Extension of incentive application period for Sabah Development Corridor and East Coast Economic Region

The Malaysian government recently issued eight subsidiary laws 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 December 31, 2020 to December 31, 2022.

Here is a summary of the subsidiary legislation:

SDC

  1. Income Tax (Exemption) Order 2018 (No. 11)

The Income Tax (Exemption) Order 2018 (No. 11) (“PU(A) 390/2018”) exempts a qualifying company from paying income tax on its statutory income 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 listed in Annex 1 of PU(A) 390/2018 (for example, the construction or purchase or modification or extension of a hotel building, or the construction or purchase of a factory or building or the provision of plant and machinery for the manufacture of animal feed, milk products or meat products); and
  • ten consecutive years for a qualifying activity listed in Annex 2 of PU(A) 390/2018 (for example, the construction or purchase of a plant or building or the provision of facilities and machinery for specified halal products).

To qualify for this incentive, an eligible company must, among other requirements, be approved by the Minister to undertake an eligible activity for the TCS.

The deadline for filing an application for exemption under PU(A) 390/2018 has been extended from December 31, 2020 to December 31, 2022 under Income Tax (Exemption) (Amendment) Order 2018 (No. 11) 2022 [P.U.(A) 75/2022].

  1. Income Tax (Exemption) Order 2018 (No. 12)

The Income Tax (Exemption) Order 2018 (No. 12) (“PU(A) 391/2018”) exempts a qualifying company from paying income tax on its statutory income from an activity eligible for:

  • five consecutive years for a qualifying activity listed in Annex 1 of PU(A) 391/2018 (e.g. shipbuilding and repair, and certain creative activities such as design and art academies or design schools) ‘Performing Arts) ; and
  • ten consecutive years for a qualifying activity listed in Schedule 2 of PU(A) 391/2018 (e.g. hotel or resort and downstream manufacturing activities of palm oil products such as oleochemicals , biofuels and trans-fat free food products).

To qualify for this incentive, an eligible business must be approved by the Minister and, among other requirements, must engage in the qualifying activity in the TCS, employ an approved number of full-time employees in the TCS to engage in the activity eligible, and incur an approved amount of annual operating expenditures or capital investments in the SDC to carry on the eligible activity.

The deadline for filing an application for exemption under PU(A) 391/2018 has been extended from December 31, 2020 to December 31, 2022 under Income Tax (Exemption) (Amendment) Order 2018 (No. 11) 2022 [P.U.(A) 76/2022].

  1. Stamp Duty (Exemption) Order (No. 8) 2018

The Stamp Duty (Exemption) Order 2018 (No. 8) (“PU(A) 397/2018”) exempts from stamp duty any instrument subject to ad valorem transfer tax on an immovable used for the purposes of carrying out an “eligible tourism project”, i.e. a project related to a hotel or a resort that is operated in the SDC and approved by The Minister.

To benefit from the stamp duty exemption under PU(A) 397/2018, the deed of transfer must be signed no later than December 30, 2020. This deadline has been extended to December 31, 2022 under from Stamp Duty (Exemption) (Amendment) Order 2018 (No. 8) 2022 [P.U.(A) 74/2022].

ECER

  1. Income Tax (Exemption) Order 2016 (No. 4)

The Income Tax (Exemption) Order 2016 (No. 4) (“PU(A) 157/2016”) exempts a qualifying person from paying income tax for five consecutive years on his statutory income from a qualifying activity, which is equivalent to 100% of the qualifying capital expenditure incurred by the qualifying person.

For the purposes of PU(A) 157/2016:

  • a “qualified person” is a company incorporated under the Companies Act 19651 and residing in Malaysia, an agricultural co-operative society or a farmers’ organization each as defined in the Farmers’ Organization Act 1973, an area fishermen’s association, a national fishermen’s association or a local fishermen’s association. State, each as defined in the Fishermen’s Associations Act 1971, or an association solely engaged in agriculture and resident in Malaysia;
  • an “eligible activity” is an activity indicated in column (3) in relation to the sector indicated in column (2) of the annex to PU(A) 157/2016 (for example, construction or purchase of buildings, machinery or facilities for services and development of information, communication and technology, specified work related to certain agricultural activities such as cultivation of kenaf, vegetables, fruits or cocoa, aquaculture , inland or deep sea fishing and the raising of specified livestock such as cattle, buffaloes, goats and sheep) which has not been exercised in the ECER at the date of the request for exemption, or which has been exercised in the ECER at the latest one year before the exemption request, and this activity is approved by the Minister; and
  • an “eligible capital expenditure” is a capital expenditure indicated in column (4) of the annex to PU(A) 157/2016.

The deadline for filing an application for exemption under PU(A) 157/2016 has been extended from December 31, 2020 to December 31, 2022 under Income Tax (Exemption) (Amendment) Order 2016 (No. 4) 2022 [P.U.(A) 88/2022].

  1. Income Tax (Exemption) Order 2016 (No. 5)

The Income Tax (Exemption) Order 2016 (No. 5) (“PU(A) 158/2016”) exempts a qualifying person from paying income tax on his statutory income derived from ‘a special qualifying activity, which is equal to the allowance rate as specified by the Minister which shall not be less than 60% and not greater than 100% of qualifying expenses incurred by the qualifying person for a period of consecutive years as the Minister may determine. For the purposes of PU(A) 158/2016:

  • a “qualified person” has the same meaning as in PU(A) 157/2016 (see above); and
  • an “eligible special activity” is an activity indicated in column (2) of the annex to PU(A) 158/2016 (e.g. agriculture and related services, communication and information technology, manufacturing, oil, gas and petrochemicals) that was not performed in the ECER on the date of the request for exemption, or was performed in the ECER no later than one year prior to the request exemption, and this activity is approved by the Minister; and
  • an “eligible capital expenditure” is a capital expenditure indicated in column (3) of the annex to PU(A) 158/2016.

The deadline for filing an application for exemption under PU(A) 158/2016 has been extended from December 31, 2020 to December 31, 2022 under Income Tax (Exemption) (Amendment) Order 2016 (No. 5) 2022 [P.U.(A) 89/2022].

  1. Income Tax (Exemption) Order 2016 (No. 6)

Income Tax (Exemption) Order 2016 (No. 6)2 (“PU(A) 159/2016”) exempts a qualifying person from paying income tax for ten consecutive years on its statutory income from a qualifying activity, subject to the provisions of paragraphs 5A and 6 of the PU (A) 159/2016.

For the purposes of PU(A) 159/2016:

  • a “qualified person” has the same meaning as in PU(A) 157/2016 (see above) and is additionally required to employ an approved number of full-time employees in the ECER to carry out the activity eligible and incur an approved amount of annual operating expenditures or capital investments in the ECER to carry out the eligible activity; and
  • an “eligible activity” is an activity indicated in column (3) in relation to the sector indicated in column (2) of the annex to PU(A) 159/2016 (for example, specified works related to certain activities agriculture such as the cultivation of kenaf, vegetables, fruits or cocoa, aquaculture, inland or deep sea fishing and the rearing of specified livestock such as cattle, buffaloes, goats and sheep, manufacture of selected products and selected agricultural products, certain manufacturing-related services, and specified tourism activities) which have not been carried out in the ECER on the date of the request for exemption, or which have been carried out in the ECER no more than one year before the request for exemption is submitted, and this activity is approved by the Minister.

The deadline for filing an application for exemption under PU(A) 159/2016 has been extended from December 31, 2020 to December 31, 2022 under Income Tax (Exemption) (Amendment) Order 2016 (No. 6) 2022 [P.U.(A) 90/2022].

  1. Income Tax (Exemption) Order 2016 (No. 7)

Income Tax (Exemption) Order 2016 (No. 7)3 (“PU(A) 160/2016”) exempts a qualifying person from paying income tax on his statutory income from a special qualifying activity at the rate of at least 70% and at most 100% , as specified by the Minister for such period of consecutive taxation years as the Minister may determine, subject to the provisions of paragraphs 5A and 6 of PU(A) 160/2016.

For the purposes of PU(A) 160/2016:

  • a “qualified person” has the same meaning as in PU(A) 157/2016 (see above) and is additionally required to fulfill the conditions relating to annual operating expenses or capital investments and the employment of full-time employees as listed in Appendix 2 of PU(A) 160/2016; and
  • a “special eligible activity” is an activity listed in column (2) of Schedule 1 of PU(A) 160/2016 (e.g. agriculture and agriculture related services, services related to information and communication technology, manufacturing, oil, gas and petrochemicals) that was not exercised in the ECER on the date of the request for exemption, or was exercised in the ECER no more than one year before the request for exemption is submitted, and this activity is approved by the Minister; and

The deadline for filing an application for exemption under PU(A) 160/2016 has been extended from December 31, 2020 to December 31, 2022 under Income Tax (Exemption) (Amendment) Order 2016 (No. 7) 2022 [P.U.(A) 91/2022].

  1. Income Tax (Exemption) Order 2016 (No. 8)

The Income Tax (Exemption) Order 2016 (No. 8) (“PU(A) 161/2016”) exempts an approved promoter from paying income tax for ten consecutive years on its statutory income from: (a) the transfer of any right to land or the alienation of a building or right to a building or part of a building located in an industrial zone or 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 PU(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 interest in any part or all of the land within the ECER; and (c) pursue the development of (i) an industrial park within the ECER which is approved by the East Coast Economic Region Development; or (ii) a free zone located in the ECER; and
  • a ‘building’ refers to a building constructed by an approved developer and located within the ECER.

The deadline for filing an application for exemption under PU(A) 161/2016 has been extended from December 31, 2020 to December 31, 2022 under Income Tax (Exemption) (Amendment) Order 2016 (No. 8) 2022 [P.U.(A) 92/2022].

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