The global manufacturing industry has been developing rapidly in recent years, entering an era of “Industry 4.0” where digital transformation dominates production lines. Malaysia, ranking 17th in the Global Manufacturing Competitiveness Index 2016, is surely a significant player in the game. Since the manufacturing industry is a crucial drive of the country’s economy, the government has launched various incentives to draw and retain foreign investors. The Malaysian Investment Development Authority (MIDA) is the statutory body in charge of foreign direct investment and industrial development in Malaysia. Their policies offer attractive opportunities for entrepreneurs and business owners around the world.
The Malaysian government offers two major tax incentives for the manufacturing industry, namely Pioneer Status (PS) and Investment Tax Allowance (ITA). Acquiring a PS allows an income tax exemption of 70% to 100% of statutory income for 5 to 10 years. Furthermore, unabsorbed capital allowances and accumulated losses incurred during the pioneer period can be carried forward and deducted from the post–pioneer status of the company.
On the other hand, a company granted with an ITA can obtain an allowance of 60% to 100% on qualifying capital expenditure (such as factory, plant, machinery or other equipment used for the approved project) incurred within 5 to 10 years from the date when the first qualifying capital expenditure is incurred. This is a more beneficial option if the company’s approved project has a longer gestation period and higher capital expenditure.
To enjoy these tax incentives, application shall be made to MIDA. It typically takes around 6 weeks for the application to be processed.
If you wish to carry out manufacturing activities in Malaysia, you need to first set up a private limited company under the Industrial Co-ordination Act 1975, and then evaluate whether or not a manufacturing licence is required for your company.
To be eligible for a manufacturing licence in Malaysia, the Project’s Capital Investment Per Employee (CIPE)1 of the company shall reach at least MYR140,000 (approximately HK$280,000), and at least 80% of the company’s total full-time workforce shall be Malaysians. Furthermore, at least 25% of the full–time workforce shall be managerial, technical and supervisory staff with a degree and/or diploma/certificate, or alternatively, your product’s value–addedness shall be at least 40%.
There are, however, certain criteria where a manufacturing licence can be exempted. If your company’s paid-up capital or shareholder’s fund does not exceed RM2.5 million or if your company hires fewer than 75 employees, you are not required to apply for the licence. One should note that even if a company is exempted from a manufacturing licence, the company is also eligible to apply for PS or ITA subject to their respective regulations. You may refer to the list of promoted activities and products within the scope of PS or ITA.
Application for a manufacturing licence shall also be made to MIDA. Processing normally takes around 4 weeks.
If you need advice or assistance in incorporating a company in Malaysia or determining the relevance of a manufacturing licence or tax incentives to your business, you are welcome to reach out to our Malaysia-based Legal Manager Ms Loo Hao Min any time.
1 CIPE refers to the total amount of capital employed to generate earnings, divided by the total number of employees in the company.
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