ISKANDAR MALAYSIA’S INVESTMENT INCENTIVE PACKAGE IN COMPLIANCE WITH INTERNATIONAL TAX STANDARDSIskandar Malaysia
ISKANDAR MALAYSIA, MONDAY 2 July, 2018 – In line with Malaysia’s commitment to adhere with international tax standards, Iskandar Malaysia’s investment incentive package for Medini (formerly known as “node one”) is currently being reviewed to ensure full compliance with requirements under the Forum on Harmful Tax Practices (FHTP), Base Erosion and Profit Shifting (BEPS) Action Plan set forth by the Organisation of Economic Co-operation and Development (OECD).
The review of the package entails amendments to the existing tax legislations in general and related to the IDR status companies under the Income Tax (Exemption) (No. 20) 2007/[P.U.(A) 418/2007] in particular, which are targeted for gazette by 31 December 2018.
The amendment will have the following impact:-
a. Currently, IDR status companies are only allowed to provide qualifying services to any person situated either within an approved node and outside Malaysia or outside Malaysia only. To address the ring-fencing issue under FHTP, P.U.(A) 418/2007 will be amended accordingly to remove this restriction. IDR status companies will be allowed to provide the qualifying
services to any person within or outside Malaysia.
b. Companies deriving income from non-Intellectual Property (non-IP) will have to comply with “substantial activity” requirements, minimum operating expenditure and/or capital expenditure and minimum full-time employees within the incentive period.
c. Non-IP income companies which have been approved before 16 October 2017, are allowed to “grandfather” or maintain existing incentive conditions until 30 June 2021. After this date, if the companies wish to continue the incentive, they need to adhere to the “substantial activity” requirements.
d. For non-IP income companies which have been approved on or after 16 October 2017, they are required to comply with substantial activity” requirements once the legislation is gazetted not later than 31 December 2018.
e. Companies deriving income from Intellectual Property (IP) must comply with the “nexus approach” criteria effective from 1 July 2018, when applying for tax incentives. However, existing IP companies approved on or before 30 June 2018, are allowed to “grandfather” or maintain their existing conditions until 30 June2021. After this date, the company must comply with the “nexus approach” to continue the tax incentive.
Details of Malaysia’s participation in the Forum on Harmful TaxPractices (FHTP), The Organization For Economic Cooperation And Development (OECD) taxation initiatives can be obtained from http://www.treasury.gov.my/index.php/en/tax/malaysia-s-commitmentin-international-tax-standard.html
Details on the “nexus approach” can be obtained from https://www.oecd-ilibrary.org/taxation/harmful-tax-practices-2017-progress-report-on-preferential-regimes_9789264283954-en
For any further enquiries, please contact:-
Investment Incentives Unit
Iskandar Regional Development Authority (IRDA)
Level 12, Mercu UEM,
KL Sentral, 50470 KUALA LUMPUR
Tel: 03 2260 6777.