By Kavinarasi Thavanendran
An amendment to Section 2 of the Promotion and Investment Act 1986 (“PIA 1986”) altered the definition of “Contract R&D Company” and “R&D Company” in Malaysia. According to PIA 1986:
Contract R&D Company means, “a company which provides R&D services in Malaysia only to companies other than its related companies and approved as an R&D Status Company.”
R&D Company means, “a company which provides R&D services in Malaysia to its related companies or to any other company and approved as an R&D Status Company.”
Companies that offer R&D services have been afforded a range of benefits in the form of tax exemptions or tax allowances. Effective from January 2022, companies must now gain approval from the Ministry of Investment, Trade and Industry (MITI), in order to retain their R&D Status.
Only companies that have acquired R&D Status from MITI are entitled to the following:
a) Tax Incentive
- Only Contract R&D Companies may apply for Pioneer Status (PS) which gives an income tax exemption amounting to 100% of the statutory income for five years.
- Both Contract R&D Companies and R&D Companies may apply for Investment Tax Allowance (ITA) which gives an allowance amounting to 100% of the qualifying capital expenditure incurred within 10 years.
b) R&D Double Deduction Incentive
- Clients of R&D Status Companies are eligible to enjoy double deduction for payments made to the company for selected R&D services and expenditures.
- However, keep in mind that related companies of R&D Companies may not be eligible for the Double Deduction Incentive if they already benefit from the ITA.
Before applying for R&D Status, companies must meet these three basic requirements:
- Fulfils the definition of R&D under the PIA 1986, which is “any systematic, investigative and experimental study that involves novelty or technical risk carried out in the field of science or technology with the objective of acquiring new knowledge or using the results of the study for the production or improvement of materials, devices, products, produce, or processes.”
- The company is incorporated under the Companies Act 2016 and is based in Malaysia.
- R&D activities carried out have the potential to meet the needs of the country and benefit the Malaysian economy.
For a more comprehensive list of criteria post-application, visit: MIDA R&D Status + Tax Incentive Services Application Guidelines.
a) Applying for R&D Status or Tax Incentive R&D Services
Companies wishing to apply for Research and Development Status or Tax Incentive Research and Development Services may apply through the Malaysian Investment Development Authority (MIDA) online application portal.
The online application portal can be found here: MIDA Online Application Portal
Approval for R&D Status Company will be valid for a consecutive period of five years.
b) Applying for Extension of R&D Status
Before the expiration of the five-year period, companies are eligible to apply for an extension of another five years provided they meet the required conditions. Companies wishing to apply for an extension of R&D Status may do so by submitting the “Forms on Compliance of Conditions for R&D Status Companies”. Approval for R&D Status will be revoked if an application for extension is not submitted to MIDA before the expiration of the five-year period.
c.) New/Existing Companies
Companies wishing to apply for R&D Status but have yet to begin operations must also notify MIDA of their starting date of operations. They may do so by submitting the “Notification Form on Business Operation for Approved R&D Status Companies.”
All guidelines, conditions and application forms mentioned can be found on MIDA’s website: Forms & Guidelines I MIDA (Services Sector > B) Research and Development > No.1, No.3, No.4)