - Life insurance (max) 3,000
Taxpayer - Contribution to approved fund contribution/private pension fund (max) 4,000
Deferred Annuity and Private Retirement Scheme (PRS) (max) 3,000
Insurance premiums for educations or medical benets (max) 3,000
Fees for acquiring, technical, vocational, industrial, scientic, technological, law, accounting,
Islamic nancing, skills or qualications at tertiary level or any course of study at post 7,000
graduate level (max)
Net amount deposited into Skim Simpanan Pendidikan Nasional for his child (max) 8,000
Social Security Organisation (SOCSO) 250
Lifestyle 2,500
Breastfeeding equipment for own use for a child aged 2 years and below (allowed once in
1,000
every 2 YAs)
Fees paid to childcare centres and kindergartens registered with Department of Social
3,000
Welfare/Ministry of Education
Special reliefs announced under National Economic Recovery Plan
Lifestyle (additional relief) - Purchase of handphone, notebook and tablet from 1.6.2020 –
2,500
31.12.2020 (proposed to be extended until 31.12.2021)
Travel expenses – accommodation expenses at premises registered with the Ministry of
Tourism, Arts and Culture Malaysia and entrance fees to tourist attraction in Malaysia paid 1,000
from 1.3.2020 – 31.12.2021

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 . P T (.)
1.5.2.2 Non-residents
For non-residents, the rate of tax is 30% on the chargeable income. No tax relief is available to non-resident.

1.5.3 Separate assessment for spouse

Spouse's income from all sources are separately assessed from that of her husband unless she elects for
her income to be combined with that of her husband (and vice versa).

1.5.4 Short term employment

Income from an employment exercised in Malaysia by a non-citizen for a period not exceeding sixty days in
a calendar year is tax exempt provided the employee is not resident in Malaysia for tax purposes for the
basis year concerned. is provision does not apply to professional entertainers and nonresident directors.

1.5.5 Employment Income

Employees exercising employment in Malaysia are taxed on their full income from the exercise of that
employment, notwithstanding that part of their income may be paid to them from outside Malaysia, or that
their employer does not have any oces in Malaysia.

Gross income from employment includes:

a) Any wages, salary, remuneration, leave pay, fees, commission, bonus, gratuities, perquisites or allowanc-
es, payment of household expenses, club subscriptions, subsidised interest on loan, school fees for
children (whether in money or otherwise);
b) Value of the use of or enjoyment of any benets or amenities (i.e. use of employer’s motor vehicle,
provision of clothing, household furniture, driver’s services, etc.);
c) Payment of income tax borne by the employer;
d) Provision of overseas passages exceeding RM3,000 per annum;
e) Living accommodation provided by the employer.

e IRBM has issued Public Rulings to explain the tax treatment in relation to taxable benets-in-kind
(“BIK”) and perquisites provided to employees and the method of ascertaining the assessable value of BIK
and perquisites.

Leave passages within Malaysia (not exceeding three times in any calendar year) provided by the employer
are not taxable on the employee.

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 . W T

1.6.1 Payments to non-residents

Certain payments to non-resident persons may be subject to withholding tax. Withholding tax (at the rates
below but subject to the provisions in the relevant tax treaty) must be deducted from the following payments
to non-resident persons and paid to IRBM within one (1) month of paying or crediting the amount to the
payee:-

Type of Payment Withholding Tax Rate

Interest 15%
Royalty 10%
Non-resident contractor
Service portion of contract payments 10%
Expatriate and Foreign Employees of the above 3%
Rental of moveable properties 10%
Public entertainers 15%
Advice, assistance or services given or performed in Malaysia 10%
Gains of prots falling under Section 4(f) of the ITA such as commission,
guarantee fees, introducer’s fees [if non-business income of payee; 10%
refer to item 1.1(f) above]

A 10% penalty on the unpaid or outstanding withholding tax will be imposed on the payer if the payer fails to
remit the withholding tax to the IRBM within one (1) month of payment or crediting the amount to the
non-resident payee. In addition, the payment to the non-resident may not be allowable for tax deduction if
the withholding tax requirements are not complied with.

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 . T I

Malaysia has a wide range of tax incentives for the promotion of investments in selected industry sectors,
which include manufacturing, agricultural, information and communications technology (“ICT”), research
and development, among others. Some of the major tax incentives available in Malaysia are highlighted
below.

1.7.1 Pioneer Status

A company given Pioneer Status (“PS”) are generally granted exemption from the payment of income tax
of 70% or 100% of the company’s statutory income (income after deduction of allowable expenses and
capital allowances). e period of tax exemption is 5 or 10 years, commencing from the “production date”
as determined by the Ministry of International of Trade and Industry (“MITI”). e 100% tax exemption may
be granted for certain projects of national and strategic importance, with consideration to projects in high
technology industries with heavy capital investment, high R&D content or industrial linkages and etc.

PS is available to companies engaged in certain promoted activities or producing certain promoted products.
e list of promoted activities and promoted products is subject to review and update by the Malaysia
Investment Development Authority (“MIDA”) to align with the Government’s investment policies.

1.7.2 Investment Tax Allowance

A company given Investment Tax Allowance (“ITA”) will be granted an allowance of 60% or 100% in respect
of qualifying expenditure incurred within 5 or 10 years from an approved date. e ITA may be utilised
against up to 70% or 100% of the statutory income in the year of assessment. Any unutilised ITA can be
carried forward to subsequent years indenitely until fully utilised. A 100% ITA may be granted for certain
projects of national and strategic importance.

ITA is available to companies engaged in certain promoted activities or producing certain promoted products.
e list of promoted activities and promoted products is subject to review and update by the MIDA to align
with the Government’s investment policies.

1.7.3 Reinvestment Allowance

Reinvestment Allowance (“RA”) is available to certain manufacturing / agricultural companies that are in
operation for not less than 36 months and reinvests in a qualifying project of expansion, modernisation,
automation or diversication of its business. RA is granted at the rate of 60% on the qualifying capital
expenditure incurred and is in addition to any capital allowance claim. e RA is utilized against up to 70% (or
100% if certain further conditions are met) of statutory income of the company from its business source in
respect of the qualifying project. RA is granted for a period of 15 consecutive years from the rst year of
claim by a company. Any unutilised RA can be carried forward up to a maximum of 7 consecutive YAs after
the expiry of the aforementioned 15 consecutive years period.

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 . T I (.)
1.7.3 Reinvestment Allowance (cont.)

For companies who have exhausted the above 15 consecutive years qualifying period, a special RA
incentive period is granted for up to 3 additional years from YA 2020 to YA 2022 in the following manner:

YA in which the previous 15 consecutive YAs ended YA in which capital expenditure incurred qualies for
the claim of special RA

YA 2019 or any other preceding YA YAs 2020, 2021 and 2022

YA 2020 YAs 2021 and 2022

YA 2021 YA 2022

1.7.4 Principal Hub

A Principal Hub is a locally incorporated company that uses Malaysia as a base to conduct its regional or
global businesses and operations for the purpose of management, control and support function including
risk management, decision making, strategic business activities, commerce, nance, management and
human resource. e Principal Hub incentive grants concessionary income tax rates of 0%, 5% and 10% for
a period of 5 years of assessment (with possibility of extension for another 5 years of assessment), subject
to meeting the relevant conditions.

e PH incentive is available for applications received by Malaysian Investment Development Authority

(MIDA) up to 31 December 2022.

1.7.5 Incentive for research and development

e Promotion of Investments Act 1986 (“PIA”) denes research and development (“R&D”) as "any systematic
or intensive study carried out in the eld of science or technology with the objective of using the results of
the study for the production or improvement of materials, devices, products, produce or processes, but
does not include quality control of products or routine testing of materials, devices, products or produce,
research in the social sciences or humanities, routine data collection, eciency surveys or management
studies, and market research or sales promotion.”

e following R&D Companies are eligible to the tax incentives to be granted by MIDA:

R&D Company Tax incentives

- PS with income tax exemption of 100% of

the statutory income for 5 years; or
Contract R&D Company
(i) - ITA of 100% on qualifying capital
-A company which provides R&D services in Malaysia only
expenditure incurred within 10 years. e
to companies other than its related companies
ITA can be oset against up to 70% of the
statutory income for each YA.

General Information on Malaysian Taxation | Page 18

 . T I (.)

1.7.5 Incentive for research and development (cont.)

R&D Company Tax incentives

R&D Company
- A company which provides R&D services in Malaysia to its
related companies or to any other company. - ITA of 100% on qualifying capital
expenditure incurred within 10 years. e
Eligibility: ITA can be oset against up to 70% of the
-Research undertaken should bring benet to the economy; statutory income for each YA.

- At least 70% of the Company’s income should be derived

(ii)
from R&D activities; Note:
- For manufacturing-based R&D, at least 50% of the -Should the company opt not to avail itself
workforce of the company must be appropriately qualied of the ITA, its related companies may enjoy
personnel performing research and technical functions; and double deduction for payments made to
- For agriculture-based R&D, at least 5% of the workforce the R&D company for services rendered.
of the company must be appropriately qualied personnel
performing research and technical functions.

In house R&D Project

- ITA of 50% on qualifying capital
(iii) -A company that undertakes in-house R&D to further its expenditure incurred within 10 years. e
business. ITA can be oset against up to 70% of the
statutory income for each YA.

Reinvestment in R&D Activities

(iv) -A company that undertakes the R&D activities mentioned - Second round of PS or ITA [refer to the
in categories (i) to (iii) respective categories (i) to (iii) above] .

1.7.6 MSC Malaysia Status

MSC Malaysia Status is a recognition granted by the Government of Malaysia through the Malaysia Digital
Economy Corporation (“MDEC”), for ICT and ICT-facilitated businesses that develop or use multimedia
technologies to produce and enhance its products and services.

General Information on Malaysian Taxation | Page 19

 . T I (.)

1.7.6 MSC Malaysia Status (cont.)

e following services are MSC Malaysia promoted activities:

1) Big data analytics (“BDA”);

2) Articial intelligence (“AI”);
3) Financial technology (“FinTech”);
4) Internet of things (“IOT”);
5) Cybersecurity (technology/software/design and support);
6) Data centre and cloud (technology/software/design and support);
7) Blockchain;
8) Creative media technology;
9) Sharing economy platform;
10) User interface and user experience (“UI/UX”);
11) Integrated circuit (“IC”) design and embedded software;
12) 3D printing (technology/software/design and support);
13) Robotics (technology/software/design);
14) Autonomous (technology/software/design and support);
15) Systems/network architecture design and support; or
16) Global business services or knowledge process outsourcing excluding non-technical
and/or low value call center; data entry; and recruitment process outsourcing.

e income tax benets for MSC Malaysia Status companies are summarised as follows:

Category 1 Category 2 Category 3

Income tax exemption on statutory income derived from services provided in

Incentive
relation to MSC Malaysia Status promoted activities (excluding royalty or other
income derived from an intellectual property right)

Statutory income
exempted 100% 70%

5 + 5 years (if extension

approved, provided that the
Incentive period 5 + 5 years (if extension approved) company changed to Category
1 or Category 2 and fullls the
conditions imposed)

Designated premises Other commercial

Location of approved
within MSC Malaysia premises within MSC
MSC Malaysia Not applicable
Cybercities or Malaysia Cybercities or
promoted activities
Cybercentres Cybercentres

General Information on Malaysian Taxation | Page 20

 . L I B
 F C (“IBFC”)

1.8.1 Introduction

e Federal Territory of Labuan was established as an International Oshore Financial Centre on 1 October
1990 to further enhance the attractiveness of Malaysia as an investment centre. ¬e name was changed
to Labuan IBFC in January 2008 to reect the location’s growing international status.

Income from carrying out Labuan business activity by Labuan entities are subject to tax under Labuan
Business Activity Tax Act 1990. However, the Labuan entity may make an irrevocable election to tax its
income from Labuan business activity under Income Tax Act 1967.

Labuan business activity means a Labuan trading or a Labuan non-trading activity carried on in, from or
through Labuan, excluding any activity which is an oence under any written law.

Approved Labuan trading activities include banking, insurance, trading, management, licensing, shipping
operations and any other activity which is not a Labuan non-trading activity.

Labuan non-trading activity means an activity relating to the holding of investments in securities, stocks,
shares, loans, deposits or any other properties situated in Labuan by a Labuan entity on its own behalf.

Labuan entities can now enter into transactions with Malaysian residents (however, tax deductions claimable
by the Malaysian residents would be restricted).

1.8.2 Tax for companies

1.8.2.1 Tax Rates

e tax payable by a Labuan entity on its approved Labuan trading activities is 3% of the net prots per the
audited accounts for each year of assessment; excluding any income derived from royalty and intellectual
property right which will be subject to tax under the Income Tax Act 1967. Income from Labuan non-trading
activity is not subject to tax

In order to enjoy the above, the Labuan entity is required to meet the minimum substantial activity
requirements i.e. number of full time employees and annual operating expenditure in Labuan. e minimum
substantial activity requirements vary depending on the type of Labuan business activity. If the substantial
activity requirements are not met, the Labuan business activity is taxed at 24% of the net prots per the
audited accounts instead. Non-Labuan business activities by a Labuan entity are taxed under the Income
Tax Act 1967.

General Information on Malaysian Taxation | Page 21

 . L I B
 F C (“IBFC”)
(C.)

1.8.2 Tax for companies (cont.)

1.8.2.2 Withholding tax

Dividends, royalties, interest, service fees and income under Section 4(f) of the Income Tax Act 1967 paid by
a Labuan company to a non-resident person or another Labuan company are exempted from income tax
and thus not subject to withholding tax. However, rental of moveable property paid to a non-resident
person does not enjoy this exemption, with the exception of Labuan banks or Labuan companies carrying
out leasing business.

1.8.2.3 Exemption from stamp duty

e following instruments are exempted from stamp duty:

a) All instruments which are executed by a Labuan entity in connection with a Labuan business
activity;
b) All Memorandum and Articles of Association, statute, charter, rules, by-laws, partnership agreement
or other instrument, under or by which a Labuan entity is established and the scope of that
entity’s function, business, powers and duties are set out, whether contained in one or more
documents; and
c) All instruments of transfer of shares in a Labuan entity.

1.8.3 Individual taxation

Individuals exercising employment in Labuan are subject to tax under Income Tax Act 1967. However, the tax
exemptions below are available until YA 2020.

For Malaysian citizens, the housing allowance and Labuan Territory allowance from exercising employment
in Labuan with a Labuan entity are granted a tax exemption of 50% on the said allowances.

However, a non-citizen individual employed in a managerial capacity with a Labuan entity in Labuan,
co-located oce or marketing oce is granted an exemption of 50% of his gross income from such
employment.

A non-citizen individual acting in his capacity as a director of a Labuan entity is exempted from income tax
in respect of director’s fee received.

General Information on Malaysian Taxation | Page 22

COMMUNICATION

Dato’ Robert Teo Ng Ah Bah

Chairman Executive Tax Director
T +603 2610 2886 T +603 2610 2827
E [email protected] E [email protected]

Corporate Tax

Owen Wong Nicole Chong

Tax Director Tax Director
T +603 2610 2829 T +603 2610 2830
E [email protected] E [email protected]

Lim Sok Jiuan

Associate Tax Director
T +603 2610 2842
E [email protected]

Transfer Pricing

Selvi Permal
Tax Director
T +603 2610 2828
E [email protected]

Indirect Tax

Mayadevi Karpayah Kalvinder Singh

Tax Director Senior Tax Manager
T +603 2610 2831 T +603 2610 2863
E [email protected] E [email protected]

Field Audit and Investigation

Ng Ah Bah Chang Suang Yue

Executive Tax Director Tax Manager
T +603 2610 2827 T +603 2610 2862
E [email protected] E [email protected]

Personal Tax

Mayadevi Karpayah Lynda

Tax Director Senior Tax Manager
T +603 2610 2831 T +603 2610 2832
E [email protected] E [email protected]
RSM Tax Consultants (Malaysia) Sdn Bhd
5th Floor, Penthouse, Wisma RKT,
Block A, No.2 Jalan Raja Abdullah O Jalan Sultan Ismail,
50300 Kuala Lumpur,
Malaysia

Johor Bahru Office

Suite 16-02, Level 16, Menara Landmark,
No. 12, Jalan Ngee Heng,
80000 Johor Bahru,
Malaysia

General Email [email protected]

Website www.rsmmalaysia.my

RSM Malaysia (AF:0768) is a member of the RSM network and trades as RSM. RSM is the trading
name used by the members of the RSM network.

Each member of the RSM network is an independent accounting and advisory rm each of which
practices in its own right. e RSM network is not itself a separate legal entity of any description in
any jurisdiction. e RSM network is administered by RSM International Limited, a company
registered in England and Wales (company number 4040598) whose registered oce is at 50
Cannon Street, London, EC4N 6JJ.

e brand and trademark RSM and other intellectual property rights used by members of the
network are owned by RSM International Association, an association governed by article 60 et seq
of the Civil Code of Switzerland whose seat is in Zug.

is article is not intended to provide specic business or investment advice. No responsibility for
any errors or omissions nor loss occasioned to any person or organisation acting or refraining from
acting as a result of any material in this website can, however, be accepted by the author(s) or RSM
International. You should take specic independent advice before making any business or investment
decision.

© RSM International Association, 2021