Malaysia Announces 2020 Budget

By Global Tax Weekly

Malaysia has set out its plans for new tax incentives in its 2020 Budget, which are intended to attract investment from multinationals and innovative firms. It also confirmed plans for a digital services tax from next year, and announced a new top personal income tax rate.

The Government revealed that it is undertaking a comprehensive revamp of its existing tax incentive framework, with new regimes to be in place from January 1, 2021. For instance, MYR1bn (USD238m) worth of incentives will be granted to large multinationals in high-tech, manufacturing, creative, or “new” industries. To qualify, companies would need to invest at least MYR5bn and create 150,000 jobs over five years. Further, the Government is to offer another MYR1bn in tax breaks to export-focused businesses.

Companies engaged in the electrical and electronics industry that will support Malaysia’s transition to 5G technology and other infrastructure modernization projects will benefit from an income tax holiday for 10 years. Existing companies that have exhausted their reinvestment allowance will benefit from a new special investment tax allowance on new investments, the Government said.

Malaysia also intends to extend until 2023 the accelerated capital allowance and the capital allowance for automation equipment in the manufacturing sector on the first MYR2m to MYR4m incurred on qualifying capital expenditure. Further, this will be expanded to include the services sector on the first MYR2m incurred on qualifying expenditure in the years of assessment (YAs) 2020 to 2023.

The tax exemption for fund management companies managing Shariah-compliant funds and Sustainable and Responsible Investment (SRI) funds, and the tax deduction on the cost of issuing SRI Sukuk will be extended for another three years, until YA2023.

The concessionary income tax rate for SMEs, of 17 percent (18 percent in 2018), will be extended to income up to MYR600,000, up from MYR500,000. To access this higher threshold, the SME must not have paid-up capital of more than MYR2.5m or annual sales of more than MYR50m.

The Budget also confirmed that the Digital Services Tax will be implemented from January 1, 2020. It will cover services including software, music, and video downloads and digital advertising. Registration by foreign service providers opened on October 1, 2019.

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