Update: The Ismail Sabri Government Budget is no longer applicable.
Malaysia's national budget for 2023 was re-tabled again in February 2023; for more info, please visit - https://www.ccs-co.com/post/budget-2023-malaysia-madani.
This tax incentive included in Budget 2023, tabled in Parliament on 7 October 2022, was not included in Budget 2023 (Re-tabled) on 24 February 2023.
Response from MOF: MOF is currently reviewing off-budget items.The phrase "MOF is currently reviewing off-budget items" typically refers to the Ministry of Finance (MOF) conducting an evaluation or examination of expenses or financial matters that are not included in the official budget. Off-budget items are expenditures or revenue sources not directly accounted for in the regular budgeting process.
Governments often create budgets to allocate funds for various programs, projects, and expenses. However, certain financial activities may fall outside the scope of the official budget. These off-budget items could include emergency spending, special funds, grants, subsidies, or other financial transactions not explicitly accounted for in the regular budgeting process.
When the MOF reviews off-budget items, they are scrutinising these financial activities to assess their impact, legality, appropriateness, or potential risks. This review aims to ensure transparency, fiscal responsibility, and effective financial management within the government. It helps identify discrepancies, assess the necessity and effectiveness of off-budget items, and make informed decisions regarding their continuation or modification.
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 [This tax incentive included in Budget 2023, tabled in Parliament on 7 October 2022, was not included in Budget 2023 (Re-tabled) on 24 February 2023]
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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