Contents. General Incentives 2 Knowledge-based Economy 4. Manufacturing 3 Operational HQ 15. Agriculture 6 Procurement Centre 16

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PT KLANG FREE ZONE SDN BHD (708970-U) P.O. Box 261, Jalan Pelabuhan, 42009 Pt Klang, Selang D.E., Malaysia Jalan FZ 2-P5, Pt Klang Free Zone / KS 12, 42920 Pulau Indah, Selang Darul Ehsan Tel : +603 3101 5568 Fax : +603 3101 4489 E-mail : info@pkfz.

1 PT KLANG FREE ZONE SDN BHD ( U) P.O. Box 261, Jalan Pelabuhan, Pt Klang, Selang D.E., Malaysia Jalan FZ 2-P5, Pt Klang Free Zone / KS 12, Pulau Indah, Selang Darul Ehsan Tel : Fax : info@pkfz.com Website : Contents General Incentives 2 Knowledge-based Economy 4 Manufacturing 3 Operational HQ 15 Agriculture 6 Procurement Centre 16 Environment 8 Regional Office 17 Research & Development 9 Market Suppt Service 18 Training 10 Logistic Services 19 Infmation And Communication Technology 11 Cold Chain 20 Service Project 12 Central Utility 21 Shipping & Transpt 13 1

2 General Incentives General Incentives covers other incentives and may be applicable to the following sects: A) Manufacturing B) Agriculture C) Environmental management D) Research and development F) Training G) Infmation and communication technology H) Approved services project I) Manufacturing related services 1. Industrial building allowance (IBA) 2. Tariff related incentives 1. Exemption from impt duty on raw materials/components 2. Incentive f Outsourcing manufacturing activities. 3. Exemption from impt duty and sales tax on machinery and equipment 4. Exemption from impt duty and sales tax on spares and consumables. 5. Drawback on impt duty, sales tax and excise duty. 6. Impt duty exemption on impted medical devices f purpose of kitting. 3. Incentives f Expt 1. Double deduction f the promotion of expts 2. Single deduction f the promotion of expts. 3. Double deduction on expt credit insurance premiums. 4. Special industrial building allowance f warehouses. 5. Double deduction on freight charges. 6. Double deduction f the promotion of Malaysian brand names. 4. Training incentives 1. Double deduction f approved training. 2. Deduction f pre-employment training. 3. Deduction f non-employee training. 4. Deduction f cash contributions. 5. Human resource development fund (HRDF) 6. Special industrial building allowance f training. 5. Incentives f the use of environmental protection equipment 6. Donation f environmental protection 7. Incentives f Employees' Child Care Facilities 2

3 Incentives F The Manufacturing No Incentives by Sectal 1.0 Incentives F The Manufacturing 1.1 Main Incentives f Manufacturing Companies (Appendix A: List of Promoted Activities and Products-General) 1.2 Incentives f High Technology Companies (Appendix B: List of Promoted Activities and Products-General) 1.3 Incentives f Strategic Projects: involve products activities of national imptance. 1.4 Incentives f Small and Medium- Scale Companies (Appendix C: List of promoted activities f Small-Scale Companies) F me infmation on your investment opptunities, click here. No Incentives by Sectal 1.5 Incentives to Strengthen Industrial Linkages a) Industrial Linkage Programme (ILP) (Appendix IV: List of Promoted Activities and Products - Industrial Linkage Programe (ILP) b) Vends in an approved ILP F me infmation on your investment opptunities, click here. No Incentives by Sectal 1.6 Incentives f the Machinery and Equipment Industry a) Incentives f the Production of Specialised Machinery and Equipment: b) Additional Incentives f the Production of Heavy Machinery: 3

4 c) Incentives f Automotive Component Modules: F me infmation on your investment opptunities, click here. No Incentives by Sectal Enhanced Incentives f the Utilisation of Oil Palm Biomass: Applications received from 13 September 2003 from companies that utilise oil palm biomass to produce value-added products such as particleboard, medium density fireboard, plywood, pulp and paper a) New Companies b) Existing Companies that Reinvest No Incentives by Sectal 1.8 Additional Incentives f the Manufacturing Sect a) Reinvestment Allowance b) Accelerated Capital Allowance c) Accelerated Capital Allowance on Equipment to Maintain Quality of power supply d) Tax Exemption on the Value of Increased Expts: To promote expts, manufacturing companies in Malaysia qualify f: e) To further encourage the expt of Malaysian goods, a locally-owned manufacturing company with Malaysian equity of at least 60% is eligible. These incentives are effective from the year of assessment 2003 A tax exemption on the statuty income equivalent to 10% of the value of increased expts, provided that the goods expted attain at least 30% value-added A tax exemption on the statuty income equivalent to 15% of the value of increased expts provided that the goods expted attain at least 50% value-added A tax exemption on the statuty income equivalent to 30% of the value of increased expts, provided the company achieves a significant increase in expts A tax exemption on the

5 statuty income equivalent to 50% of the value of increased expts, provided the company succeeds in penetrating new markets A full tax exemption on the value of increased expts, provided the company achieves the highest increase in expt in its categy 1.9 Please refer to Section General Incentives f other incentives related to the manufacturing sect 5

6 Incentives F Agricultural And Food Sect No Incentives by Sectal 2.0 Incentives F Agricultural And Food Sect 2.1 1) Agro-based cooperative societies and associations, 2) Sole proprietships and partnerships engaged in agriculture Refer to Appendix A: No Incentives by Sectal 2.2 Incentives f Food Production 6 In view of the time lag between start-up and processing of the produce, integrated agricultural projects qualify f ITA f an additional five years f expenditure incurred f processing manufacturing operations. Incentives f New Projects: Incentive Package A: Incentive Package B: 2.3 Incentives f Existing Companies which Reinvest 2.4 Tax Incentives f 'Halal' Food Production 2.5 Incentives f Reinvestment in Food Processing Activities No Incentives by Sectal 2.6 Additional Incentives f the Agricultural Sect a) Reinvestment Allowance: b) Reinvestment Incentives f Resourced-Based Industries: c) Accelerated Capital Allowance d) Tax Exemption on the Value of Increased Expts e) Incentives f Companies providing Cold Chain Facilities and Services f Food Products Investment Tax Allowance f) Double Deduction f Expenses to Obtain "Halal" Certification and Quality Systems and Standards Certification g) Double Deduction on Freight Charges f Expt of Rattan and

7 Wood-based Products 2.7 Please refer to Section General Incentives f other incentives related to the agricultural sect. 7

8 Incentives F Environmental Management No Incentives by Sectal 3.0 Incentives F Environmental Management 3.1 Incentives f the Stage, Treatment and Disposal of Toxic and Hazardous Wastes 3.2 Incentives f Energy Conservation 3.3 Incentives f Waste Recycling Activities 3.4 Incentives f the Use of Renewable Energy Resouirces No Incentives by Sectal 3.5 Additional Incentives f Environmental Management a) Accelerated Capital Allowance b) Accelerated Capital Allowance f Equipment Used f the Generation of Renewable Energy f Own Consumption 3.6 Please refer to Section General Incentives f other incentives related to the environmental management. 8

9 Incentives F Research And Development No Incentives by Sectal 4.0 Incentives F Research And Development The Promotion of Investments Act 1986 defines research and development (R&D) as "any systematic intensive study carried out in the field of science technology with the object of using the results of the study f the production improvement of materials, devices, products, produce processes but does not include: quality control of products routine testing of materials, devices, products produce research in the social sciences humanities routine data collection efficiency surveys management studies market research sales promotion. No Incentives by Sectal 4.1 Main Incentives f Research and Development i) Contract R&D Company ii) R&D Company iii) In-house Research iv) Second Round Incentives - second round f another 5 years - second round f further 10 years v) Incentives f Commercialisation of Public Sect R&D 4.2 Additional Incentives f Research and Development a) Double Deduction f Research and Development b) Incentives f Researchers to Commercialise Research Findings 9

10 Incentives F Training No Incentives by Sectal 5.0 Main Incentives F Training Additional Incentives f Training a) Special Industrial Building Allowance b) Tax Exemption on Educational Equipment c) Tax Exemption on Royalty Payments 10

11 Incentives F Infmation And Communication Technology No Incentives by Sectal 6.0 Incentives F Infmation And Communication Technology 6.1 Incentives f Software Development 6.2 Additional Incentives f the used of ICT a) Accelerated Capital Allowance b) Other ICT Incentives: single deduction on: Operating expenditure including payments to consultants related to IT usage f improving management and production processes. Contributions in cash kind f ICT acculturation projects at local community levels. This is effective until the year of assessment Computers given by employers to their employees until the year of assessment of 2003 are not deemed as income. c) Tax Exemption on the Value of Increased Expts 11

12 Incentives F Approved Service Projects No Incentives by Sectal 7.0 Incentives F Approved Service Projects 7.1 Main Incentives f ASPs 7.2 Companies undertaking ASPs of national and strategic imptance 7.3 Additional Incentives f ASPs Exemption under Section 127 of the Income Tax 1967 (Tax Exemption ) Investment Allowance (IA) under Schedule 7B of the Income Tax Act 1967 Exemption under Section 127 of the Income Tax 1967 Investment Allowance (IA) under Schedule 7B of the Income Tax Act 1967 Others 12

13 Incentives F The Shipping And The Transptation Industry No Incentives by Sectal 8.0 Incentives F The Shipping And The Transptation Industry 8.1 Tax Exemption f Shipping Operation 8.2 Exemption from Impt Duty and Sales Tax on Prime Movers and Trailers 13

14 Incentives F A Knowledge-based Economy No Incentives by Sectal 9.0 Incentives F A Knowledge-based Economy "Strategic Knowledge-based Status". These companies must have the following characteristics: 1. the potential to generate knowledge content 2. high value-added operations 3. usage of high technology 4. a large number of knowledge wkers 5. possess a cpate knowledge-based master plan 9.1 Companies granted "Strategic Knowledge-based Status" are eligible f the following incentives: 9.2 Other Incentives Investment Tax Allowance 14

15 Incentives F Operational Headquarters No Incentives by Sectal 10.0 Incentives F Operational Headquarters 10.1 Approval f OHQ Status Companies that meet the following criteria can apply f OHQ status and incentives: Locally incpated under the Companies Act,1965 A minimum paid-up capital of RM0.5 million A minimum total business spending (operating expenditure) of RM1.5 million per year Appoint at least three seni professionals/management personnel Serve at least three related companies outside Malaysia Have a sizeable netwk of companies outside Malaysia which includes the parent company headquarters, and other related companies Have a well-established netwk of companies that employ a significant and substantial number of qualified professionals, technical and suppting personnel Carry out a minimum of three (3) qualifying services 10.2 Equity Requirement 10.3 Incentives: tax exemption f a period of 10 years 1. Business Income 2. Interest 3. Royalties 10.4 Others Benefits 10.5 Expatriate Employment 15

16 Incentives F International Procument Centres / Regional Distribution Centres No 11.0 Incentives by Sectal Incentives F International Procument Centres/Regional Distribution Centres International Procurement Centres (IPCs) Regional Distribution Centres (RDCs) 11.1 Approval f IPC/RDC Status Companies that meet the following criteria can apply f an IPC/RDC status: Incpated under the Companies Act, 1965 A minimum paid-up capital of RM0.5 Million A minimum total business spending (operating expenditure) of RM1.5 million per year Utilisation of Malaysian pts airpt A minimum annual sales turnover of RM 50 million by the third year of operation Domestic sales of not me than 20% of its sales value. Not me 30% of its annual sales turnover is derived from sourcing of goods from outside Malaysia to overseas destinations via drop shipment Equity Requirement 11.3 Incentives An approval IPC/RDC status company can be considered f: 1. Full tax exemption of its statuty income f 10 years, under Section 127, Income Tax Act. 2. Dividends paid from the exempt income will be exempted from tax in the hands of its shareholders Eligibility criteria: 11.4 Others Benefits 11.5 Expatriate Employment 16

17 Incentives F International Procument Centres / Regional Distribution Centres No Incentives by Sectal 12.0 Incentives F Representative/Regional Offices A Representative Office/Regional Office of a feign company based in Malaysia perfms permissible activities f its headquarters/principal. Such offices be totally funded from sources outside Malaysia and are not required to be incpated registered under the Companies Act, 1965 be registered with the Companies Commission of Malaysia (CCM) An approved Representative/Regional Office is allowed to carry out the following activities: 12.2 Equity Requirements 12.3 Incentives Expatriates wking in Regional Offices are taxed only on the ption of their chargeable income attributable to the number of days they are in Malaysia Expatriate Employment 17

18 Incentives F Market Suppt Services No Incentives by Sectal 13.0 Incentives F Market Suppt Services 13.1 Approval f Establishment 13.2 Equity Requirement 13.3 Eligibility criteria: a) Branding b) Research c) Customer Relationship Management 13.4 The Tax Incentives are as follows: Investment Tax Allowance (ITA) 13.5 Other Incentives and Financial Assistance a) Incentives to Promote the Expt of Selected Services b) Market Development Grant Eligibility criteria: 13.6 Expatriate Employment 18

19 Incentives F Integrated Logisted Services No Incentives by Sectal 14.0 Incentives F Integrated Logisted Services 14.1 Eligibility criteria: a) In addition to the above activities, the company should undertake at least one (1) of the following activities:- 1. Distribution 2. Other related and valueadded services 3. Supply chain management b) Companies should have the following minimum infrastructure: 1. Commercial Vehicles: 20 units 2. Warehousing facilities: 5,000 sq. meters 14.2 THE TAX INCENTIVES: NEW COMPANIES EXISTING COMPANIES 14.3 Expatriate Employment 14.4 Other Incentive Investment Tax Allowance Investment Tax Allowance 19

20 Incentives F Cold Chain Facilities No Incentives by Sectal 15.0 Incentives F Cold Chain Facilities 15.1 Approvals f Establishment Incpate a company under Act, 1965 Obtain operating licenses f: 15.2 Equity Requirements 15.3 Incentives: Companies providing cold chain facilities and services f perishable agricultural produce such as fruits, vegetables flowers, ferns, and meat and aquatic products are eligible f consideration f Pioneer Status ITA i) NEW COMPANIES Investment Tax Allowance ii) EXIXTING COMPANIES 15.4 Exemption from Impt and Sales Tax on Machinery and Equipment 15.5 Expatriate Employment Investment Tax Allowance 20

21 Incentives F Central Utility Facilities No Incentives by Sectal 16.0 Incentives F Central Utility Facilities Ce services provided by an integrated CUF includes: 1. The supply 2. Stage 3. Handling and other services of energy 4. Water, and Gas 16.1 Approvals f Establishment: 1. Public Licence f Electricity Power Station 2. Registration with EC as Competent Persons to Operate and Supervise the Installation of Electricity 3. Approval f Waste Water Treatment Facilities and Effluent Discharge 4. Registration of Certificated Machinery with DOSH 16.2 Equity Requirements 16.3 Incentives 16.4 Expatriate Employment 21

TAX INCENTIVES FOR SMEs IN MALAYSIA

TAX INCENTIVES FOR SMEs IN MALAYSIA A quick reference guide outlining the Malaysian tax incentives for SMEs The information provided in this Booklet is based on information obtained from the Malaysian