Malaysia’s recent budget, announced on 27 Oct 2017, proposes to be an expansionary one with the private sector remaining as the key driver of growth in 2018. We highlight the announced incentives for corporate tax, GST and stamp duty.
Malaysia is projected to experience slower economic growth at a rate of 5% to 5.5% in 2018, as compared to 2017’s 5.2% to 5.7%. The Federal Government revenue collection for 2018 is estimated to be RM239.86 billion (S$79.8 billion) while allocating RM280.25 billion (S$93.25 billion) for spending, with a targeted fiscal deficit at 2.8% of GDP.
Corporate Tax Changes
Most notable is Malaysia’s commitment to fulfil the OECD’s Base Erosion and Profit Sharing (BEPS) Action Plan initiatives. Also, it was announced that Malaysia will adopt the OECD’s Earning Stripping Rules (ESR) effective 1 Jan 2019. Under the ESR, interest deduction on loans between related companies within the same group will be limited to a ratio of between 10% and 30% of earnings.
To promote Malaysia as an investment destination, the application for Principal Hub tax incentive will be extended for another three years until 31 Dec 2020.
To promote tourism, investments in new 4- and 5-star hotels will continue to enjoy a 5-year partial income tax exemption or 60% Investment Tax Allowance before 31 Dec 2020. Companies operating tours within Malaysia that service more than 1500 local and 750 foreign tourists annually, will continue to enjoy 100% income tax exemption for another two years until year of assessment 2020. For medical tourism, tax exemption on statutory income will be extended for another three years for applications until 31 December 2020.
To establish the country as a healthcare hub for foreign patients, tax exemption for income derived from the export of healthcare services to foreign clients will be increased to 100% for applications received by 31 December 2020.
Income received by fund managers managing conventional and Shariah-compliant Sustainable and Responsible Investments (SRI) will be eligible for tax exemptions. At the same time, venture capital initiatives will be expanded to include income received from fund management and performance fees. The existing incentive for angel investors was also extended to 31 Dec 2020.
To help companies compete in the digital era and adopt the latest technology, companies may claim 20% initial allowance and 20% annual allowance for capital expenditure on purchase of information and communication technology equipment and software, effective from year of assessment 2017; and expenditure on development of customised software from year of assessment 2018.
GST & Stamp Duty
New measures were also announced to streamline GST treatment between Federal and State government as well as local authorities. To encourage new asset investment in airline, shipping and oil and gas, GST relief is granted at the point of importation from 1 Jan 2018. To boost the tourism sector, cruise operators will be given relief from paying GST on handling services provided by port operators. All type of magazines, journals, periodicals and comics will qualify for zero rating.
Stamp duty exemptions will be given on contract notes for trading of Exchange Traded Funds and Structures Warrants by investors until 31 Dec 2020.
For further advice on streamlining your organisation’s tax exposure in Malaysia, contact Baker Tilly Malaysia Tax Services at +6 (0)3 2297 1000).