The Malaysian Investment Development Authority (MIDA) has released guidelines for applying the new reinvestment incentive introduced in Budget 2024 on 30 July 2024.  This initiative is aimed at existing manufacturing and agricultural companies that have reached the end of their eligibility period for the reinvestment allowance (RA) incentive.

The government through the Budget 2024 has introduced the incentive for reinvestment under the New Industrial Master Plan (NIMP) 2030 with a tiered and outcome-based approach. This provides an opportunity for existing companies that have exhausted their Reinvestment Allowance (RA) under the Schedule 7A of Income Tax Act 1967, to continue to increase their capacity and investment in the country.

The intended objectives of the incentive are:

  • To encourage companies to invest in high-growth and high-value areas;
  • To ensure that the tax incentives offered by the Government contribute to the outcomes targeted under the NIMP 2030 and further drive the national economy.

Some of the main points of the guidelines are:

The tax incentive is classified into two tiers: 

Tier 1: Investment Tax Allowance of 100% on the qualifying capital expenditure (excluding land cost) incurred for a period of five years. The allowance can be offset against up to 100% of statutory income for each assessment year until fully utilised,

OR

Tier 2: Investment Tax Allowance of 60% on the qualifying capital expenditure (excluding land cost) incurred for a period of 5 years. The allowance can be offset against up to 70% of statutory income for each assessment year until fully utilised.

Conditions for an eligible applicant company include:

  • The company must be incorporated under the Companies Act, 2016 and resident in Malaysia;
  • The company must be an existing manufacturing company that may or may not have enjoyed a tax incentive previously, and if the company had been approved with a tax incentive, the tax incentive period for the approved product(s)/activity(ies) has ended;
  • The company must undertake expansion or diversification projects in the manufacturing sector;
  • Where the company has a related company that has been approved for the incentive for reinvestment under the New Industrial Master Plan 2030, the company will only be eligible for the incentive subject if the related company undertakes different products/activities; and
  • The company will only be eligible for one round of the incentive for reinvestment for the expansion or diversification projects under the NIMP 2030.

Eligibility criteria

The eligible product(s)/activity(ies) for the incentive for reinvestment are in relation to the manufacturing sub sectors under the coverage of the NIMP 2030 are:

  • Aerospace;
  • Automotive;
  • Chemical including biotechnology;
  • Electrical and electronics;
  • Food processing;
  • Halal;
  • Machinery and equipment;
  • Medical devices;
  • Metal;
  • Mineral;
  • Palm oil-based products;
  • Pharmaceutical including biotechnology;
  • Petroleum products and petrochemicals;
  • Rail;
  • Rubber-based products;
  • Shipbuilding and ship repair;
  • Textile, apparel, and footwear; and
  • Wood, paper, and furniture.

The tiering tax incentive will be based on an outcome-based approach as follows:

Conditions for both Tier 1 and Tier 2: 

  • Qualifying capital expenditure (excluding land) must be realised within 3 years as proposed;
  • The company is required to adopt at least one of the foundational IR4.0 technologies, namely, artificial intelligence, internet of things, block chain, cloud computing and big data analytics, or advance materials and technologies (based on the National Fourth Industrial Revolution (4IR) Policy);
  • Adequate expenditures in relation to R&D activity including expenditures related to product and technology improvement.

Additional conditions for the Tier 1 incentive that must be met: 

  • A sufficient number of new full-time Malaysian employees holding high-value positions (with a minimum salary of MYR 10,000 per month) must be hired. This required number should be detailed in submitted proposals and will be evaluated by MIDA and the National Committee on Investments;
  • Number of local suppliers and/or local service providers.  appointed as proposed. (Local suppliers refer to the companies incorporated in Malaysia and manufacture goods locally (raw materials, consumables, machinery, equipment, parts and components); and  Local service providers refer to the companies incorporated in Malaysia and provide services related to the company’s proposed activities e.g logistics, maintenance of plant/machinery/equipment, sterilisation and etc;
  • Adoption of green technology (generation of renewable energy or utilisation of energy efficiency equipment);
  • Any other conditions related to sustainable economic development such as education, social, accelerate Malaysian SMEs and as stated in the approval letter.

Mechanism: 

  • The company must submit the incentive application to MIDA before the commencement of the proposed project. ‘Commencement’ is defined as the first sales invoice issued by the company for the proposed project;
  • MIDA will issue an approval in principle letter to the company on the tax incentive for the proposed project as approved by the National Committee on Investment (NCI). The approval in principle letter will indicate the tiering approach and outcome-based tax incentives. The incentive is to be provided under the Income Tax Act, 1967.

Effective date of application 

Applications received by MIDA from 1 January 2024 until 31 December 2028 are eligible to be considered for this incentive. The application should be made online at https://investmalaysia.mida.gov.my.