Pioneer Status (PS) and Investment Tax Allowance (ITA) in Malaysia
Malaysia offers attractive tax incentives to encourage investment in key industries, particularly in promoted products and services sectors. Two of the most significant incentives are Pioneer Status (PS) and Investment Tax Allowance (ITA), both designed to reduce income tax liabilities for eligible companies.
Pioneer Status (PS)
Pioneer Status (PS) provides qualifying companies with partial exemption from income tax on their statutory income for a designated pioneer period. Under this scheme, approved companies enjoy a tax rate exemption of 70% of their statutory income for five years. This means that only the remaining 30% of the statutory income is subject to taxation. For companies engaged in high-value or strategic industries, the pioneer period may be extended to ten years.
To qualify for Pioneer Status (PS), companies must be involved in promoted products or services sectors identified by the Malaysian government. Additionally, the incentive is only available to companies making substantial investments in technology, innovation, and high-value economic activities.
Investment Tax Allowance (ITA)
Alternatively, companies may opt for Investment Tax Allowance (ITA), which provides tax relief based on qualifying capital expenditure incurred on plant, machinery, and other fixed assets used for approved projects. The ITA allows a company to deduct up to 60% of its qualifying capital expenditure against its statutory income, which can be carried forward until it is fully utilised. Unlike Pioneer Status (PS), the ITA does not provide a direct exemption on income tax but reduces taxable profits significantly, allowing companies to reinvest in their operations and expand their businesses.
Choosing Between PS and ITA
Companies must evaluate their financial and operational strategies when deciding between Pioneer Status (PS) and Investment Tax Allowance (ITA). While PS provides immediate tax exemption, ITA benefits businesses with high initial qualifying capital expenditure by offering long-term tax savings. In some cases, the flexibility of ITA in carrying forward allowances until they are fully utilised makes it a more attractive option.
Conclusion
Both Pioneer Status (PS) and Investment Tax Allowance (ITA) serve as effective tax incentives to attract investment in Malaysia. By encouraging investment in promoted products and services sectors, these schemes support economic growth and industrial development. Companies should assess their financial structure, anticipated statutory income, and qualifying capital expenditure to choose the most beneficial incentive for their business expansion.
Allowances and Income exemptions
A vast array of incentives are available in Malaysia, spanning all of the main industries. Allowances and income exemptions are two forms of tax benefits. With the exception of certain incentives, like the reinvestment allowance and the investment allowance for approved service projects, which have a seven-year limit, any unused allowances may be carried forward indefinitely and used against future statutory income. If you need assistance with paperwork or processes, SMI Funding Consultant is here to help.
PS is provided by exempting 70% of statutory income from CIT for five years, while the remaining 30% is subject to taxation at the current CIT rate. A total of 70% of statutory income is taxed at the current CIT rate, with 60% of qualified capital expenditure incurred over five years being eligible for ITA. The remaining 30% is subject to taxation at the prevailing rate. With the surrender of its PS or ITA status, a corporation can choose to use the reinvestment allowance if it plans to reinvest before the status expires.
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Special incentive schemes
Reinvestment allowance
The following is the reinvestment allowance that a resident company can claim if it has been in existence for at least 36 months and makes capital expenditures to grow, update, automate, or diversify its current agricultural project or manufacturing business:
· The allowance is provided for a period of fifteen years beginning with the year of claim.
· You can deduct 60% of the qualified business expenses (QCE) from your statutory
income, which is 70%.
· Successful projects are exempt from the 70% limitation once they reach the
productivity threshold set by the Minister of Finance.
· If the asset that is eligible for the allowance is sold or otherwise transferred within five
years, the allowance will be revoked.
Approved service projects
The following incentives may be available to a resident company that is working on a project in the transportation, communications, utilities, or services subsectors that has been approved by the Minister of Finance: 1. Either 100% income tax exemption for 70% of statutory income for five years, or 60% investment allowance for QCE incurred within five years, to be used against 70% of statutory income.2. An industrial building allowance can be applied to buildings that are used exclusively for these types of projects.
Export incentives
A resident business that sells manufactured goods, agricultural goods, or services abroad is eligible for a tax break equal to 10% to 100% of the value of increased exports (subject to meeting certain requirements), which can be claimed as a deduction up to 70% of statutory income.
The Tax incentives are as following, for further information please contact SMI FUNDING:
· Regional operations:
- International trading company
· Financial services sector which includes:
- Islamic fund management,
- Tun Razak Exchange (TRX) ,
- Real estate investment trusts (REIT)/Property trust fund (PTF)
- Venture capital company (VCC)
And much more, please contact SMI FUNDING OR VISIT US FOR MORE DETAILS
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To view available Grants please visit here
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