Provided that applications were received by the Ministry of Agriculture and Agro-Based Industry by the end of 2015, the following food production projects are eligible for specific tax incentives:
planting of kenaf, vegetables, fruits, herbs or spices
aquaculture
rearing of cows, buffaloes, goats or sheep, or
deep-sea fishing,
The following are some of the incentives:
For a company that invests in a subsidiary company undertaking a new food production project, a tax deduction equivalent to the amount of investment made in that subsidiary for that YA;
For a company carrying out new food production projects, a 100% income tax exemption of the statutory income for 10 Years of Assessment; or
For a company carrying out an expansion of an existing food production project, a 100% income tax exemption of the statutory income for five Years of Assessment.
The government, realising that it needs to continue to support the development and growth of the agro-food industry, proposed in Budget 2016 to extend the application period of the incentives for another five years, all the way up until 31 December 2020.
This would bring the total number of years that the incentives could be applied to ten. In addition, it was also proposed that the list of approved food projects that qualify for tax incentives be extended.
To enact the proposals above into law, the following Exemption Order and Rules were gazette on December 24, 2020. They are considered to have gone into effect on January 1, 2016:-
Income Tax (Exemption) (No. 6) Order 2020 [P.U.(A) 373]
Income Tax (Deduction of Investment in New Food Production Project or Expansion Project) Rules 2020 [P.U.(A) 374].
Exemption Rules
IN exercise of the powers conferred by paragraph 154(1)(b), read together with paragraph 33(1)(d) of the Income Tax Act 1967 [Act 53], the Minister makes these rules, which are deemed to have come into operation on 1 January 2021.
Tax Deduction
Under these Rules, a company incorporated under the Companies Act 2016 and resident in Malaysia:-
which has invested in its related company undertaking an approved new food production project under the Income Tax (Exemption) (No. 6) Order 2020 [P.U. (A) 373/2020]; and
which has made an application to the Minister through the Minister charged with the responsibility of an approved new food production project; such application is received on or after 1 January 2021 but not later than 31 December 2022.
is allowed a tax deduction in the basis period for a year of assessment on an amount equivalent to the value of an investment for the sole purpose of financing the project referred to (a) above undertaken by the related company.
A company can only claim this tax deduction for a period of three consecutive years of assessment commencing from the year of assessment the application is approved by the Minister as mentioned in (b) above.
The value of an investment which eligible for a deduction:
shall be equivalent to the expenditure incurred by the related company in the basis period for the same year of assessment;
shall be made for a period and up to an amount as approved by the Minister through the Minister charged with the responsibility for the approved new food production project; and
shall not be disposed of within five years from the date of the last investment made if such investment is in the form of holding of paid-up share capital in respect of ordinary shares.
Interpretation
“Investment” means an investment in the form of cash or holding of paid-up share capital in respect of ordinary shares in a related company;
“Approved New Food Production Project” means a project which is deemed to be a separate and distinct business concerning:-
planting of the industrial crop, vegetables, fruits, herbs, spices or cash crops;
aquaculture;
rearing of honey or Urena lobata bees;
rearing of cows, buffaloes, goats, sheep or deer;
deep sea fishing or high seas fishing;
planting of seeds for agro-food; or
planting of feed mill cultivated in a project which has been identified by the Minister charged with the responsibility of that project and approved by the Minister;
“Related Company” means a company incorporated under the Companies Act 2016 [Act 777] where at least seventy per cent of its paid-up share capital in respect of ordinary shares is directly owned by a company that invests for an approved new food production project.
Clawback
When a company claims a deduction for that investment and receives payment for the disposal of those shares within 5 years from the date of the last investment, that payment so received is added to the company's adjusted income for the year in which it was received, but shall not exceed the total deductions allowed concerning that investment.
Cessation of deduction
Where an investment is made by a company, that deduction to the company shall be ceased in the basis period for a year of assessment in which the period of exemption of the related company commences upon the related company deriving its first statutory income from that project.
Non-application
These Rules shall not apply to a company which:-
has been granted an exemption under paragraph 127(3)(b) or subsection 127(3A) of the Act; or
has claimed deduction under any rules made under section 154 of the Act except:-
the rules concerning allowance under Schedule 3 to the Act;
the Income Tax (Deduction for Audit Expenditure) Rules 2006 [P.U. (A) 129/2006]; or
the Income Tax (Deduction for Expenses concerning Secretarial Fee and Tax Filing Fee) Rules 2020 [P.U. (A) 162/2020].
These regulations can be found here:-
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