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Deadline for Tax Incentives for Certain Activities in East Coast Economic Region Extended

05 May 2022

The Malaysian Government has recently extended the deadline for tax incentives in respect of certain activities carried out in the East Coast Economic Region (‘ECER’). 
  1. Income Tax (Exemption) (No. 9) Order 2016  

    The Income Tax (Exemption) (No. 9) Order 2016 (‘P.U.(A) 162/2016’) exempts the following qualifying persons in the basis period for a year of assessment (‘YA’) from payment of income tax in respect of its statutory income for a period of 10 consecutive YAs: 
  • a company that is a development manager that provides management, supervisory or marketing services relating to an industrial park or a free zone located within the ECER; or 

  • a company that is a park manager that provides park management services including maintenance, marketing and rental of common facilities and utilities services in an industrial park or a free zone located within the ECER. 
The exemption is subject to the person satisfying the conditions set out in P.U.(A) 162/2016.
 
The period for submitting an application for the incentive under P.U.(A) 162/2016 which expired on 31 December 2020 has been extended to 31 December 2022 pursuant to the Income Tax (Exemption) (No. 9) 2016 (Amendment) Order 2022 [P.U.(A) 124/2022]. 
  1. Income Tax (Deduction for Sponsorship of Hallmark Event) Rules 2016 

    For the purposes of ascertaining the adjusted income of the following qualifying persons from his business in a basis period for a YA, the Income Tax (Deduction for Sponsorship of Hallmark Event) Rules 2016 (‘P.U.(A) 165/2016’) allows such person to deduct an amount equal to the cash contribution or contribution in kind made by that person in sponsoring a hallmark event: 
  • a company incorporated under the Companies Act 1965 (‘CA 1965’) (now the Companies Act 2016) and resident in Malaysia; or 

  • an individual who has a business source in Malaysia and resident in Malaysia. 
The maximum amount deductible by a qualifying person under P.U.(A) 165/2016 for sponsoring one or more hallmark events is RM1.0 million for each YA.
 
For the purposes of P.U.(A) 165/2016, a ‘hallmark event’ is an event of national, regional or international significance which is carried on in the ECER no later than 31 December 2020 and is approved by the Minister.
 
The qualifying person is required to apply to the Minister through the East Coast Economic Region Development Council (‘ECERDC’) for the deduction no later than 31 December 2020.
 
The deadlines within which a hallmark event must be held in the ECER, and for submitting an application to the Minister for a deduction under P.U.(A) 162/2016 which expired on 31 December 2020 have in both instances been extended to 31 December 2022 pursuant to the Income Tax (Deduction for Sponsorship of Hallmark Event) (Amendment) Rules 2022 [P.U.(A) 126/2022]. 
  1. Income Tax (Deduction for Investment in Qualifying Activity) Rules 2016 

    For the purposes of ascertaining the adjusted income of a qualifying person from its business in a basis period for a YA, the Income Tax (Deduction for Investment in Qualifying Activity) Rules 2016 (‘P.U.(A) 166/2016’) allows such person to deduct the value of the investment made by that person in that basis period which is equal to the amount incurred by a related company in relation to a qualifying activity in respect of which the investment is made.
     
    The application for deduction under P.U.(A) 166/2016 shall be made by the qualifying person to the Minister through the ECERDC not later than 31 December 2020 and shall be presented concurrently with the application by the related company for the qualifying activity to be granted exemption under a relevant order.
     
    The deduction allowed for a qualifying person under P.U.(A) 166/2016 shall cease in the basis period for a YA upon the related company having its first statutory income from the qualifying activity in respect of which investment is made by the qualifying person.
     
    The deadline for submitting an application for the incentive under P.U.(A) 166/2016 which expired on 31 December 2020 has been extended to 31 December 2022 pursuant to the Income Tax (Exemption) (No. 9) 2016 (Amendment) Order 2022 [P.U.(A) 125/2022].
     
    For the purposes of P.U.(A) 166/2016: 
  • a ‘qualifying person’ is a company: (a) incorporated under the CA 1965 and resident in Malaysia; and (b) which makes an investment in a related company; 

  • a ‘related company’ is a company: (a) incorporated under the CA 1965 and resident in Malaysia; and (b) which at least 70% of its paid-up capital in respect of its ordinary shares are directly owned by a qualifying person; 

  • an ‘investment’ is an investment which is made: (a) in the form of (i) cash contribution where the related company has no obligation to repay, or (ii) paid-up capital in respect of ordinary shares in a related company; (b) for the sole purposes of financing a qualifying activity; (c) for a period and up to an amount as approved by the Minister; and (d) in the basis period for the same YA with the YA where the related company has incurred expenditure in carrying on the qualifying activity; 

  • a ‘qualifying activity’ is a scheduled activity: (a) which is carried on by a related company; (b) which is not of the same kind with the activity which has been carried on by the related company on the date of the application for deduction under P.U.(A) 166/2016; and (c) which has been granted exemption under a relevant order; 

  • a ‘scheduled activity’ refers to any of the activities set out in column (2) of the Schedule to P.U.(A) 166/2016, namely: (a) cultivation of kenaf, vegetable, fruit, herbs, spice or cocoa; (b) plantation of crops for energy generation; (c) planting of hevea brasiliensis; (d) floriculture including ornamental flowers; (e) aquaculture; (f) inland fishing or deep-sea fishing; and (g) rearing of cattle, buffalo, goat, sheep, turkey, ostrich or quail; and 

  • a ‘relevant order’ refers to any of the following: (a) the Income Tax (Exemption) (No. 4) Order 2016 [P.U. (A) 157/2016]; (b) the Income Tax (Exemption) (No. 5) Order 2016 [P.U. (A) 158/2016]; (c) the Income Tax (Exemption) (No. 6) Order 2016 [P.U. (A) 159/2016]; and (d) the Income Tax (Exemption) (No. 7) Order 2016 [P.U. (A) 160/2016].1
A deduction which has been allowed under P.U.(A) 166/2016 to a qualifying person which invests in the form of paid-up capital in respect of ordinary shares in a related company shall be withdrawn if the qualifying person: (a) disposes the paid-up capital in respect of the ordinary shares within five years from the date of the last investment made; and (b) receives any consideration for such disposal. The withdrawal of the deduction shall be made by adding the value of the consideration received by the qualifying person in ascertaining its adjusted income for the YA in the basis period in which the consideration is received. However, the value of the consideration to be added back to the qualifying person’s adjusted income shall not exceed the total deduction allowed in relation to the investment.
 
Alert prepared by Desmond Liew (Senior Associate) of the Tax Practice and Tham Zhi Jun (Associate) of the Corporate Practice of Skrine. 
 
1 A summary of each of the relevant orders is available here.

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.

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