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Extension of Tax Incentive for Intellectual Property Development

Updated: Nov 9, 2022

To Download Budget 2023 Speech and some other related publications - https://t.me/YourAuditor/3276

Current Position

The government proposed in Budget 2020 that qualifying intellectual property (IP)-generated income derived from the development of patents and copyright software be given a 100% income tax exemption for up to 10 years.


In response to the proposal presented above, the Malaysian Investment Development Authority (MIDA) has published, with an effective date of January 1, 2020, the Guidelines on Incentives for Intellectual Property (IP) Development.



For tax exemption computation, the income that qualifies for the exemption will be calculated based on the Modified Nexus Approach (MNA).


Eligible applicants

New/existing companies own the rights of the qualifying IPs and are receiving income from the qualifying IP activities related to the promoted activities/list prescribed under the Promotion of Investments Act 1986 (PIA) and the Income Tax Act 1967 (ITA).


Qualifying IP asset types

  • Patent or utility innovation

  • Copyrighted software

  • Family of qualifying IPs


Qualifying IP income types

  • Royalty

  • Licensing Fees

Eligibility criteria

  • R&D activities must be conducted in Malaysia, where such activities lead to the development, improvement, modification or creation of the Qualifying Asset.

  • Adequate operating expenditure incurred annually to support the company in conducting its business operation in Malaysia.

  • The company must have at least 30% of science and technical staff have a degree or diploma with a minimum of five years of experience from related fields.


Qualifying R&D expenditure

  • Eligible R&D expenditure for MNA calculation will align with the eligible expenditure types under s 34A of the ITA.

  • Includes expenditure under cost-sharing agreements, provided that the cost of payable R&D is clearly stated in the agreement.

  • Qualifying expenditure can be backdated up to three years from the date the IP is registered/filed.



The incentive will apply to applications received by MIDA between 1 January 2020 and 31 December 2022. Three sets of the application are to be submitted to the following:

  • Chief Executive Officer

  • Malaysian Investment Development Authority (MIDA)

  • MIDA Sentral

  • No. 5, Jalan Stesen Sentral 5

  • Kuala Lumpur Sentral

  • 50470 Kuala Lumpur

(Attention: Advanced Technology and Research & Development Division (ATRD) Division)

Proposal

To further encourage R&D activities and IP registration in Malaysia, the proposed tax incentive will be extended for 3 years.

Effective Date

For applications received by MIDA from 1 January 2023 until 31 December 2025.



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