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The definition of R & D in the Promotion of Investments Act 1986
is as follows:-
"Research and development means any systematic or intensive
study carried out in the field of science or technology with the object
of using the results of the study for the production or improvement of
materials, devices, products, produce or processes but does not
include:-
-
quality control of products or routine testing of materials,
devices, products or produce;
-
research in the social sciences or humanities;
-
routine data collection;
-
efficiency surveys or management studies;
-
market research or sales promotion."
To further strengthen the foundation for a more integrated R&D in
the future, companies which carry out designing or protoyping as an
independent activity are eligible for incentives.
Contract R & D Company
A contract R & D company (i.e., a company which provides R
& D services in Malaysia only to companies other than its related
companies) is eligible to apply for Pioneer Status with full income
tax exemption at statutory income level for five years or an
Investment Tax Allowance (ITA) of 100% on qualifying capital
expenditure incurred within 10 years. The ITA can be utilised to
offset against 70% of the statutory income in the year of assessment.
R & D Company
An R & D company (i.e. a company which provides R & D
services in Malaysia to its related companies or to any other
companies) is eligible to apply for an ITA of 100% on qualifying
capital expenditure incurred within 10 years. The ITA can be utilised
to offset against 70% of the statutory income in the year of
assessment. The related companies concerned will not enjoy double
deduction for payments made to the R & D company for the use of
its services, unless the R & D company opts not
to avail itself of the ITA.
Eligibilty
Contract R & D and R & D companies are eligible to apply
for the various incentives provided they fulfil the following
criteria:
-
research undertaken should be in accordance with the needs of
the country and bring benefit to the Malaysian economy;
-
at least 70% of the income of the company should be derived from
research and development activities;
-
for manufacturing-based R&D, at least 50% of the workforce
of the company must be appropriately qualified personnel
performing research and technical functions; and
-
for agriculture-based R&D, at least 5% of the workforce of
the company must be appropriately qualified personnel performing
research and technical functions.
In-house Research
Companies which carry out in-house research in Malaysia (i.e. R
& D carried out within a company for the purpose of its own
business) are eligible to apply for ITA of 50% on qualifying capital
expenditure incurred within 10 years. The ITA can be utilised to
offset against 70% of the statutory income in the Year of Assessment.
Applications relating to 6.1, 6.2 and 6.4 should be submitted to
MIDA.
Double Deduction for Research & Development
Double deduction is allowed on revenue expenditure incurred by a
person on research directly undertaken by him or on his behalf, which
is approved by the Minister of Finance.
Double deduction is allowed on payment for the use of services of
approved research institutes, R & D companies or contract R &
D companies, as well as on cash contributions made to approved
research institutes.
Other Incentives
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Industrial Building Allowance in the form of an initial
allowance of 10% and an annual allowance of 2% is available for
buildings used for purposes of approved R & D.
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Capital allowance on capital expenditure incurred in the
provision of plant and machinery used for R & D.
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Machinery/equipment, materials, raw materials/component parts
and samples used for R & D purposes are eligible for exemption
from import duties, sales tax and excise duties.
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