「Pioneer status (PS) and investment tax allowance (ITA)」
PS incentive involves a tax exemption of 70% of statutory income (100% for certain activities)for a period of five years which can be extended to a tax holiday of up to 10 years. The PS incentive is available to companies undertaking a “promoted activity” or producing a “promoted product”. Alternatively, the ITA provides a 60% to 100% allowance on capital investments made up to 10 years. Both ITA and PS incentives are mutually exclusive.
The government has issued detailed guidelines (including the revised Guidelines for Principal Hub dated 7 July 2017) for tax incentives to promote the establishment of “principal hubs” in Malaysia introduced in April 2015. A principal hub is a company incorporated in Malaysia and that uses Malaysia as a base for conducting its regional and global businesses and operations to manage, control and support its key functions, including management of risks, decision making, strategic business activities, trading,finance, management and human resources.
New principal hub companies will enjoy a reduced corporate tax rate of 0%, 5% or 10%(rather than the standard corporate tax rate of 24% effective from year of assessment 2018) for a period of five years, with a possible extension for another five years. For existing companies, including existing companies with approved operational headquarters (OHQ),international procurement centre (IPC), or regional distribution centre (RDC) status, the Principal Hub incentive grants full tax exemption on Value Added Income, for a period
of five years. Extension for another five years is not available to existing companies thathave obtained approved IPC, OHQ or RDC status and have been granted IPC/OHQ/RDC incentives, but is available for the other existing companies.
The following incentives will also be available:
A customs duty exemption for goods-based companies on raw materials, components or finished products brought into free zones for production or repackaging, cargo consolidation and integration before distribution to the final consumers;
No requirements for local equity/ownership;
Permission for a foreign-owned company to acquire fixed assets for the purpose of carrying out the operations of its business plan;
Use of foreign professional services if such services are not available in Malaysia;
Flexibility in foreign exchange administration; and
Certain permitted posts for expatriates, based on the requirements of the company’s business plan and subject to Malaysia’s current policy on expatriates.
The scheme replaced the incentive schemes for international procurement centres, regionaldistribution centres and operational headquarters, effective 1 May 2015.
Malaysia maintains a liberal system of exchange controls that applies uniformly to transactions with its trading partners. The central bank handles foreign exchange controls and regulations aimed to assist the banks in monitoring settlement payments and receipts of international transactions.
Repatriations of capital, profits and income (which include dividends, interest, royalties, rentsand commissions) are freely permitted. Foreign exchange administration rules have been relaxed or eliminated, except for trade with certain countries. Generally, restrictions apply only to a resident with domestic ringgit borrowing.
Credit to <Guide to Taxation and Investment in Malaysia – 2018>，Deloitte