Principal Hub

A locally incorporated company that uses Malaysia as a base for conducting its regional and global businesses and operations to manage, control, and support its key functions including management of risks, decision making, strategic business activities, trading, finance, management and human resource.

An approved Principal Hub company is eligible for a 3-tiered corporate taxation rate as follows:

3-tier Incentive Tier 3 Tier 2 Tier 1
Blocks
(years)
5 +5 5 +5 5 +5
Tax Rate 10% 5% 0%

 

 

 

  • Local incorporation under the Companies Act 1965
  • Paid-up capital of more than RM2.5 million
  • Minimum annual sales of RM 300 million (Additional requirement for goods-based applicant company)
  • Serves and control network companies in at least 3 countries outside Malaysia
  • Carry out at least three qualifying services
  • Employment Requirement
  • Annual Business Spending
  • Must have HR training and development plan for Malaysians
  • The applicant should be the planning, control and reporting centre for the qualifying services
  • Malaysian-owned and incorporated businesses are encouraged to provide headquarters-related services and expertise to their overseas companies
  • Significant use of Malaysia’s banking and financial services and other ancillary services and facilities (e.g. trade and logistics services, legal and arbitration services, finance and treasury services)
  • Income tax exemption threshold received from services/goods-based company inside and outside of Malaysia is based on the ratio of 30 : 70 (Inside: Outside)
  • Incentives to be provided under section 127(3) (b) the Income Tax Act, 1967 and approved through the National Committee on Investment (NCI)
  • Commitments on annual business spending and high value jobs creation will be given flexibilities to comply by end of Year 3 of first block under each tier. Failing to do so claw back on tax will be taken from Year 1. This relaxation is not applicable for existing company who already enjoyed IPC / RDC / OHQ incentives
  • Company must submit yearly report to MIDA for evaluation of performance. Failing to do so, the incentive will be withdrawn
  • For existing companies that have completed IPC, OHQ or RDC incentive can be considered the Principal Hub incentive by complying the criteria of Tier 1 for a maximum incentive period of 5 years with corporate tax rate of 10%. Consideration is subject to the following commitment under Tier 1
    • 20% incremental commitment of the existing employment; and
    • 30% incremental commitment of the existing business spending
  • New applications received by Malaysian Investment Development Authority (MIDA) from 1 May 2015 until 30 April 2018 is eligible to be considered for this incentive
  • Application for the extension of the incentive period must be submitted to MIDA six (6) months before the expiry of the initial incentive period
  • The extended incentive period shall begin from the date following the end of the initial incentive period and continue for a period of five (5) years
  • Application should be submitted in three (3) copies to:-

Chief Executive Officer,
Malaysian Investment Development Authority (MIDA) MIDA Sentral
No. 5, Jalan Stesen Sentral 5
50470 Kuala Lumpur
P.O Box 10618
50720 Kuala Lumpur
Malaysia

Incentive for Acquiring a Foreign Company for High Technology

- A locally owned company in the manufacturing or services sector that acquires a foreign-owned company abroad will be eligible for an incentive in the form of an annual deduction of 20% of the acquisition cost for 5 years for the following purpose:

  • Establishment of a manufacturing facility / company or services within Malaysia; or
  • Utilisation of the acquired technology in their existing operations within Malaysia

- The incentive is in the form of an annual deduction to ascertain the adjusted income of the locallyowned company, and any unutilised deduction can be carried forward until fully utilised.

• The acquirer must be a locally-owned company that is incorporated under the Companies Act, 1965 with at least 60% Malaysian equity ownership involved in manufacturing or services activities

• Malaysian equity ownership of at least 60% must be held for a period of 5 years from the date of application

• For a public listed company:
- At least 60% of its equity is directly owned by Malaysians on the first day of listing on the stock exchange; and
- At least 50% of its equity is directly owned by Malaysians

• An acquisition by a holding company having interests in manufacturing or service activities will be considered on a case by case basis
• The acquiree must be a foreign company with 100% foreign equity ownership that is located and involved in manufacturing or services activities technology in the activity of manufacturing or services

• The acquisition should be a direct acquisition of at least 51% of the equity of the foreign company abroad

• The acquisition must be in the form of a cash transaction. Acquisitions through share-swapping will not be eligible for this incentive

• The acquisitions must be completed within three (3) years

• Acquisitions cost eligible for the deduction comprise:
- Value of shares purchased by the Malaysian company (acquirer); and
- Incidental costs, including professional fees paid to bankers, valuers, auditors, accountants, tax agents, consultants, or legal advisers; cost of transfers including stamp duties; related travelling and accommodation expenses incurred for the purpose of the acquisition

• The acquisition of the foreign technology company must result in increase of performance or enhancement of technology and processes of the company’s operation in Malaysia

• Definition of High Technology
- New and emerging technologies; or
- Relatively new technology for the industry / sector concerned

• Other considerations:
- Applications for the incentive can be made prior to, during the course of negotiations, or within 6 months after the completion of the acquisition
- A company currently enjoying incentives under the Promotion of Investments Act (PIA), 1986 or Income Tax Act, 1967, is not eligible for this incentive
- The acquisition must be held for at least 5 years. Where the acquired foreign- owned company is disposed of within five (5) years from the date of the completion of the acquisition, any annual deduction granted will be withdrawn for the respective years of assessment in which the incentive was given
- The annual deduction will be granted from the date of the completion of the acquisition and all the costs of acquisition are deemed to be incurred on that completion date
- For an acquisition undertaken with the objective of acquiring high technology for production within the country, the applicant company is also eligible to be considered for incentives granted to high technology companies. However, they will be limited to the manufacture of new products using the acquired technology
- For an acquisition undertaken with the objective of acquiring high technology to provide services within the country, the applicant company is also eligible to be considered for incentives granted to services activities. However, they will be limited to the new services using the acquired technology
- Any subsequent application by the acquirer or its related companies will not be eligible for the incentive

Incentives to be provided under the Income Tax Act, 1967 and approved through the National Committee on Investment (NCI)

• Applications received by Malaysian Investment Development Authority (MIDA) from 3 July 2012 until 31 December 2016 are eligible to considered for this incentive

• Application should be submitted in three (3) copies to:-

Chief Executive Officer,
Malaysian Investment Development Authority (MIDA)
MIDA Sentral
No.5, Jalan Stesen Sentral 5
Kuala Lumpur Sentral
50470 Kuala Lumpur
Malaysia

For projects in Sabah and Sarawak, three copies of the form should also be submitted to the relevant MIDA office as follows:-

Sabah
Director
MIDA Sabah Office
Lot D9.4 & D9.5
9th Floor, Block D
Bangunan KWSP
Karamunsing
88100 Kota Kinabalu
Sabah, Malaysia
Sarawak
Director
MIDA Sarawak Office
Room 404, 4th Floor
Bangunan Bank Negara Malaysia
No. 147 Jalan Satok
PO Box 716
93714 Kuching
Sarawak Malaysia

 

Incentive for Investments

Pioneer Status:

  • A company granted Pioneer Status enjoys income tax exemption of 70% - 100% of statutory income for 5 to 10 years. It pays tax on 30% of its statutory income, with the exemption period commencing from its Production Day (defined as the day its production level reaches 30% of its capacity)
  • Unabsorbed capital allowances as well as accumulated losses incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company.

Investment Tax Allowance:

  • As an alternative to Pioneer Status, a company may apply for Investment Tax Allowance (ITA). A company granted ITA is entitled to an allowance of 60% - 100% on its qualifying capital expenditure (factory, plant, machinery or other equipment used for the approved project) incurred within 5 to 10 years from the date the first qualifying capital expenditure is incurred.
  • The company can offset this allowance against 70% of its statutory income for each year of assessment. Any unutilised allowance can be carried forward to subsequent years until fully utilised. The remaining 30% of its statutory income will be taxed at the prevailing company tax rate.

A company granted either Pioneer Status or Investment Tax Allowance can enjoy partial or full exemption from payment of Income Tax depending on the type of promoted products or activities and location as follows:

Pioneer Status
70% of the statutory income will be exempted from Income Tax for 5 years from the date of the commencement of the pioneer period as determined by the Ministry of International Trade and
Industry (MITI).

The remaining 30% of the statutory income will be taxed at the prevailing Income Tax rate of 28%
resulting in an effective tax rate of 8.4%.


Investment Tax Allowance
A company with Investment Tax Allowance will be granted an allowance of 60% in respect of
the qualifying capital expenditure incurred within 5 years from the date on which the first capital
expenditure is incurred.

The allowance can be used to set off up to 70% of the statutory income in the year of assessment
The remaining 30% of the statutory income will be taxed at the prevailing Income Tax rate of 28%
resulting in an effective tax rate of 8.4%.

Additional criteria
- At least 1% of gross sales be spent on local R&D
- At least 40% value added in its activity or product
- At least the percentage of science and technical staff having degrees or diplomas with a minimum 5 years’ experience in related fields should be 15% of total workforce 50.

Pioneer Status
100% exemption from Income Tax for 5 years

Investment Tax Allowance
An Investment Tax Allowance of 60% will be granted in respect of qualifying capital expenditure incurred within 5 years from the date on which the first capital expenditure is incurred The allowance can be utilised to set off against 100% of the statutory income in the year of assessment

a) Contract R&D company

  • A company which provides R&D services in Malaysia to companies other than its related companies

Pioneer Status
100% exemption of Income Tax for 5 years.

Investment Tax Allowance
Investment Tax Allowance of 100% in respect of qualifying capital expenditure incurred within 10 years from the date of the first incurrence of capital expenditure.

The allowance can be utilised to set off against 70% of the statutory income. The balance of 30%
of the statutory income will be taxed at the prevailing Income Tax rate

b) R&D Company

  • A company which undertakes R&D activities for its related company or for any other company

Pioneer Status
Not applicable

Investment Tax Allowance
An Investment Tax Allowance of 100% in respect of capital expenditure incurred within 10 years
from the date of the first incurrence of capital expenditure

The allowance can be utilised to set off against 70% of the statutory income. The balance of 30%
of the statutory income will be taxed at the prevailing Income Tax rate

c) In-house R&D activities

  • R&D activities undertaken within the company for the purpose of its own business

Pioneer Status
Not applicable

Investment Tax Allowance
An allowance of 50% in respect of capital expenditure incurred within 10 years from the date of
the first incurrence of capital expenditure

The allowance can be utilised to set off against 70% of the statutory income. The balance of 30%
of the statutory income will be taxed at the prevailing Income Tax rate

(as specified in the promoted list under Selected Industries heading)

Pioneer Status
100% exemption of Income Tax for 10 years

Investment Tax Allowance
Investment Tax Allowance of 100% in respect of qualifying capital expenditure incurred within 5 years from the date of the first incurrence of capital expenditure. The allowance can be utilised to set off against 100% of the statutory income

Pioneer Status
Tax exemption of 70% of statutory income for 5 years

Investment Tax Allowance
60% of qualifying capital expenditure incurred within 5 years. The allowance can be offset against 70% of the statutory income for each year of assessment. Unutilised allowances can be carried forward until fully absorbed

All applications should be made using a form and accompanied by supporting documents. Application
forms must be filled up clearly and thoroughly. Incomplete forms and those without verified supporting
documents will be rejected and returned to the applicant

A printed copy of the completed form and checklist should be submitted to:

Chief Executive Officer,
Malaysian Investment Development Authority (MIDA) MIDA Sentral
No.5, Jalan Stesen Sentral 5
Kuala Lumpur Sentral
50470 Kuala Lumpur
Malaysia

For projects in Sabah and Sarawak, the form should also be submitted to the relevant MIDA office as follows:-

Sabah
Director
MIDA Sabah Office
Lot D9.4 & D9.5
9th Floor, Block D
Bangunan KWSP
Karamunsing
88100 Kota Kinabalu
Sabah, Malaysia
 
Sarawak
Director
MIDA Sarawak Office
Room 404, 4th Floor
Bangunan Bank Negara Malaysia
No. 147 Jalan Satok
PO Box 716
93714 Kuching
Sarawak Malaysia