Tax Incentives Under Malaysia’s Budget 2023
Malaysia’s 2023 Budget offers enhanced tax incentives to encourage investment in key industries, such as aerospace, shipbuilding, electric vehicles, and electrical and electronics. The budget also extends tax incentives for foreign workers in C-suite positions and manufacturing companies investing in automation equipment. Specific tax incentives for each industry are detailed in the article, including flat tax rates for foreign C-suite executives, tax deductions for the electric vehicle industry, tax incentives for the aerospace and shipbuilding industries, and capital allowances for automation. The government aims to maintain and enhance Malaysia’s competitiveness as an investment destination through these tax incentives.
Malaysia’s 2023 Budget provides an array of enhanced tax incentives aimed at spurring investments into key industries. This includes aerospace, electric vehicles, and shipbuilding, among others.
The government has also extended the incentives afforded to certain foreign workers in C-suite positions in Malaysia, as well as enhancing the tax incentives for manufacturing companies that spend on automation equipment.
Malaysia’s Budget for 2023 is the largest in the country’s history, amounting to 388 billion ringgit (US$86.8 billion). Through the incentives in the budget, the government seeks to maintain and enhance Malaysia’s competitiveness as an investment destination.
Budget 2023 also made changes to Malaysia’s corporate and individual tax regimes. These are lower individual income tax rates for middle earners and increasing the rate for higher earners. MSMEs can now benefit from a decrease in the corporate income tax rate from 17 to 15 percent.
What are the major tax incentives under Malaysia’s Budget for 2023?
The flat tax rate for foreign C-suite executives
Currently, foreign C-suite executives or those in key positions in companies that relocated their manufacturing facilities to Malaysia benefit from a flat income tax rate of 15 percent.
Under Budget 2023, this tax incentive has been extended by two years but will now only apply to individuals working in companies in the electrical and electronic (E&E) industries. Applications are open until December 31, 2024.
Tax incentives for companies relocating their operations to Malaysia
The government provides tax incentives for foreign manufacturing companies that relocate to Malaysia. These are:
- A preferential tax rate of between 0-10 percent for 10 or 15 years for new companies in the manufacturing sectors that invest a minimum of 300 million ringgit (US$66.9 million) or 500 million ringgit (US$111 million) respectively; or
- An investment tax allowance of up to 100 percent for five years for existing manufacturing companies already operating in Malaysia.
Under Budget 2023, the government has extended the application period for this incentive only for E&E companies looking to relocate their manufacturing facilities to Malaysia.
Applications are open until December 31, 2024.
Tax deductions for the electric vehicle industry
Companies that rent non-commercial electric vehicles are eligible for tax deductions of up to 300,000 ringgit (US$66,900) on rental expenses. This applies from the 2023 year of assessment to the 2025 year of assessment.Manufacturers of electric vehicles will be given a 100 percent income tax exemption on statutory income from the 2023 year of assessment to the 2032 year of assessment. Further, there is a 100 percent investment tax allowance for five years, to be set-off against 100 percent of statutory income.
The applications are open from February 25, 2023, until December 31, 2025.
Tax incentives for the aerospace industry
New and existing aerospace companies in Malaysia that are undertaking activities, such as maintenance, repair, and overhaul (MRO), engineering and component design services, and the manufacturing or assembling of aerospace systems, can claim the following tax incentives:
For new companies.
- Income tax exemption of between 70-100 percent for between 5-10 years; or
- An investment tax allowance of between 60 to 100 percent for five years. This can be set-off against 70-100 percent of statutory income for each assessment year.
For existing companies.
- An investment tax allowance of up to 60 percent for five years set-off against 70 percent of statutory income for each assessment year.
Applications have been open since January 1, 2023, and will close on December 31, 2025.
Capital allowance for automation
Currently, under the capital allowance for automation scheme, manufacturing and services companies that have incurred expenditure for advanced automation equipment can qualify for the following tax incentives:
- For high labor-intensive industries – a 200 percent automation capital allowance on the first 4 million ringgit (US$892,000) of qualifying capital expenditure; and
- For other industries – a 200 percent automation capital allowance on the first 2 million ringgit (US$446,000) of qualifying capital expenditure.
Malaysia’s Budget 2023 has enhanced this incentive to improve the efficiency and productivity of businesses adopting automation.
As such, under the enhancements, the adaptation of Industry 4.0 elements is now included within the automation scope.
Further, the tax incentives have been expanded to the agriculture sector.Finally, the capital expenditure thresholds under categories a) and b) and the agriculture sector has been increased to 10 million ringgit (US$2.2 million).
Tax incentives for the shipbuilding industry
The government is extending the current tax incentives for the shipbuilding and ship repair industries for a further five years.
Through this tax incentive, companies undertaking ship repair or shipbuilding activities are eligible for the following incentives.
For new companies:
- Tax exemption of up to 70 percent of statutory income for five years; or
- An investment tax allowance of up to 60 percent on qualifying expenditure incurred within five years and set-off against 70 percent of statutory income for each year of assessment.
For existing companies, there is an investment tax allowance of up to 60 percent of qualifying capital expenditure within five years and set-off against 70 percent of statutory income for each year of assessment.
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