Rules for Tax Incentive for Manufacturers of Pharmaceutical Products Scheme Gazetted
21 February 2022
The
Income Tax (The Incentive for Manufacturers of Pharmaceutical Products Scheme) Rules 2022 [P.U.(A) 34/2022] (‘
Rules’) were gazetted on 17 February 2022 and are deemed to have effect from the year of assessment 2021.
The Tax Incentive
The chargeable income of a qualifying company which carries on the business in respect of a qualifying activity under the Incentive for Manufacturers of Pharmaceutical Products Scheme for the specified years of assessment is subject to income tax at the following rates:
- for the first period of 10 years of assessment, 0% to 10%; or
- for the next period of 10 years of assessment, 10%.
Key definitions
The key definitions as provided for under the Rules are as follows:
- a ‘qualifying company’ is a manufacturer of pharmaceutical products whose application for the Manufacturers of Pharmaceutical Products Incentive Scheme has been approved by the Minister of Finance (‘Minister’) under rule 5(2) of the Rules1;
- a ‘manufacturer of pharmaceutical products’ is a company that:
- is incorporated under the Companies Act 2016 and is resident in Malaysia;
- possesses a manufacturing licence under the Industrial Co-ordination Act 1975 from the Ministry of International Trade and Industry or a letter confirming it is exempted from a manufacturing licence from the Malaysian Investment Development Authority (‘MIDA’); and
- undertakes manufacturing of pharmaceutical products including formulation in Malaysia but excluding fill and finish activity2;
- a ‘qualifying activity’ is an activity prescribed by the Minister as specified in the Guidelines for Incentive for Manufacturers of Pharmaceutical Products including vaccines under the 2021 Malaysian Budget (‘Incentive Guidelines’), issued or as revised by MIDA and approved by the Minister;
- the ‘Incentive for Manufacturers of Pharmaceutical Products Scheme’ means an incentive scheme for a qualifying company which carries on the business in respect of a qualifying company and approved by the Minister.
Conditions for Incentive for Manufacturers of Pharmaceutical Products Scheme
A qualifying company approved under the Incentive for Manufacturers of Pharmaceutical Products Scheme must comply with all of the following conditions:
- the first qualifying expenditure (excluding land) shall be incurred within one year from the date the approval letter is issued;
- the full amount of the qualifying expenditure specified in the approval letter shall be incurred within five years from the date the first qualifying expenditure is incurred; and
- any conditions specified in the Schedule to the Rules and any other conditions imposed by the Minister as specified in the approval letter and the Incentive Guidelines, issued or as revised by MIDA and approved by the Minister.
The Schedule to the Rules is reproduced below:
Conditions for a qualifying company under the
Incentive for Manufacturers of Pharmaceutical Products Scheme |
| Minimum number of full time employees in Malaysia with a minimum basic salary of RM5,000 per month |
15% of total full time employees |
| Minimum number of employees having a diploma or degree in the field of science and technical |
20% of total employees |
| Minimum number of Malaysian citizen full time employees |
80% of total employees |
| Minimum amount of annual operating expenditure in Malaysia (in Ringgit Malaysia) (to be complied with at the end of the last year of the specified years of assessment) |
As specified in the approval letter |
| The number of trainees from local universities, polytechnics or industrial training placements at Technical and Vocational Education and Training (TVET) institutions |
At least 6 Malaysian trainees each year with a minimum training period of 3 months |
| Value added for product |
At least 40% |
| Corporate social responsibility (CSR) activity |
Undertake CSR activity with at least 1 hospital or health institution in Malaysia recognised by the Ministry of Health each year within the specified years of assessment |
Alert by Sheba Gumis (Partner) of the Corporate Practice and Desmond Liew (Senior Associate) of the Tax Practice of Skrine.
1 Rule 5(2) of the Rules requires an application under the Manufacturers of Pharmaceutical Products Incentive Scheme to be received by the Minister through the MIDA on or after 21 January 2021 but not later than 31 December 2022.
2 The expression ‘fill and finish activity’ means the process of filling vials with vaccines and finishing the process of packaging the medicine for distribution.
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.