MIDA issues Guideline for Application of Tax Incentive for Manufacturing Electric Vehicle Charging Equipment

One of the initiatives announced by the Prime Minister and Minister of Finance of Malaysia, Dato’ Seri Anwar Ibrahim, during the 2023 Malaysian Budget Speech on 24 February 2023 (“Budget Speech”) was the granting of tax incentives for the manufacture of electric vehicle charging equipment.1
To give effect to the above-referred initiative, the Malaysian Investment Development Authority (“MIDA”) recently issued the Guideline and Procedures for the Application of Tax Incentive for Manufacturer of Electric Vehicle Charging Equipment (“the Guideline”).
This Alert provides a summary of the key provisions in the Guideline.
The Tax Incentives
As announced during the Budget Speech, the following incentives are available for a new company and an existing company undertaking expansion and/or diversification activity for the manufacturing of electric vehicle charging equipment: 
  1. income tax exemption of 100% on the statutory income from the year of assessment (“YA”) 2023 to YA 2032 – companies that make early investments are eligible for tax exemption for up to 10 years whereas companies that make the investments after YA 2023 are eligible for the exemption only for the remaining period of exemption. Unabsorbed losses can be carried forward for seven consecutive YAs; or 

  2. income tax exemption equivalent to investment tax allowance of 100% on the qualifying capital expenditure incurred within five years. The allowance can be set off against 100% of statutory income for each YA, and unutilised allowances can be carried forward until they have been fully utilised. 
It appears from the Guideline that an existing company undertaking expansion must be in a similar sector which is expanding its current products into manufacturing of electronic vehicle charging equipment. Further, the manufacturing of electronic vehicle charging equipment must not be similar to the company’s existing products.2 
Eligibility Criteria
A company must fulfil the following conditions to be eligible for the tax incentives: 
  1. the company must be incorporated under the Companies Act 2016; 

  2. the company must have a manufacturing licence from the Ministry of International Trade and Industry (MITI) or a letter from MIDA confirming that it is exempted from having a manufacturing licence (whichever applicable); 

  3. the company must incur an adequate investment level and operating business expenditures for the proposed project3

  4. at least 80% of the company’s full time employees must be Malaysians; 

  5. the value added for company’s product(s) must be at least 20%; 

  6. Science and Technical staff index (S&T Index) must be at least 15% of the company’s full time workforce; 

  7. the company must nurture/collaborate with local vendors in the sector in terms of technologies, capabilities, certification, human capital development etc; and 

  8. the company must offer Malaysian internships at technical and vocational education and training (TVET) level or at least diploma level or to collaborate with technical and vocational education and training institution / institution of higher learning in relevant fields as proposed. 
Relevant subsidiary legislation
The incentives referred to in the Guideline will be provided under the Income Tax (Exemption) (No. 11) Order 2006 [P.U.(A) 112/2006] and Income Tax (Exemption) (No. 12) Order 2006 [P.U.(A) 113/2006]. Applications will be considered by the National Committee of Investment.
Application period
To be eligible for the incentives, a company’s application must be received by MIDA from 25 February 2023 until 31 December 2025.
Alert by Sheba Gumis (Partner) and Faith Chan (Associate) of the Corporate Practice of Skrine. 

1 Refer to Appendix 15 of Appendix II to the 2023 Budget Speech.
2 It is unclear from the Guideline whether this condition relating to expansion also applies to diversification activity.
3 The company is advised under the Guideline to share and discuss its level of commitment with MIDA.

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.