Government Incentives
Incentives for Small and Medium Enterprises
Small and Medium Enterprise (SMEs)
Effective from the Year Assessment 2009, for the purpose of imposition of income tax and tax incentives, the definition of SMEs is reviewed as a company resident in Malaysia with a paid up capital of ordinary shares of RM2.5 million or less at the beginning of the basis period of a year of assessment whereby such company cannot be controlled by another company with a paid up capital exceeding RM2.5 million.
SMEs are eligible for a reduced corporate tax 17% on chargeable incomes of up to RM500,000. The tax rate on the remaining chargeable income is maintained at 24%.
Small Scale Companies
Currently, small scale companies incorporated in Malaysia with shareholders’ fund not exceeding RM500,000 and having at least 60% Malaysian equity are eligible for tax incentives for small scale companies under the Promotion of Investments Act (PIA), 1986. Effective from 3 July 2012, small scale companies are redefined as companies incorporated in Malaysia with shareholders’ fund not exceeding RM2.5 million and having 60% to 100% Malaysian equity.
The small scale company must fulfil the following criteria:-
i. Incorporated under the Companies Act, 1965.
ii. Shareholders’ funds not exceeding RM2.5 million with the following Malaysian equity ownership:
- Companies with shareholders’ fund of up to RM500,000 with at least 60% Malaysian equity
- Companies with shareholders’ fund of above RM500,000 and not exceeding RM2.5 million with 100% Malaysian equity.
A small scale company is eligible for the following incentives:
i. Pioneer Status with income tax exemption of 100% of the statutory income for a period of five years. Unabsorbed capital incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company.
Accumulated losses incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company for a period of seven consecutive years.
i. Investment Tax Allowance of 60% on the qualifying capital expenditure incurred within five years. This allowance can be offset against 100% of the statutory income for each year of assessment. Any unutilised allowances can be carried forward to subsequent years until fully utilised.
A sole proprietorship or partnership is eligible to apply for this incentive provided a new private limited/limited company is formed to take over the existing production/activities.
i. For small scale companies with shareholders’ fund of RM500,000 and less and engaged in promoted activities or producing promoted products in the small company promoted list (See Appendix III: Small Scale Companies) or in the General List (See Appendix I: List of Promoted Activities and Products – General).
ii. For small scale companies with shareholders’ fund of above RM500,000 and not exceeding RM2.5 million and engaged in promoted activities or producing promoted products in the small company promoted list (See Appendix III: Small Scale Companies).
iii. For small scale companies with shareholders’ fund of above RM500,000 and not exceeding RM2.5 million and engaged in promoted activities or producing promoted products in the general promoted list (See Appendix I: List of Promoted Activities and Products – General).:
Application should be submitted to MIDA
