On 18 October 2024, Malaysia's Budget 2025 ("Budget") proposals were unveiled. Focused on revitalising the economy and fostering transformative growth, the Budget outlines tax incentives aimed at attracting both local and foreign investment. This article highlights some of the key incentives introduced in the Budget.
New Investment Incentive Framework
The New Investment Incentive Framework focusing on high-value activities, expected to be implemented by the third quarter of 2025, sets out, amongst others, the following incentives:
1. Tax incentives for increasing exports for integrated circuit design activities
Proposal to extend the export incentives (up to 70% of statutory income equivalent to 50% of the value of increased exports) for the services sector to include IC design services. This initiative also supports efforts to enhance the economic complexity of the electrical and electronics ("E&E") sector.
2. Supply chain resilience incentive
To strengthen the local supply chain and primary sector ecosystem, a supply chain resilience initiative with the following incentives:
a) Double tax deductions for Multinational Enterprises ("MNE") that incur expenses for supply chain resilience initiatives up to RM2.0 million annually for 3 consecutive years;
b) Tax deduction given on the investment amount to MNEs or its suppliers who participate in joint venture investments with local vendors;
c) Participating local vendors will be provided with an outcome-based tax incentive package;
d) A matching investment fund of RM100 million, to finance the development of local suppliers especially in E&E, specialty chemicals and medical device industries; and
e) Special rate for income tax incentives for investments in 21 economic sectors in specific States within Malaysia.
3. Tax incentive for CCUS activities
Investment tax allowances or income tax exemptions will be provided for Carbon Capture, Utilisation, and Storage activities, to encourage more investments that comply with Environmental, Sustainability and Governance standards.
Incentive for implementation of e-Invoicing
Accelerated capital allowance given for purchases of information and communication technology equipment, computer software packages, and consultancy fees for eInvoicing purposes.
Johor-Singapore Special Economic Zone
In relation to the Johor-Singapore Special Economic Zone ("JSSEZ"), the Government has initiated the following efforts and initiatives:
1. Forest City has been approved as a duty-free island to promote tourism and local activities. Further, the Government has also announced a tax incentive package for the Forest City Special Financial Zone to stimulate financial service activities for global business services, financial technology and attracting investments.
Tax incentives for the Forest City Special Financial Zone announced previously, include the following:
a) Knowledge workers – special individual income tax rate of 15%.
b) Family offices – corporate tax rate of 0% for Family Offices under the Single-Family Office Scheme that is aimed at being operational by the first quarter of 2025, coordinated by the Securities Commission Malaysia.
c) Financial global business services – corporate tax rate of 5% for financial technology or fintech, and foreign payment system operators.
d) Incentives for relocation – special deductions on relocation costs, enhanced industrial building allowances and withholding tax exemptions for banking institutions, insurance, capital market intermediaries and other eligible financial sector entities.
2. The Single Family Office Scheme was launched for the Forest City Special Financial Zone to promote family fund management, with the Securities Commission Malaysia to act as the approving authority for the issuance of Resident Passes and Employment Passes.
3. To drive the growth of JSSEZ, the Government will also provide special incentives (to be announced by the end of 2024) to attract quality investments and offer high-value jobs.
4. The Invest Malaysia Facilitation Centre–Johor is being established, to facilitate investment in JSSEZ.
Incentive for logistics sector
To enhance the capacity of the logistics industry, eligible Smart Logistics Complexes (SLCs) will be granted income tax exemption equivalent to an investment tax allowance of 60% on qualifying capital expenditure for a period of 5 years, subject to the following conditions:
1. Eligible SLC companies:
a) SLC investor and operator that invest in the construction of smart warehouses and undertake eligible logistics services activities; or
b) SLC Operator that leases a smart warehouse under a long-term lease of at least 10 years and undertakes eligible logistics services activities.
2. Eligible logistics services:
a) regional distribution centres;
b) regional distribution centres;
c) integrated logistics services;
d) storage of hazardous goods; or
e) cold chain logistics.
3. Warehouse with a minimum built-up area of 30,000 square metres;
4. Adaptation of at least 3 IR4.0 elements; and
5. Other conditions as prescribed.
The above are some of the incentives which may impact you as an investor or business owner in Malaysia.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.