Budget to attract the high tech firms

Kota Kinabalu: To attract high tech companies to set up operation hub in Malaysia, a maximum of five foreign company staff, approved for relocating their operation to Malaysia and undertaking new investments with effect from Nov 7, 2020 to Dec 31, 2021, are welcomed with special individual tax rate at 15 per cent, provided they hold key position/C-Suite position for five consecutive years of assessment with a monthly salary of not less than RM25,000.

“The scope of the tax incentive is to be expended to companies in selected services sector including companies adopting Fourth Industrial Revolution processes (IR4.0) and digitalisation technology with investment that contribute multiplier effect in the following services: 

1. Provision of technology solutions.
2. Technology company which develops technology solutions based on substantial scientific or engineering challenges.
3. Provision of infrastructure and technology for cloud computing.
4. Research and development or design and development activities.
5. Medical devices, testing laboratory, and clinical trials.
6. Any manufacturing or services as determined by the Minister of Finance.

Tax incentives offer:

• New company – Income tax rate of 0 per cent to 10 per cent for a period up to 10 years.
• Existing company with new services segment – Income tax rate of 10 per cent for a period up to 10 years.
• For the selected services sector, the application must be received by Mida from Nov 7, 2020 until Dec 31, 2022.
• For manufacturing sector activities, application must be received by Mida until Dec 31, 2022.”

ADVERTISEMENT

This was explained by Tax Director of Messrs Cheng & Co, accountant Lam Kwai Soon (pic) in a G&A Group organised Zoom seminar “2021 Budget Talk & CEO Outlook” moderated by Dato’ George Lim of G&A Group, recently.

“For research and development (R&D), an investor company gets to enjoy tax deduction equivalent to the amount of investment made in a subsidiary company that commercialises the R&D findings of public research institutions including public higher learning institutions and private higher learning institutions.

“For the subsidiary company that commercialises R&D findings gets to enjoy tax exemption of 100 per cent of statutory income for 10 years. The activities or products are subject to the list under the Promotion of Investment Act 1986. Application to MIDA must be from Nov 7, 2020 to Dec 31, 2025.

“Review of tax incentive for Principal Hub involves extension for another two years until Dec 31, 2022, with conditions for renewal for the following five years to be relaxed, provided that the company’s annual operational expenditure is at least RM10 million.”

Currently, the review of tax incentives for companies relocating their operation to Malaysia for new companies enjoy a 0 per cent income tax rate for 10 years if their investment in fixed assets is between RM300 million to RM500 million.

If the new companies’ investment in fixed assets is above RM500 million, they get to enjoy an additional five years of 0 per cent income tax rate, a total of 15 years.

ADVERTISEMENT

For existing companies, they get to enjoy an investment tax allowance of 100 per cent for five years.

The incentives are available for eligible manufacturing companies with the following conditions:

1. Incur first capital expenditure within one year after approval.
2. To meet the investment in fixed assets within three years from the date of the first date of capital expenditure incurred.

“Regional or global operations for the purpose of management, control and support function including risk management, decision making, strategic business management are qualified to be considered for Principal Hub.”

For a Tier 1 existing company gets to enjoy a 10 per cent tax rate for five years of assessment, provided the company employed a minimum of 30 high valued workers and five key posts personnel.

For a Tier 1 new company with annual operational expenditure at least RM10 million, it gets to enjoy zero per cent for five years of assessment and renewable for another five years.

For a Tier 2 new company, with annual operational expenditure at least RM5 million, it gets to enjoy a two to five per cent tax rate for five years of assessment and renewable for another five years. 

Manufacturer that reinvests in the following projects gets to enjoy 15 years of Reinvestment Allowance with special extension to years of assessment 2020 and 2021: 

1. Expansion
2. Automation
3. Modernisation
4. Diversification

It is stated that 60 per cent of the Reinvestment Allowance can be contra against 70 per cent of the Statutory Income.

On tax incentive for investment in equity crowd-funding, Lam said:

“Individual investors will be given income tax exemption on Aggregate Income (AI) equivalent to 50 per cent of the amount investment made in equity crowdfunding subject to the following conditions:  

1. Eligible amount for tax exemption is limited to RM50,000 for each year of assessment.
2. Deductible amount is limited to 10 per cent of AI for a year of assessment and excess amount will be disregarded.
3. Investor, investee and investment amount made must be verified by the Securities Commission (SC) Malaysia.
4. Investor and investee must not have any family relationship with each other.
5. Investment must be made through equity crowdfunding platforms approved by SC.
6. Investment must not be disposed of in full or in part within two years.

“The effective date is between Jan 1, 2021 to Dec 31, 2023,” Lam explained.