Malaysian Tax Guide On New Incentive For Multinationals
Building on an announcement in Budget 2015 that new tax incentives will be offered to companies choosing Malaysia as the 'principal hub' of their regional operations, the Ministry of International Trade and Industry recently issued detailed guidelines on the implementation of the new offering.
The 'Incentive for the Establishment of Principal Hub' is to replace the existing International Procurement Centers, Regional Distribution Centers, and Operational Headquarters (OHQ) Incentive Schemes, which are to be terminated on April 30, 2015.
The regime is intended to encourage businesses to base regional and global business functions and operations in Malaysia to manage risks, make decisions, and undertake strategic business activities, such as trading, finance, and human resources.
An approved principal hub company will be eligible for one of three preferential corporate tax rates, and other incentives, of zero percent (tier one), five percent (tier two), or ten percent (tier three), based on the level of value created. This includes level of business spending, high-value job creation, high-level personnel employed, level of value-adding functions and risks transferred to the principal company, and revenue.
To be eligible for the incentives, companies must:
- Be locally incorporated under the Companies Act, 1965;
- Have paid-up capital of more than RM2.5m (USD675,000);
- Have minimum sales of RM300m (USD81m);
- Serve and control network companies in at least three countries outside Malaysia; and
- Carry out at least three 'qualifying services.'
An approved Principal Hub company will enjoy the following facilities for up to ten years:
- Duty exemption when bringing raw materials, components or finished products into free industrial zones, LMW, free commercial zones, and bonded warehouses for production or re-packaging, cargo consolidation and integration before distribution to its final consumers for goods-based companies;
- No local equity/ownership condition;
- Expatriate posts based on requirements of applicant's business plan, subject to current policy on expatriates;
- Use of foreign professional services (only when locally owned services are not available);
- Permission to acquire fixed assets so long as it is a foreign-owned company making the acquisitions for the purpose of carrying out the operations of its business plan; and
- Foreign exchange administration flexibilities.
According to the guidelines, companies must submit a yearly report to MIDA for evaluation of performance against agreed objectives.
The incentive will be offered from May 1, 2015.
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