Application Period for Incentives for Sabah Development Corridor and East Coast Economic Region Extended
06 April 2022
The Malaysian Government recently issued eight subsidiary legislation to extend the deadline for applying for incentives in two of Malaysia’s development corridors, namely the Sabah Development Corridor (‘SDC’) and the East Coast Economic Region (‘ECER’) from 31 December 2020 to 31 December 2022.
A summary of the subsidiary legislation is as follows:
The SDC
- Income Tax (Exemption) (No. 11) Order 2018
The Income Tax (Exemption) (No. 11) Order 2018 (‘P.U.(A) 390/2018’) exempts a qualifying company from payment of income tax on its statutory income derived from a qualifying activity, which is equivalent to 100% of the qualifying capital expenditure incurred by the qualifying company for:
- five consecutive years for a qualifying activity set out in Schedule 1 to P.U.(A) 390/2018 (e.g. construction or purchase or alteration or extension of hotel building, or construction or purchase of factory or building or provision of plant and machinery for the manufacture of cattle feed, dairy based products or meat based products); and
- ten consecutive years for a qualifying activity set out in Schedule 2 to P.U.(A) 390/2018 (e.g. construction or purchase of factory or building or provision of plant and machinery for specified halal products).
To be eligible for this incentive, a qualifying company must, among other requirements, be approved by the Minister to undertake a qualifying activity for the SDC.
The time frame for submitting an application for exemption under P.U.(A) 390/2018 was extended from 31 December 2020 to 31 December 2022 under the
Income Tax (Exemption) (No. 11) 2018 (Amendment) Order 2022 [P.U.(A) 75/2022].
- Income Tax (Exemption) (No. 12) Order 2018
The Income Tax (Exemption) (No. 12) Order 2018 (‘P.U.(A) 391/2018’) exempts a qualifying company from payment of income tax on its statutory income derived from a qualifying activity for:
- five consecutive years for a qualifying activity set out in Schedule 1 to P.U.(A) 391/2018 (e.g. shipbuilding and repairs, and certain creative activities such as design and art academies or performing arts schools); and
- ten consecutive years for a qualifying activity set out in Schedule 2 to P.U.(A) 391/2018 (e.g. hotel or resort business and manufacturing downstream activities of palm oil products such as oleochemicals, biofuel and trans-fat free food products).
To be eligible for this incentive, a qualifying company must be approved by the Minister, and among other requirements, must carry on the qualifying activity in the SDC, employ an approved number of full-time employees in the SDC to carry on the qualifying activity, and incur an approved amount of annual operating expenditure or investment in fixed assets in the SDC to carry on the qualifying activity.
The time frame for submitting an application for exemption under P.U.(A) 391/2018 was extended from 31 December 2020 to 31 December 2022 under the
Income Tax (Exemption) (No. 11) 2018 (Amendment) Order 2022 [P.U.(A) 76/2022].
- Stamp Duty (Exemption) (No. 8) Order 2018
The Stamp Duty (Exemption) (No. 8) Order 2018 (‘P.U.(A) 397/2018’) exempts from stamp duty any instrument chargeable with ad valorem duty for the transfer of real property used for the purposes of carrying on a ‘qualifying tourism project’, that is a project in relation to a hotel or resort which is carried on in the SDC and approved by the Minister.
To qualify for the stamp duty exemption under P.U.(A) 397/2018, the instrument of transfer must be executed no later than 30 December 2020. This deadline has been extended to 31 December 2022 under the Stamp Duty (Exemption) (No. 8) 2018 (Amendment) Order 2022 [P.U.(A) 74/2022].
The ECER
- Income Tax (Exemption) (No. 4) Order 2016
The Income Tax (Exemption) (No. 4) Order 2016 (‘P.U.(A) 157/2016’) exempts a qualifying person from payment of income tax for five consecutive years on its statutory income derived from a qualifying activity, which is equivalent to 100% of the qualifying capital expenditure incurred by the qualifying person.
For the purposes of P.U.(A) 157/2016:
- a ‘qualifying person’ is a company incorporated under the Companies Act 19651 and resident in Malaysia, an agro-based co-operative society or a Farmers’ Organisation, each as defined in the Farmers’ Organisation Act 1973, an Area Fishermen’s Association, a National Fishermen’s Association or a State Fishermen’s Association, each as defined in the Fishermen’s Associations Act 1971, or an association solely engaged in agriculture and resident in Malaysia;
- a ‘qualifying activity’ is an activity set out in column (3) in relation to the sector set out in column (2) of the Schedule to P.U.(A) 157/2016 (e.g. construction or purchase of building, machinery or plant for information, communication and technology services and development, specified works relating to certain agricultural activities such as the cultivation of kenaf, vegetable, fruits or cocoa, aquaculture, inland or deep sea fishing, and rearing of specified livestock such as cattle, buffalo, goat and sheep) which has not been carried out in the ECER on the date the application for exemption is made, or has been carried out in the ECER not more than one year before the application for exemption is made, and such activity is approved by the Minister; and
- a ‘qualifying capital expenditure’ is a capital expenditure set out in column (4) of the Schedule to P.U.(A) 157/2016.
- Income Tax (Exemption) (No. 5) Order 2016
The Income Tax (Exemption) (No. 5) Order 2016 (‘P.U.(A) 158/2016’) exempts a qualifying person from payment of income tax on its statutory income derived from a special qualifying activity, which is equal to the rate of allowance as specified by the Minister which shall not be less than 60% and not more than 100% of the qualifying expenditure incurred by the qualifying person for such period of consecutive years as the Minister may determine.
For the purposes of P.U.(A) 158/2016:
- a ‘qualifying person’ has the same meaning as in P.U.(A) 157/2016 (see above); and
- a ‘special qualifying activity’ is an activity set out in column (2) of the Schedule to P.U.(A) 158/2016 (e.g. agriculture and related services, information communication and technology, manufacturing, oil, gas and petrochemical) which has not been carried out in the ECER on the date the application for exemption is made, or has been carried out in the ECER not more than one year before the application for exemption is made, and such activity is approved by the Minister; and
- a ‘qualifying capital expenditure’ is a capital expenditure set out in column (3) of the Schedule to P.U.(A) 158/2016.
- Income Tax (Exemption) (No. 6) Order 2016
The Income Tax (Exemption) (No. 6) Order 20162 (‘P.U.(A) 159/2016’) exempts a qualifying person from payment of income tax for ten consecutive years on its statutory income derived from a qualifying activity, subject to the provisions of paragraphs 5A and 6 of P.U.(A) 159/2016.
For the purposes of P.U.(A) 159/2016:
- a ‘qualifying person’ has the same meaning as in P.U.(A) 157/2016 (see above) and in addition, is required to employ an approved number of full-time employees in the ECER to carry on the qualifying activity and incur an approved amount of annual operating expenditure or investment in fixed assets in the ECER to carry on the qualifying activity; and
- a ‘qualifying activity’ is an activity set out in column (3) in relation to the sector set out in column (2) of the Schedule to P.U.(A) 159/2016 (e.g. specified works relating to certain agricultural activities such as the cultivation of kenaf, vegetable, fruits or cocoa, aquaculture, inland or deep sea fishing and rearing of specified livestock such as cattle, buffalo, goat and sheep, manufacturing of selected products and selected agro-based products, selected manufacturing-related services, and specified tourism activities) which has not been carried out in the ECER on the date the application for exemption is made, or has been carried out in the ECER not more than one year before the application for exemption is made, and such activity is approved by the Minister.
- Income Tax (Exemption) (No. 7) Order 2016
The Income Tax (Exemption) (No. 7) Order 20163 (‘P.U.(A) 160/2016’) exempts a qualifying person from payment of income tax on its statutory income derived from a special qualifying activity at the rate of not less than 70% and not more than 100% as specified by the Minister for such period of consecutive years of assessment as the Minister may determine, subject to the provisions of paragraphs 5A and 6 of P.U.(A) 160/2016.
For the purposes of P.U.(A) 160/2016:
- a ‘qualifying person’ has the same meaning as in P.U.(A) 157/2016 (see above) and in addition, is required to fulfil the conditions as to the annual operating expenditure or investment in fixed assets and employment of full time employees as set out in Schedule 2 to P.U.(A) 160/2016; and
- a ‘special qualifying activity’ is an activity set out in column (2) of Schedule 1 to P.U.(A) 160/2016 (e.g. agriculture and agriculture related services, information communication and technology related services, manufacturing, oil, gas and petrochemical) which has not been carried out in the ECER on the date the application for exemption is made, or has been carried out in the ECER not more than one year before the application for exemption is made, and such activity is approved by the Minister; and
- Income Tax (Exemption) (No. 8) Order 2016
The Income Tax (Exemption) (No. 8) Order 2016 (‘P.U.(A) 161/2016’) exempts an approved developer from payment of income tax for ten consecutive years on its statutory income derived from: (a) the disposal of any right over any land or the disposal of a building or right over a building or part of a building located in an industrial zone or a free zone; or (b) the rental of a building or part of a building located in an industrial zone or a free zone.
For the purposes of P.U.(A) 161/2016:
- an ‘approved developer’ must, among other requirements, be a company that (a) is approved by the Minister; (b) purchases or acquires any right over part or the whole of the land within the ECER; and (c) carries on the development of (i) an industrial park within the ECER that is approved by the East Coast Economic Region Development; or (ii) a free zone located within the ECER; and
- a ‘building’ refers to a building which is constructed by an approved developer and is located in the ECER.
Alert prepared by Desmond Liew (Senior Associate) of the Tax Practice and Angela Hii (Associate) of the Corporate Practice of Skrine.
1 The Companies Act 1965 has been replaced by the Companies Act 2016.
This alert contains general information only. It does not constitute legal advice nor an expression of legal opinion and should not be relied upon as such. For further information, kindly contact skrine@skrine.com.