Tax Incentives For The Manufacturing Sector

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Listed below are some of the incentives available to SMEs. As the list is not exhaustive, kindly contact the respective agencies that are offering the incentives for more detailed information.

Pioneer Status
A company granted Pioneer Status will enjoy partial exemption from the payment of income tax depending on the type of promoted activities and products of the company. In general, they will only have to pay tax on 30% of statutory income. The period of tax exemption is five years, commencing from the Production Day (defined as the day its production level reaches 30% of its capacity).

Accumulated losses and unabsorbed capital allowances incurred during the pioneer period by companies whose pioneer status will expire on and after 1 October 2005 are allowed to be carried forward and deducted against post-pioneer income of a business relating to the same promoted activity or promoted product.

To encourage investment in the promoted areas, ie the States of Perlis, Sabah and Sarawak and the designated “Eastern Corridor” of Peninsular Malaysia, applications received from companies located in these areas will enjoy a 100% tax exemption on their statutory income during their 5-year exemption period. All project applications received by 31 December 2010 will be eligible for this enhanced incentive. The “Eastern Corridor” comprises Kelantan, Terengganu, Mersing in Johor, and Pahang (excluding the districts of Lipis, Raub, Jerantut and Cameron Highlands – except those approved industrial estates located in these districts).

Msc status companies

MSC status multimedia companies operating in Malaysia MSC Cybercities/Cybercentres namely Cyberjaya, Technology Park Malaysia, Kuala Lumpur City Centre, UPM-MTDC, Penang Cybercity-1, Kulim High Tech Park in Kedah, KL Sentral, Melaka International Trade Centre and MSC Cyberport Johor as well as multimedia faculties in institutions of higher learning outside the cybercities, are eligible for the following incentives:

  • Pioneer Status with a tax exemption of 100% of the statutory income for a period of 10 years or Investment Tax Allowance of 100% on the qualifying capital expenditure incurred within a period of five years to be offset against 100% of statutory income for each year of assessment.
  • Eligibility for R&D grants (for majority Malaysian-owned MSC Status companies)

Applications for MSC Status should be submitted to the MDeC while applications for Pioneer Status should be submitted to the Malaysian Industrial Development Authority (MIDA).

Investment Tax Allowance (ITA) As an alternative to Pioneer Status, a company may apply for Investment Tax Allowance, which amounts to an allowance of 60% in respect of qualifying capital expenditure incurred within five years from the date on which the first qualifying capital expenditure is incurred. The allowance can be utilised to offset against 70% of the statutory income in the year of assessment. Any unutilised allowance can be carried forward to subsequent years until the whole amount has been used up. The remaining 30% of the statutory income will be taxed at the prevailing company tax rate. However, as with Pioneer Status, companies located in the States of Perlis, Sabah, Sarawak and the designated “Eastern Corridor” of Peninsular Malaysia are eligible for an allowance of 100% on the qualifying capital expenditure incurred within a period of five years. The allowance can be utilised to offset against 100% of the statutory income for each year of assessment. This additional incentive is applicable for all applications received from 13 September 2003 to 31 December 2010. All applications should be submitted to MIDA.