The following subsidiary legislation were gazetted on 15 August 2023: 

All of the above-referred subsidiary legislation are deemed to have effect from year of assessment 2021.
 
The Exemption Order
 
The Exemption
 
Paragraph 3(1) of the Exemption Order exempts a qualifying company in the basis period for a year of assessment (“relevant period”) from payment of income tax in respect of statutory income derived from a qualifying activity which is equivalent to the amount of the qualifying capital expenditure made by the qualifying company in the relevant period.
 
The exemption shall be for a period of five consecutive years from the date of the first qualifying capital expenditure¹ made by the qualifying company, as determined by the Malaysian Investment Development Authority (“MIDA”).

Key phrases
 
The key phrases in paragraph 3(1) of the Exemption Order are “qualifying company”, “qualifying activity” and “qualifying capital expenditure”.
 
A “qualifying company” is a company that satisfies all the following conditions: 

A “qualifying activity” is a new manufacturing activity undertaken by a qualifying company but does not include any activity specified in the Schedule to the Exemption Order. The said Schedule can be accessed here.
 
A “qualifying expenditure” refers to the capital expenditure incurred by a qualifying company in relation to a factory, machinery or plant used in Malaysia solely for the purposes of carrying on a qualifying activity and shall not include capital expenditure incurred on: (i) any building which is used as a living accommodation; or (ii) any machinery or plant which is provided wholly or partly for the use of a director, or an individual who is a member of the management or administration, or clerical staff, of that qualifying company.

Other salient provisions
 
Carrying forward : As a general rule, a claim for a qualifying expenditure is to be made by a qualifying company in the year of assessment in which that expenditure is incurred. However, where a qualifying company does not have any or sufficient statutory income from the qualifying activity in the relevant period, then the amount that cannot be exempted in the relevant period shall be deemed to be a qualifying capital expenditure incurred for the subsequent year or years of assessment until such amount to which it is so entitled is exempted.
 
Adjustment for non-exclusive use : Where a factory, machinery or plant used for a qualifying activity is also used for any non-qualifying activity, the amount of exempt qualifying expenditure that may be deducted shall be adjusted to an amount that is reasonable, having regard to the extent to which the factory, machinery or plant is used for the qualifying activity.
 
Disposal within five years : Where a factory, machinery or plant in respect of which a qualifying capital expenditure is incurred is disposed of within five years from the date of acquisition of such factory, machinery or plant, the exemption granted in respect of the amount of statutory income which is equal to the amount of allowance for such qualifying capital expenditure shall be withdrawn in the relevant period in which the factory, machinery or plant is disposed of.
 
The Relocation Rules
 
The incentive
 
Rule 7 of the Relocation Rules provides that a qualifying company which carries on the business of a qualifying activity under the Relocation of Manufacturing Business Incentive Scheme (the “Incentive  Scheme”) shall be charged with income tax on its chargeable income at the rate of 0% for the specified years of assessment, as provided in rule 8 of the Relocation Rules (see below).
 
Key phrases
 
The key phrases in rule 7 of the Relocation Rules are “qualifying company”, “qualifying activity”,  “the Incentive Scheme” and “specified years of assessment”.
 
A “qualifying company” is a company that satisfies all the following conditions: 

A “qualifying activity” is a new manufacturing activity undertaken by a qualifying company but does not include any activity specified in the Schedule to the Relocation Rules.⁵ The said Schedule can be accessed here.
 
The “Incentive Scheme” is the incentive scheme for the qualifying company which carries on a qualifying activity and approved by the Minister.
 
The “specified years of assessment” is a period commencing from the year of assessment as determined by the Minister as follows: (i) in relation to investment in fixed assets, excluding land, of RM300 million up to RM500 million, ten years of assessment; or (ii) in relation to investment in fixed assets, excluding land, of more than RM500 million, fifteen years of assessment.
 
The C-Suite Rules
 
The incentive
 
Rule 6(1) of the C-Suite Rules provides that the rate of income tax which shall be charged under the C-Suite Rules for the specified years of assessment upon the chargeable income of a qualifying individual having and exercising employment in an approved company shall be 15% for the specified years of assessment, as provided in rule 7 of the C-Suite Rules (see below).
 
Key phrases
 
The key phrases in rule 6 of the C-Suite Rules are “qualifying individual”, “approved company” and “specified years of assessment”.
 
A “qualifying individual” is an individual resident who is not a citizen employed by an approved company and holds a C-Suite position during the specified years of assessment. A C-Suite position is the position of top senior executives which relies on functional know-how and technical skills such as a Chief Executive Officer, Chief Financial Officer, Chief Operating Officer and Chief Information Officer.
 
An “approved company” is a company that has been granted: (i) a tax exemption under the Exemption Order; or (ii) an incentive scheme under the Relocation Rules; or (iii) an incentive scheme under the Income Tax (Relocation of Provision of Services Business Incentive Scheme) Rules 2022 [P.U. (A) 398/2022]⁶.
 
The “specified years of assessment” is a period of five consecutive years of assessment commencing from the year of assessment as determined by the Minister in his approval letter in respect for an application⁷ for the incentive under the C-Suite Rules.
 
Other salient provisions
 
Limit on qualifying individuals : Each approved company is only entitled to obtain the incentive under the C-Suite Rules for up to five qualifying individuals.
 
Chargeable income : The chargeable income of a qualifying individual is to be determined in accordance with rule 6(2) of the C-Suite Rules and any excess of chargeable income shall be charged to income tax for that year of assessment under Part I of Schedule 1⁸ to the ITA at the rate that would have been applicable for his chargeable income if the individual had not been approved as a qualifying individual under these Rules.
 
Eligibility conditions : A qualifying individual whose application under the C-Suite Rules has been approved is required to fulfil the conditions specified in the Minister’s approval letter, which shall include: (i) be resident in Malaysia for each year of assessment in the specified years of assessment; (ii) receive income from an employment with an approved company in the specified years of assessment; (iii) hold a C-Suite position in an approved company in the specified years of assessment; and (iv) receive a minimum basic salary of RM25,000 per month.
 
Withdrawal of incentive : The Minister may withdraw the incentive granted under the C-Suite Rules if the qualifying individual fails to comply with any of the eligibility conditions mentioned above. Where the incentive is withdrawn, the incentive shall be deemed to have not been granted to the qualifying individual from the first year of the specified years of assessment.
 
Cessation of employment : Where a qualifying individual ceases to be employed by the approved company, the incentive under the C-Suite Rules shall cease to apply to the qualifying individual from the year of assessment in which such qualifying individual ceases to be employed.
 
Comments
 
The tax incentives under the Exemption Order and the Relocation Rules formalise two of the initiatives announced by the then Prime Minister of Malaysia, Tan Sri Muhyiddin Yassin, as part of the Short Term Economic Recovery Plan (June to December 2020) (PENJANA) to revitalise the Malaysian economy as a result of the outbreak of the Covid-19 pandemic.
 
The incentive under the C-Suite Rules is an extension of an existing initiative announced during the 2023 Malaysian Budget.
 
Alert by Sheba Gumis (Partner) and Francine Ariel Paul (Senior Associate) of the Corporate Practice of Skrine.
 

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