Malaysia expands tax incentive claims for East Coast economic region

Malaysia has extended until December 31, 2022 the deadline for applicants for tax incentives for eligible activities in the East Coast Economic Region. The ECER is one of the three economic corridors with the aim of accelerating the economic growth of the country. The incentives include up to 100% income tax exemption for a wide range of eligible activities, from planting crops to purchasing machinery for manufacturing, construction or purchase of a factory or warehouse.


The Malaysian government has officially approved the extension of the deadline for applying for tax incentives in the East Coast Economic Region (ECRE). Companies have until December 31, 2022 submit their applications to the ECER Development Council to benefit from the incentives.

What is the East Coast Economic Region?

The ECER is one of three economic corridors established in Peninsular Malaysia to accelerate economic growth in the region. The ECER Development Council is confident of attracting 14 billion ringgit ($3.1 billion) of committed investment and 7 billion ringgit ($1.5 billion) of completed investment for 2022.

By 2021, ECER had committed investments of 13.4 billion ringgits (US$3 billion), exceeding its target of 12 billion ringgits (US$2.6 billion), and made investments of a worth 4.7 billion ringgit (US$1.05 billion).

Other economic corridors in Peninsular Malaysia are Iskandar Malaysia and the Northern Corridor Economic Region.

What tax incentives are available?

The tax incentives depend on the type of activities (qualifying activity), the eligible capital expenditure and whether the activities are undertaken by an eligible person.

A qualified person refers to:

  • A company incorporated under the Malaysian Companies Act 1965 and resident in Malaysia;
  • A cooperative society based on agro;
  • A peasant organization;
  • An association solely engaged in agriculture and residing in Malaysia; Where
  • A national or state association of fishermen.

The qualifying activities and eligible capital expenditures are presented in the following table.

Sector

Eligible activity

Eligible capital expenditure

Agriculture

a. Cultivation of vegetables, fruits, herbs, cocoa or spices

b. Aquaculture

vs. Breeding of cattle, buffaloes, sheep, quails, turkeys

D. Inland fishing or big game fishing

e. Planting crops for energy production

F. Floriculture

a. Plant crops

b. Land clearing and preparation

vs. Construction or purchase of buildings

D. Provision of machines or installations

e. Provision of an irrigation system

F. Structural improvements on land

Agriculture related services

a. Collection and marketing of agricultural products

b. Collection, processing and packaging of agricultural products

a. Construction or purchase of a building for storage, packaging or distribution

b. Construction or purchase of a factory

Information, communication and technology

Information, communication and technology services

Purchase or construction of plant, machinery or building

Education and formation

Establishment of universities, vocational training centers, colleges, research and development centers

Purchase or construction of a building

Manufacturing

a. Selected food products

b. Selected manufactured products

a. Purchase or construction of a building, plant or factory

b. Provision of machinery

Oil, gas and petrochemicals

Certain oil, gas and petrochemical activities

a. Purchase or construction of a building, plant or factory

b. Provision of machinery

Manufacturing Services

Certain manufacturing-related services

Purchase or construction of a building, plant or factory

Hotels

Hotel operation

a. Purchase or construction of a hotel building

b. Renovation of a hotel

vs. Provision of machinery

Tourism

a. Urban tourism

b. Continental coastal tourism

vs. Integrated stations

D. Eco-tourism

e. Theme parks or amusement parks

F. Medical tourism

g. Cultural, conference and exhibition center

a. Land clearing and preparation

b. Provision of animals

vs. Planting of trees and other plants

D. Construction of roads and other infrastructure as part of the tourism project

e. Construction or purchase of buildings

F. Structural Improvements to Land or Buildings

Culture and heritage

a. wood carvings

b. Manufacture of traditional kites

vs. Manufacture of brassware or silverware

Construction or purchase of a machinery or plant building

Income Tax Exemption Order (No. 4) 2016

Income Tax Exemption Order (No. 4) 2016 exempts an eligible person from paying income tax on their statutory income for five consecutive years. The statutory income is 100% of the eligible capital expenditure incurred by the person and must come from a qualifying activity.

Income Tax Exemption Order (No. 5) 2016

As part of tax exemption no. 5, qualifying businesses can benefit from an income tax exemption equivalent to between 60% and 100% of qualifying expenses incurred by a qualifying person.

Income Tax Exemption Order (No. 6) 2016

With Income Tax Exemption No. 6, an eligible person can benefit from a 100% income tax exemption on their statutory income from qualifying activities for 10 consecutive years. However, the exemption excludes income from intellectual property rights.

Income Tax Exemption Order (No. 7) 2016

Income Tax Exemption #7 provides an income tax exemption of 70-100% of eligible expenses incurred by an eligible person.

Income Tax Exemption Order (No. 8) 2016

Income Tax Exemption No. 8 provides 100% exemption from income tax for 10 consecutive years to an approved promoter on statutory income derived from:

  1. The sale of land or a building located in an industrial park or a free zone; Where
  2. The rental of a building located in an industrial park or a free zone.

Income Tax Exemption Order (No. 9) 2016

Under this tax exemption, an eligible person can benefit from a 100% exemption from income tax for 10 consecutive years if their statutory income is derived from:

  1. A development manager for the provision of management or marketing services related to the development of an industrial zone or a free zone; Where
  2. A park manager on the provision of park management services, which includes rental, maintenance or common facilities, and utilities in an industrial park or free zone.

Income tax deduction for sponsorship of milestone events

The incentive provides an income tax deduction equal to a cash or in-kind contribution made by a qualified individual for a milestone event, capped at 1 million ringgit (US$224,000) for each year.

Income tax deduction for investment in qualifying activities

An income tax deduction is available on the value of investments made in a related company for the sole purpose of financing a qualifying activity of the related company.


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