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Why Not Malaysia?



Next week, Malaysia is hosting their Higher Education Strategic Financial Management Conference on August 24 & 25 in Bangsar South, Kuala Lumpur. Say that three times fast…

So I know what you’re thinking; isn’t Malaysia Muslim? Well, yes… but think of them as a Pakistan without the traitorous tendencies or secular Turkey from around 10 years ago, when they weren’t well, Turkey now… being said, this is an insider’s conference; it’s held by the Malaysian Institute of Accountants to help financial professionals leverage their skills to strategize financial management and innovate out-of-the-box solutions for their institutions and let’s just say it; bring in American and European business. This would be a great way to break into a market that is on its way to being more and more secular.

Tolerance is a Constitutional mandate in Malaysia. 19 million of the 31 million Malaysian population is Muslim (60%) with the rest being Christian (6%), Buddhist (20%), with a smattering of Hindu, Sikh, and other faiths. Since there is a governmental policy of tolerance and the Muslims are indigenous Malays, they don’t carry all the Mid East baggage of their spiritual cousins. And guess what? They’re open for business!

The point of business in Malaysia is that there are tax breaks to be had, as long as they are to be had. Malaysia has enacted a number of tax incentives to encourage particular forms of economic activity. Many tax incentives simply remove part, or all, of the tax burden from business transactions. In Malaysia, the corporate tax rate is now capped at 25%, which, with write-offs (yes, they have them), can get you down to 7.5% with only 30% of the company's profit being subjected to tax to start. This is a good example of how the companies benefit through the incentives provided by the Malaysian Government.

Now, I will point out that as an American business, I believe that you should not do this.

But…I’m telling you anyway! You lucky people!

Specific incentives are as follows:

  • Pioneer Status (PS) This is a tax, usually a partial exemption on tax payment for a period of five years. As a pioneer status incentive, the tax holder is exempted up to 70 percent tax of its statutory income therefore only 7.2 percent is being paid on the gross. The incentive is available to companies engaging in business activities or in the production of promoted products and the Malaysian Investment Development Authority (MIDA) determines the promoted product or activity so you’ll know ahead of time if you qualify.
  • Investment Tax Allowance (ITA) This is another investment eligible to production of promoted products. This tax is specifically suitable for companies with large capital investment but cannot generate returns over a short time. It is provided for plant and equipment acquired by the company during the tax relief period, usually from 5 to 10 years. The normal rate of allowance is 60% on the qualifying capital expenditure. ITA can be offset against 70% of the statutory incomes of any company.
  • Reinvestment Allowance (RA) According to the Income Tax Act 1967 Schedule 7A- Reinvestment Allowance Subject to this Schedule; where a company which is resident in Malaysia has been in operation for not less than twelve months and has incurred in the basis period for a year of assessment capital expenditure on a factory, plant or machinery used in Malaysia for the purposes of a qualifying project there shall be given to the company for that year of assessment a reinvestment allowance of an amount equal to sixty per cent of that expenditure, provided that such expenditure shall not include capital expenditure incurred on plant or machinery which is provided wholly or in part for the use of a director, or an individual who is a member of the management, or administrative, or clerical staff.

I know that sounds like a lot but I didn’t make up the laws. However, I remember some guys trying to talk me into telecommunications in Indonesia (pop. 1 billion) and I balked. I weep every day. Malaysia, despite the occasional terror threats is much more manageable at 31 million people. Go beneath the headlines and take advantage before these opportunities go away…

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