Updated on 15 July 2023- Dialogue between MOF, LHDNM, and CTIM [21/6/2023]Update: The Ismail Sabri Government Budget is no longer applicable.
Malaysia's national budget for 2023 was re-tabled again in February 2023.
To Download Revised Budget 2023 Speech and some other related publications - https://www.ccs-co.com/post/budget-2023-malaysia-madani
Background to the Aerospace Industry
Strategically located at the heart of the wider Asia-Pacific region, Malaysia sits within the world’s largest air travel market and has world-class infrastructure such as the KLIA Aeropolis, Subang Aerotech Park, Senai Aerospace Park, Serendah High-Value Manufacturing Park and Kulim Hi-Tech Park.
With its business-friendly Government, supportive industry policies, diversified manufacturing base, and widely available industry talent, the country is a cost-effective location for projects.
The Malaysian Government considers the industry a catalytic high-value industry under its 11th Malaysia Plan (11MP), which runs from 2016 to 2020.
To that end, they have emphasised the development of the aerospace industry, its supply chain, and its competency through industry-led research and technology (R&T).
On top of the 11MP initiatives, the Government has also implemented the Malaysian Aerospace Industry Blueprint 2030 (MAIB 2030) to help drive the industry’s growth.
Underscoring the Asia-Pacific region’s air travel market growth, The Boeing Company predicts that plane demand will increase over the next decade, with the region needing almost 17,485 planes.
The region will also account for 39% of global deliveries of passenger and freight planes over the same period. With 40% of aerospace industry growth coming from Asia-Pacific alone and a collective GDP of four ASEAN countries exceeding US$1 trillion by 2030, the industry's future is in Asia.
Malaysia is targeting to capture 50% of the Southeast Asian MRO business and five% of the global market by 2030, positioning the country as Southeast Asia’s top aerospace hub. Subang Aerotech Park, which offers a competitive cost base, is the country's largest MRO centre, with local and global service providers.
Para 61 of the 2023 Budget Speech, Prime Minister Datuk Seri Anwar Ibrahim said:
Current Position
New and existing aerospace companies in Malaysia undertaking high-value activities such as manufacturing or assembling of systems, devices, parts or components and maintenance, repair and overhaul for aircraft (MRO), systems, devices, parts or components and engineering & design/services related are given tax incentives as follows.
New Company
Income Tax Exemption of 70% to 100% for a period between 5 to 10 years; or
Investment Tax Allowance of 60% to 100% for five years and can be set off against 70% to 100% of statutory income for each assessment year.
Existing Company
An Investment Tax Allowance of 60% for five years and can be set off against 70% of statutory income for each year of assessment.
Applications are received by the Malaysian Investment Development Authority (MIDA) until 31 December 2022.
Aerospace Industry in Malaysia:
Proposal
In line with the 12th Malaysia Plan to transform Malaysia into a regional key player in the aerospace industry, the proposed tax incentive will be extended for three years.
Effective Date
For applications received by MIDA from 1 January 2023 until 31 December 2025.
Updated on 15 July 2023- Dialogue between MOF, LHDNM, and CTIM [21/6/2023]
MOF confirmed that this incentive will apply to all manufacturing activities except those on the negative list.
CTIM also sought confirmation on whether the extension is also applicable to companies (and C-suite employees) which carry on “Selected Services”, which are covered under Income Tax (Relocation of Provision of Services Business Incentive Scheme) Rules 2022, i.e., service activities which adopt Industrial Revolution 4.0 and digitalisation technology undertaken by a qualifying company:
Provision of technology solutions or technology company which develops technology and provides technology solutions based on substantial scientific or engineering challenges;
Provision of infrastructure and technology for cloud computing;
Research and development or design and development activities;
Medical devices testing laboratory and clinical trials; or
Any service activity or manufacturing-related service activity as determined by the Minister of Finance.
MOF's Response:
The incentives under Income Tax Regulations P.U. (A) 398/2022 (Relocation Services Incentive Scheme) will not be extended.
These Rules shall apply to a qualifying company which applies in writing for the Relocation of Provision of Services Business Incentive Scheme to the Minister through the Malaysian Investment Development Authority.
Such application is received on or after 7 November 2020 but not later than 31 December 2022.
Reference:
Income Tax (Relocation of Provision of Services Business Incentive Scheme) Rules 2022
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