The Income Tax (Deduction for Cost of Acquisition of Foreign Owned Company) Rules 2013 were published in the official gazette on 4 July 2013.  The rules are however deemed to have come into operation on 3 July 2012.

The Rules provide that for the purpose of ascertaining the adjusted income from the business of a locally owned company which has paid cost of acquisition of a foreign owned company in the basis period for a year of assessment, a deduction shall be allowed of an amount equal to one-fifth of that cost for that year of assessment and for each of the four following years of assessment. Any part of the deduction that is not utilized may be carried forward until it has been fully utilized.

The rules apply to a Malaysian company in the manufacturing or services sector acquiring a foreign owned company abroad. The acquisition of the foreign company must be for the purpose of establishing a manufacturing facility or service company in Malaysia, or for using acquired technology in the business in Malaysia. To be eligible for the relief the Malaysian company must have at least 60% Malaysian equity ownership, held for a period of five years from the date of the application.

The acquired company must have 100% foreign equity ownership and located abroad, using high technology in its manufacturing or service activity. At least 51% of the equity must be acquired by the Malaysian company. The acquisition must be by cash rather than exchange of shares, and must be completed within three years. The costs eligible for computing the tax deduction include the acquisition costs and incidental expenses such as professional fees and costs of transfer including stamp duty.

The foreign technology acquired must result in an improved performance or an enhancement of the technology and processes of the Malaysian company. High technology is defined as covering new and emerging technologies that are used for the improvement of materials, products and processes in manufacturing or the improvement of processes or quality in services.

Applications received by Malaysian Investment Development Authority (MIDA) between 2 July 2012 and 31 December 2016 will be considered for the deduction.