With the deepening of the “Belt and Road” construction, Malaysia continues to attract a large number of Chinese companies to invest in the country due to its unique geographical location, complete infrastructure and favorable investment policies. Data in 2023 show that the bilateral trade volume between China and Malaysia exceeded US$190 billion, and direct investment by Chinese companies in Malaysia increased by 23.5% year-on-year, reaching a record high. As an important ASEAN economy, Malaysia has established one of the most competitive investment preferential policy systems in the world. From Pioneer Status to Investment Tax Allowance (ITA), from industrial support to regional incentives, this well-designed tax preferential system provides strong support for enterprises to invest and develop in Malaysia. Based on the latest policy trends, this article will provide an in-depth analysis of Malaysia’s tax preferential qualification evaluation system, provide comprehensive policy guidance for Chinese companies investing in Malaysia, and help companies accurately grasp the dividends of preferential policies and maximize investment benefits.

Policy Overview

1.1 Introduction to Malaysia’s tax preferential system

Malaysia’s tax preferential system is based on the Investment Promotion Act of 1986. After nearly 40 years of development and improvement, it has formed a comprehensive and systematic investment incentive system. In 2024, the system will be guided by the Investment Development Blueprint, focusing on the three major areas of digital economy, high-end manufacturing and green development, and strive to maintain the average annual growth rate of foreign direct investment above 15% by 2025.

From the perspective of policy evolution, Malaysia’s investment incentives have undergone three major transformations. In the early stage (1986-2000), manufacturing preferential treatment was the main focus; in the mid-term stage (2001-2015), the service industry and high-tech industries began to be valued; in the current stage (2016 to present), more emphasis is placed on industrial upgrading and sustainable development. Data for 2023 show that among the 3,950 newly approved investment projects, 2,765 projects enjoy tax preferential policies, with a total preferential treatment of more than 15 billion ringgit.

The new policy direction in 2024 is mainly reflected in three aspects: first, increased support for the digital economy, providing up to 100% income tax reduction and exemption for qualified digital technology investment projects; second, innovative green development incentive policies, launching “green investment taxation” Subsidies”; third, regional coordinated development policies are clearer, and differentiated preferential policy packages are launched in each economic corridor.

1.2 Competent departments and division of responsibilities

The management system of Malaysia’s preferential investment tax policies is operated collaboratively by multiple departments, forming a regulatory structure with clear division of labor and orderly collaboration. Among them, MIDA (Malaysian Investment Development Authority) and IRB (Inland Revenue Board) are the two core executive agencies.

As the main investment promotion agency in Malaysia, MIDA is responsible for the formulation, approval and supervision of investment preferential policies. In 2024, MIDA will further optimize its service system and set up 23 overseas offices around the world, including three liaison offices in Beijing, Shanghai and Guangzhou in China. Through the “InvestMalaysia Portal” one-stop service platform, MIDA provides full-process online services, including qualification pre-assessment, application acceptance, progress tracking and other functions. In 2023, MIDA processed a total of 4,580 preferential applications, and the average approval time was shortened by 40% compared with 2022, reaching 25 working days.

The IRB is mainly responsible for the specific implementation and daily management of tax preferential policies. In 2024, IRB launched the upgraded version of “My Tax Portal 2.0” system, realizing the entire electronic process of preferential policy declaration, accounting and supervision. Enterprises need to submit business status reports on a quarterly basis through this system, including the completion of key indicators such as investment progress, job creation, and technology transfer. In 2023, the IRB conducted a total of 1,256 special inspections on tax incentives and recovered approximately 230 million ringgit in taxes from illegal enterprises.

In terms of departmental coordination mechanisms, Malaysia has established an “Investment Preferential Policy Coordination Committee”, led by the Ministry of Finance and jointly with MIDA, IRB and other departments, to hold policy coordination meetings every quarter. The newly established “Digital Investment Office” in 2024 will further strengthen the policy coordination of various departments in the field of digital economy. If an enterprise encounters cross-department policy issues, it can submit a coordination application through the MIDA one-stop service platform, with an average processing time of 15 working days.

It is worth noting that in 2024, Malaysia has particularly strengthened the supervision of preferential policies. MIDA and IRB have established an information sharing mechanism to conduct dynamic supervision of enterprises. Enterprises must meet the compliance requirements of two departments at the same time: first, pass MIDA’s annual assessment to prove that they continue to meet the preferential conditions; second, complete tax returns and information disclosure in a timely manner in accordance with IRB requirements. A total of 23 companies will be disqualified from preferential treatment due to violations in 2023, 8 more than in 2022, reflecting the trend of tightening supervision.

In order to ensure the smooth enjoyment and maintenance of tax incentives, it is recommended that enterprises conduct pre-evaluation of qualifications through MIDA before investing , establish a dedicated preferential policy management team , regularly check compliance status , and properly preserve relevant voucher materials.

Follow up on policy changes in a timely manner.

Such a management system not only reflects Malaysia’s determination to promote foreign investment, but also shows its rigorous attitude towards standardizing tax management. In the future, with the deepening of digital reform, the collaborative efficiency of various departments will be further improved, creating a better business environment for enterprises.

Preferential qualification evaluation system

2.1 Basic evaluation dimensions

To evaluate the qualifications for investment incentives in Malaysia, you must first meet the basic requirements. In terms of enterprise size, according to the latest standards in 2024, the identification criteria for small and medium-sized manufacturing enterprises are: sales no more than 50 million ringgit or no more than 200 full-time employees. Enterprises exceeding this standard will be classified as large enterprises and will be subject to different preferential policy systems. Data in 2023 show that the success rate of small and medium-sized enterprises in applying for discounts is 65%, and that of large enterprises is 82%.

Investment size requirements vary by industry type. The minimum investment amount is 1 million ringgit for manufacturing projects and 5 million ringgit for high-tech projects. For service industry projects, the minimum investment amount fluctuates between 500,000 and 10 million ringgit depending on the specific subdivision. It is important to note that starting from 2024, the land acquisition cost will need to be deducted from the investment calculation, and only substantial investments such as factory construction and equipment procurement will be included.

The localization degree requirements include three key indicators: the proportion of local employees, the proportion of local procurement and the degree of technology transfer. New regulations in 2024 require that companies enjoying preferential policies must ensure that Malaysian citizens account for no less than 30% of management positions and no less than 40% of technical positions. The local procurement ratio requires the manufacturing industry to reach 40% and the service industry to reach 50%. In terms of technology transfer, a detailed local talent training plan needs to be provided.

The technical level assessment adopts a quantitative scoring system, with a full score of 100 points and a passing mark of 70 points. Scoring dimensions include: R&D investment (30 points), automation level (25 points), talent structure (25 points), and intellectual property (20 points). The average score of companies receiving preferential treatment in 2023 is 76.5 points, an increase of 2.3 points compared with 2022.

2. 2 Industry Classification Assessment

The manufacturing industry assessment adopts the “dual-track” standard. Traditional manufacturing industries focus on capital intensity, technological content and industrial relevance. In 2024, a new “intelligent manufacturing index” evaluation dimension will be added, requiring that the investment in intelligent transformation of projects applying for discounts accounts for no less than 15% of the total investment. High value-added manufacturing industries (such as electronics, biomedicine, etc.) must also meet one of the following indicators: R&D expenditures account for more than 3% of revenue, scientific and technological talents account for more than 25%, or have independent intellectual property rights.

Service industry evaluation indicators are divided into general and professional categories. The general category includes investment scale, employment contribution and foreign exchange earning capacity; the professional category sets differentiated standards according to different fields. Taking the digital service industry that will be supported in 2024 as an example, it needs to meet the following requirements: digital investment accounts for more than 30%, core technologies are independently controllable, and network security meets standards. In 2023, 1,865 preferential projects were approved for the service industry, with a total investment of 42.6 billion ringgit.

The high-tech industry identification standards will be updated in 2024, focusing on five major areas: artificial intelligence, Internet of Things, biotechnology, new energy and high-end equipment manufacturing. Recognition must meet the following requirements: possession of core technology patents, R&D personnel accounting for more than 20%, and R&D investment accounting for more than 5% of revenue in the past three years. Enterprises that pass the certification can receive income tax relief for an additional 10 years.

Special industry considerations mainly focus on strategic emerging industries, such as semiconductors, new energy vehicles, aerospace, etc. Even if such projects do not fully meet the conventional standards, as long as they have a significant industry-driving effect, they can still obtain preferential qualifications through the “green channel”. A total of 86 strategic projects will be approved through this channel in 2023.

2.3 Regional differentiation assessment

Economic corridor preferential policies are an important tool for coordinated regional development in Malaysia. The Northern Corridor (NCER) focuses on the development of high-tech agriculture and renewable energy. Qualifying projects can enjoy up to 100% income tax reduction for 15 years. The Eastern Corridor (ECER) focuses on petrochemicals and tourism and provides additional infrastructure subsidies. Iskandar Development Zone (IDR) focuses on high-end manufacturing and modern service industries, and provides reinvestment subsidies of up to 70% to qualified companies.

Incentive measures for backward areas are mainly targeted at East Malaysian regions such as Sabah and Sarawak. The new policy in 2024 stipulates that projects invested in these areas can receive an additional five-year extension of the preferential period, and the accelerated depreciation rate of fixed assets will be increased to 40%. In addition, a special deduction of 60% is available for employee housing construction expenses. In 2023, a total of 568 preferential projects were approved in East Malaysia, a year-on-year increase of 28%.

The Free Trade Zone (FTZ) policy sets special evaluation criteria for export-oriented enterprises. The export ratio is required to reach more than 80%, and you can enjoy full exemption from import tariffs on raw materials and machinery and equipment, as well as income tax reductions and exemptions for up to 15 years. In 2024, a new “Digital Free Trade Zone” policy will be added to provide special preferential treatment for digital service export companies. The total import and export volume of FTZ in 2023 will reach 385 billion ringgit, a year-on-year increase of 15.6%.

Detailed explanation of core preferential policies

3.1 Pioneer Status

Pioneer status is Malaysia’s most representative tax incentive policy. The application conditions in 2024 will be further refined, and companies must meet both industry orientation and technical level requirements. In terms of industry orientation, the focus is on supporting strategic industries such as digital economy, high-end manufacturing, biotechnology, and new energy. Technical level requirements include: independent research and development capabilities, intellectual property rights retention, technical talent reserves, etc. Data for 2023 show that of the 1,245 projects that applied for pioneer status, the approval rate was 58%, with the highest approval rate in the digital economy field at 72%.

In terms of preferential content, major adjustments will be made to the policy in 2024. The basic discount is 70% income tax reduction for five years, which can be increased to 100% in special areas. It is worth noting that a new “innovation bonus mechanism” has been added. Every time an enterprise meets an innovation indicator (such as possessing international patents, establishing an R&D center, etc.), it can receive an additional 5% reduction. In addition, capital expenditures can enjoy accelerated depreciation, and R&D expenses can receive a 200% double deduction.

The enjoyment period adopts the “5+5” model. After the expiration of the first five-year period, if the enterprise continues to maintain technological innovation and expand investment, it can apply for an extension of five years. The discount during the extended period is 70% of the original level. A total of 186 companies successfully obtained extensions in 2023, with the average extension period being 3.2 years.

The design of the exit mechanism fully takes into account the flexibility of the policy. Enterprises can choose to transfer to other preferential policies (such as ITA) before the expiration of the enjoyment period, but they need to apply 6 months in advance. If there are major changes in business conditions, you can apply for early exit, but the discounts you have enjoyed must be returned in proportion. In 2023, 15 companies will successfully switch to preferential policies through this mechanism.

3.2 Investment Tax Allowance (ITA)

The scope of investment tax allowance will be extended in 2024. In addition to traditional manufacturing projects, it now covers emerging areas such as digital infrastructure, green technology, and R&D facilities. Of particular note is the addition of “Digital Transformation ITA” in 2024, which will specifically support the digital transformation projects of traditional enterprises. Applicants need to provide detailed digital transformation plans and prove that relevant investments will bring significant efficiency improvements.

The calculation method adopts the “base + adjustment” mode. The basic proportion is 60% of qualified capital expenditure, which can be used to offset 70% of statutory income. Adjusting factors include: project location (up to 20% increase), technology level (up to 15% increase), and industrial relevance (up to 10% increase). For example: if a company invests 10 million ringgit in a high-tech project in the East Coast Economic Corridor, the ITA amount it can obtain is: 10 million × 60% × (1 + 20% + 15%) = 8.1 million ringgit.

The credit rules have been optimized, and companies can flexibly use the ITA quota within 15 years after the project is put into production. Unused quota can be carried forward to the next year, but cannot be traced back. New regulations will be added in 2024. Enterprises can choose to convert part of the ITA quota into cash subsidies, but the conversion ratio must not exceed 20% and must bear a certain discount. The average credit period for ITA projects in 2023 will be 8.2 years, and the cumulative credit amount will reach 18.5 billion ringgit.

The mechanism for handling special situations has been improved. For large-scale projects that span multiple years, it is allowed to apply for ITA in installments; if the project is delayed due to force majeure, you can apply for an extension of the credit period; in the event of mergers, acquisitions and reorganizations, the ITA quota can be transferred in accordance with the law. In 2023, a total of 312 special circumstances applications were processed, with an approval rate of 85%.

3.3 Reinvestment Allowance (RA)

The criteria for determining reinvestment allowances will be updated in 2024. Enterprises need to prove that the reinvestment project has significant upgrading effects, including: improving automation levels, improving production processes, enhancing environmental performance, etc. Quantitative indicator requirements: equipment automation rate increased by more than 30%, or energy efficiency increased by more than 25%, or product quality reaches international certification standards.

The preferential intensity adopts a stepped design. The basic discount is 60% of the reinvested amount, and 70% of the statutory income can be deducted. If the reinvestment project involves Industry 4.0 transformation, the preferential ratio can be increased to 80%; if it brings significant energy saving and emission reduction effects, it can be increased by another 10 percentage points. The average preferential ratio for reinvestment projects approved in 2023 is 72%, driving a total reinvestment amount of 15.6 billion ringgit.

The application process is designed to highlight convenience and effectiveness. Enterprises need to submit a preliminary plan before reinvestment begins, and can only implement it after obtaining in-principle approval. After the project is completed, a detailed effectiveness report must be submitted, including technical improvement indicators, economic benefit analysis, etc. In 2024, an “online pre-review” function will be added, so that companies can know in advance whether the project meets the basic conditions. Application materials are fully electronic, and the average approval time is shortened to 20 working days.

Regulatory requirements are becoming more stringent. Companies are required to report on their reinvestment progress quarterly and undergo annual performance reviews. The evaluation content includes: investment completion status, technology improvement effect, employment performance, etc. If the commitment indicators are not met, you will be required to make corrections within a time limit or be disqualified from the discount. In 2023, a total of 865 reinvestment project audits were carried out, of which 27 projects had their preferential treatment terminated because they did not meet the standards.

Regarding these three core policies, companies need to pay attention to: carefully evaluate the applicability of each policy and choose the best solution ; make long-term plans and reasonably arrange the investment pace ; establish a complete compliance management system ; maintain effective communication with the competent authorities ; Timely follow up on policy updates and seize new preferential opportunities.

Industry-specific preferential policies

4.1 Preferential policies for manufacturing industry

The manufacturing automation equipment subsidy policy will be comprehensively upgraded in 2024. For Industry 4.0 transformation projects, the government provides subsidies of 30%-50% of the equipment investment, with a maximum of 10 million ringgit available for a single project. The subsidy ratio is divided into three levels according to the level of automation: basic automation 30%, intelligent manufacturing 40%, and flexible production 50%. Of particular note is that locally purchased automation equipment can receive an additional 10% subsidy. A total of 3.26 billion ringgit in automation subsidies will be distributed in 2023, driving related investment to exceed 8.5 billion ringgit.

Technology upgrade rewards adopt a multi-level support system. Enterprises that carry out technological transformation can enjoy accelerated depreciation of equipment (up to 60% in the first year) and double deductions for research and development expenses. Those who introduce international advanced technology can receive a subsidy of 50% of the technology transfer cost, up to a maximum of 3 million ringgit. In 2024, a new “Patent Commercialization Award” will be added. Companies that successfully convert independent patents into products can receive a cash reward of 30% of their R&D investment.

Support for environmental protection projects has been significantly increased. Production line renovations that use clean energy can receive a 40% subsidy of equipment investment; investments in pollutant treatment facilities can enjoy 100% accelerated depreciation; qualified energy-saving renovation projects can receive low-interest loans of up to 5 million ringgit. In 2024, a special “carbon emission reduction incentive” will be added. Enterprises that reduce annual carbon emissions by more than 20% can receive a tax credit equivalent to 15% of energy-saving investment.

Local supporting incentive policies highlight the synergy of the industrial chain. Enterprises that purchase more than 50% of local parts and components can receive a tax credit of 10% of the purchase amount; those that establish long-term cooperation with local suppliers can enjoy a reduction in import tariffs on raw materials; those that help local suppliers improve their technical level can receive a 200% tax credit for training costs Tax deductions. In 2023, local procurement amount will reach 26.5 billion ringgit through supporting incentives.

4.2 Preferential policies for service industry

The MSC (Multimedia Super Corridor) status preferential policy will achieve a major breakthrough in 2024. In addition to the traditional 10-year income tax exemption, there is a new “Digital Service Export Incentive”: companies with export revenue accounting for more than 70% can permanently enjoy a 15% preferential tax rate. The personal income tax for qualified foreign knowledge-based talents is reduced to 15%. In 2023, there will be 586 new companies with MSC status, creating 42,000 jobs, and digital service exports reaching 41.8 billion ringgit.

Policies to support R&D activities are more precise. Qualified R&D expenditures can receive a 200% double deduction, and R&D investments in the commercialization stage can receive an additional 50% super deduction. Enterprises that set up R&D centers can enjoy full exemption from import duties on R&D equipment for five years. A new “R&D Achievements Transformation Fund” will be established in 2024 to provide up to 70% of commercialization financial support for high-quality R&D projects, with a maximum limit of 20 million ringgit for a single project.

Talent training subsidies implement the “integration of production and education” model. Enterprises building their own training centers can receive a 40% subsidy of equipment investment; those who cooperate with universities to carry out targeted training can receive a 300% tax deduction for training costs; those who hire fresh graduates to participate in technical positions can receive 24,000 ringgit per person per year. Special wage subsidy. A total of 2,865 companies will receive training subsidies in 2023, and the number of people trained will reach 86,000.

Operating cost reduction measures cover a wide range of areas. Eligible service industry enterprises can enjoy a 20% subsidy on water and electricity costs; a 30% rent reduction for renting office space in the MSC Park; and a 150% tax deduction for the use of local cloud services. A new “teleworking subsidy” will be added in 2024 to support enterprises in building digital office systems.

4.3 Preferential policies for emerging industries

Digital economy support policies highlight the orientation of “new infrastructure”. 5G application projects can receive a subsidy of 50% of the equipment investment; the land cost of building a data center can enjoy accelerated depreciation; and the development of industrial Internet platforms can receive a carryover of losses from the first three years of operation. In 2024, we will focus on supporting the construction of the “Yuanshi Industrial Park”, and companies settled there will enjoy a 15-year tax preferential period. The total investment in the digital economy in 2023 will reach 58.6 billion ringgit, a year-on-year increase of 23%.

Green industry incentive policies have improved full-chain support. New energy equipment manufacturing can enjoy a 12-year income tax exemption; investment in research and development of energy-saving and environmentally friendly technologies can receive a 250% tax deduction; green building projects can receive a 30% subsidy of construction costs. In 2024, a new “carbon trading participation reward” will be added, and the profits earned by companies in the carbon market will be exempt from income tax for the first five years.

Biotechnology support policies emphasize risk sharing. Biopharmaceutical R&D projects can receive up to 80% of cost subsidies; new drug R&D companies that pass clinical trials can receive special incentives; biological products industrialization projects can enjoy a 15-year tax preferential period. A biotechnology development fund of 10 billion ringgit will be established in 2024 to provide equity investment for industrialization projects.

The intelligent manufacturing reward policy adopts the method of “unveiling the list and taking charge”. Those who meet the “Lighthouse Factory” standard can receive a one-time reward of 10 million ringgit; local companies that develop industrial software can receive 70% of R&D expenses; those who build smart factory demonstration lines can enjoy 60% of the tax credit for equipment investment. . In 2023, 156 smart manufacturing demonstration enterprises will be recognized, driving related investment of 22.5 billion ringgit.

Application process and materials

5.1 Application preparation stage

The pre-eligibility assessment is a critical first step in the application process. In 2024, MIDA (Malaysian Investment Development Authority) launched an online pre-assessment system through which companies can conduct preliminary qualification assessments. The system has set up 78 evaluation indicators, covering dimensions such as investment scale, technical level, talent structure, and environmental protection standards. According to 2023 data, the final approval rate of projects that passed pre-evaluation reached 85%, which is 32 percentage points higher than projects without pre-evaluation. It is recommended that enterprises conduct self-evaluation through this system before formally applying. Projects with a score of 75 or above have a better basis for application.

The materials list needs to be prepared in accordance with the latest requirements in 2024. Core documents include: company registration documents, equity structure certificates, audit reports for the past three years, bank credit certificates, project feasibility study reports, environmental impact assessment reports, etc. Of particular note is the addition of two new mandatory documents in 2024, the “Digital Level Assessment Report” and the “Carbon Emission Control Commitment Letter.” All documents must be provided in Malay or English and must be notarized. In 2023, 42% of applications will be returned for supplementation due to incomplete materials. It is recommended that companies use the material list comparison table provided by MIDA to check item by item.

Financial planning must fully consider the full life cycle costs of the project. It is necessary to detail the project investment budget, fund source composition, expected cash flow statement, profit and loss forecast, etc. In 2024, special emphasis will be placed on embodying “risk response plans” in financial planning, including response measures to risk factors such as exchange rate fluctuations and changes in raw material prices. According to MIDA statistics, the average approval time for projects with reasonable financial planning is shortened by 40% compared with ordinary projects. It is recommended to hire a professional financial consultant to assist in preparing the planning report.

The expert consultation link can effectively improve the quality of the application. MIDA has 15 industry expert consultation centers across the country, providing free policy interpretation and application guidance services. In 2024, an “online expert reservation system” will be added, and companies can make reservations for video consultation 3-5 working days in advance. The approval rate for projects that have passed expert consulting services will reach 92% in 2023. It is recommended that companies make full use of this resource.

5.2 Application submission stage

The program schedule needs to be arranged scientifically. The standard approval process is divided into 5 stages: material submission (5 working days), preliminary review (10 working days), expert evaluation (15 working days), committee review (10 working days), and result notification (5 working days). working days). A “fast track” will be launched in 2024, and eligible major projects can be shortened to 25 working days to complete the entire process. It is recommended that enterprises choose appropriate application channels based on project characteristics and reasonably arrange time nodes.

Key points require special attention. First of all, all application materials must be submitted through the MIDA online system from 2024, and paper materials are only for reference; secondly, projects with an investment of more than 50 million ringgit need to provide a detailed local supply chain development plan; thirdly, projects involving high-tech Technology projects need to provide intellectual property protection plans; fourth, projects with more than 100 employees need to provide talent training plans. The 2023 data shows that the material quality in these four aspects is significantly positively correlated with the application success rate.

Common errors mainly include: inconsistent financial data (accounting for 35% of reasons for rejection), unclear description of technical specifications (28%), insufficient demonstration of environmental protection measures (22%), and too rough talent planning (15%). To avoid similar problems, MIDA has provided detailed application guidelines and case studies, and companies are advised to read them carefully and check them.

Requests for additional clarification usually occur at the preliminary review stage. In 2024, MIDA has simplified the supplementary explanation procedure, and companies can submit supplementary materials through the online system within 7 working days after receiving the notice. If you need an extension, you should apply 48 hours in advance, and it can be extended up to 5 working days. In 2023, each project will receive an average of 1.8 requests for supplementary explanations. It is recommended that enterprises reserve sufficient response time.

5.3 Approval follow-up stage

Communication skills are an important factor in advancing project approvals. MIDA assigns a dedicated project liaison officer to each project and recommends maintaining regular communication through official channels. A new “Project Progress Weekly Report” system will be added in 2024, and companies can obtain detailed approval progress reports every week. It should be noted that all important communications must be recorded in writing and archived in the MIDA system. Data from 2023 shows that the average approval time for projects that maintain good communication is reduced by 25%.

Pay attention to timeliness when preparing supplementary materials. If the approving party requires supplementary materials, complete supplementary documents should be provided within the specified time limit. MIDA in 2024 places special emphasis on the “relevance principle” of supplementary materials, that is, the supplementary content must be directly related to the issues raised by the approver. It is recommended that enterprises establish a dedicated material preparation team to ensure rapid response to supplementary requirements.

Progress tracking requires the establishment of a systematic mechanism. The application status can be checked in real time through the MIDA online system, and the system will automatically push important node reminders. The “Approval Milestone” function will be added in 2024, so that companies can clearly understand the specific position of the project in the approval process. If progress abnormalities are discovered, the project liaison officer should be contacted immediately to verify the situation.

Confirmation of results is the final critical step. The approval results will be notified through the system and email. Approved projects need to complete electronic signature confirmation within 15 working days; if you need to modify the approval content, you should submit an application within 10 working days. In 2024, a new “result interpretation service” will be added, and companies can make appointments with experts to interpret the specific meaning and follow-up requirements of the approval documents in detail.

Preferential maintenance and management

6.1 Daily compliance requirements

The record keeping system was fully updated in 2024. Enterprises must establish a complete electronic file management system to save all original vouchers, financial records and business documents related to preferential policies. According to the latest regulations, the retention period of electronic files has been extended from the original 7 years to 10 years, and monthly data backup is required. Special attention should be paid to the fact that projects involving R&D expenditures, equipment investment, talent training and other preferential projects need to establish special project files to record in detail the use of funds, technological progress and assessment results. In 2023, 23% of companies will be disqualified from some preferential treatment due to incomplete records, with the average amount involved reaching 3.85 million ringgit.

Report submission requirements are more standardized. Enterprises need to submit progress reports on a quarterly basis through the MIDA electronic platform, including investment completion, job creation, technology application, etc. New “ESG performance reporting” requirements will be added in 2024, and companies will need to detail specific measures and results in environmental protection, social responsibility and corporate governance. The annual comprehensive report must be audited by a certified public accountant and submitted before March 31 of the following year. Enterprises that fail to submit reports on time will have their preferential policies suspended, and those that fail to submit reports twice in a row will be permanently disqualified from the preferential policies.

Change management regulations are more detailed. If an enterprise needs to adjust its approved investment plan, technical solution or business model, it must submit a change application to MIDA 30 working days in advance. In 2024, it is clearly stipulated that major matters such as changes in total investment exceeding 20%, major adjustments to technical routes, and changes in equity structure must be approved before implementation. In 2023, a total of 1,256 change applications were processed, with an approval rate of 82% and an average approval time of 15 working days.

The annual review highlights substantive requirements. MIDA conducts a comprehensive review of enterprises enjoying preferential policies every year. In 2024, it will focus on five aspects: the fulfillment of investment commitments, the development level of the local supply chain, the actual results of technological innovation, the specific results of talent training, and the compliance with environmental protection requirements. . The review adopts a “double random, one open” method, and enterprises need to cooperate with on-site inspections and data verification. In the 2023 annual review, 15% of companies were required to make rectifications, and 3% of companies were disqualified from preferential treatment.

6.2 Discount expiry arrangements

The extension application conditions will be significantly adjusted in 2024. If an enterprise needs to extend the preferential period, it must meet the following basic conditions: complete investment commitments within the original preferential period, promote the upgrading of local industries, create high-quality jobs, and achieve expected economic benefits. It is particularly emphasized that the extension application needs to provide an innovative development plan for the next three years, including a technology upgrade roadmap, talent training plan and market development strategy. The approval rate for preferential extension applications in 2023 is 65%, and the average extension period is 5 years.

Exit plan development requires comprehensive consideration. Enterprises should initiate exit planning 12 months before the end of the preferential period, focusing on the following aspects: optimization of tax burden structure, cost control plan, adjustment of financing channels, supply chain restructuring, etc. A new “smooth transition period” policy will be added in 2024, allowing companies to gradually adjust their business strategies within 6 months after the discount expires. It is recommended that enterprises communicate with tax advisors in advance to formulate a detailed exit timetable and response plan.

The tax burden adjustment suggestions are more practical. After the preferential period expires, the overall tax burden of enterprises will increase significantly, and active countermeasures will be required. In 2024, the tax department will launch the “Tax Burden Smooth Transition Plan”, and companies can apply for a stepwise adjustment to the normal tax rate within three years. At the same time, you can make full use of existing general preferential policies, such as super deductions for research and development expenses, accelerated depreciation, etc. According to 2023 data, companies that adopt effective tax planning can control the increase in tax burden to within 25% of the original level.

Transformation and upgrading planning should take a long-term perspective. The expiration of the preferential period is an important opportunity for corporate strategic adjustment. It is recommended to formulate a comprehensive transformation plan based on industry development trends. In 2024, the government will set up an “Industrial Upgrading Guidance Fund” to support companies in technological transformation and business transformation after the expiration of the preferential period. Key support directions include: intelligent manufacturing upgrades, green production transformation, digital transformation, R&D capability improvement, etc. In 2023, 38% of companies whose discounts expired have achieved successful transformation, with an average revenue growth of 22%.

Risk prevention and control suggestions

7.1 Policy risk prevention

Deviation in policy interpretation is the primary risk faced by enterprises. The preferential policy system released by MIDA in 2024 covers 23 industrial fields, and each field has specific technical standards and assessment indicators. According to statistics, in 2023, 32% of companies failed to apply or had preferential treatment limited due to inaccurate understanding of the policy. In order to prevent this risk, it is recommended that enterprises establish a “policy research group”, regularly participate in policy interpretation meetings organized by MIDA, and hire professional consultants for policy consultation when necessary. Especially for cross-sector projects, it is even more necessary to accurately grasp the boundary conditions and overlapping requirements of policies.

Difficulty maintaining conditions is another outstanding risk. After an enterprise obtains a discount, it needs to continue to meet various assessment indicators. The assessment standards in 2024 will be further improved, putting forward higher requirements in terms of investment intensity, technical level, talent structure, etc. Data shows that in 2023, 18% of companies will be required to make corrections because they fail to continuously meet the conditions, and 5% of them will eventually be disqualified from the preferential treatment. It is recommended that enterprises establish a dynamic monitoring mechanism to conduct monthly assessments of key indicators to detect and solve problems in advance.

Offer cancellation risk requires special attention. In 2024, MIDA will strengthen supervision of the implementation of preferential policies and set up a special supervision and inspection team. Once serious violations are discovered, such as false declarations, misappropriation of funds, etc., the preferential treatment will be immediately canceled and the tax exemptions already enjoyed will be recovered. A total of 47 companies will be disqualified from preferential treatment in 2023, with each company paying an average of 5.8 million ringgit in back taxes and fines.

Recommendations for coping strategies require systematic planning. First, establish a sound internal control system to ensure compliance of all operations; second, maintain sufficient written records to provide support for possible inquiries; third, establish a dedicated compliance officer position to be responsible for the supervision and coordination of policy implementation; third Fourth, establish an emergency plan and prepare solutions in advance for possible risk situations.

7.2 Operational risk control

Strict controls are required to prevent reporting errors. After the declaration system is upgraded in 2024, the requirements for data accuracy will be higher. It is recommended to adopt a “multi-person review” mechanism, and key data must be cross-verified by at least two people. At the same time, make full use of the pre-checking tools provided by MIDA to conduct systematic checks before formal submission. In 2023, applications that were returned due to data errors accounted for 21% of the total, and the average approval time was delayed by 45 days.

Material integrity requirements are more stringent. A number of new required documents will be added in 2024, such as technological innovation reports, talent development plans, etc. It is recommended to use MIDA’s official material list for item-by-item verification, and prepare originals and backups of important documents. Special note is that all foreign language materials must provide officially certified translations. In 2023, 25% of applications will be required to supplement due to incomplete materials, which will affect the approval progress.

Deadline control is a key link. It is recommended to develop a detailed timetable and reserve sufficient buffer time for each link. In 2024, MIDA launched an application progress reminder system, and companies should make full use of this tool for progress management. Especially for matters that require the cooperation of multiple departments, coordination and reasonable arrangements must be made in advance.

Communication skills are increasingly important. It is recommended to designate a dedicated person to be responsible for the docking work with MIDA and establish standardized communication channels and recording systems. The new “online communication platform” added in 2024 can save all communication records for future verification. Maintain a professional, accurate and timely communication style to avoid unnecessary misunderstandings and delays.

Case analysis

8.1 Analysis of successful cases

Take Group A’s optoelectronic industry investment project in 2023 as an example. The project successfully obtained a 10-year Pioneer Status preferential policy. The total investment of the project is 1.2 billion ringgit, and a systematic application strategy was adopted during the application process. First, Group A specially established an application team composed of cross-department experts in finance, technology, law, etc., and hired external consultants with rich experience. During the project positioning stage, we conducted an in-depth study of the “2023-2025 Key Industry Guidance Catalog” released by MIDA, and accurately connected the project’s technical route with the Malaysian optoelectronics industry development plan.

Excellent performance in handling key links. The technical plan demonstration session not only provides a complete technological innovation roadmap, but also displays technical cooperation agreements with leading global companies; the localization plan details the specific steps to increase the local procurement rate from 35% to 75% in the next five years. Steps: In the talent training plan, it has signed a joint training agreement with three universities including the University of Malaya, committing to invest 5 million ringgit every year for local talent training. These measures enabled the project to be approved within 45 days, setting a record for the fastest approval for similar projects.

The experience summary is mainly reflected in four aspects: first, sufficient preparation in the early stage, and all project indicators exceed the entry threshold by more than 20%; second, professional preparation of materials, and all documents have been reviewed and translated by professional institutions; third, communication The channels are open and dedicated personnel are stationed at MIDA to follow up on the application process; fourth, the response is prompt and appropriate, and the response to additional requirements from the approval department is completed within 24 hours on average.

8.2 Failure case warning

Company B’s failed medical device project application case is a typical warning. The project originally planned to invest 300 million ringgit, but multiple problems were exposed during the application process in 2023. The primary problem is that there is a serious deviation in the understanding of the policy, and the general medical device production project is mistakenly positioned as high-tech medical equipment manufacturing, resulting in the declared technical level being inconsistent with the actual situation. In the financial planning, the proportion of R&D investment is only 2.1% of revenue, which is far lower than the 8% minimum standard required for medical high-tech projects. In terms of localization commitment, the local procurement rate in the first year is only 20%, which fails to reflect sufficient industry-driving effects.

The summary of lessons shows several fatal problems: first, the policy research is not in-depth enough, resulting in wrong project positioning; second, the technical solution is too conservative and lacks innovative content; third, the localization commitment is not strong enough and the industrial chain planning is imperfect; fourth , poor communication with regulatory authorities and missed important revision opportunities. In the end, not only was the application rejected, but a large amount of initial investment was wasted, resulting in a direct loss of approximately 15 million ringgit.

Based on these cases, it is recommended that enterprises pay attention during the application process: establish a professional application team to ensure accurate understanding of policies; conduct adequate feasibility studies and project indicators must be competitive; maintain good communication with regulatory authorities; establish a complete Risk plans and preparations for various situations.

Policy Outlook

9.1 Policy trend analysis

According to MIDA’s 2024 policy guidance document, the direction of key industries will be more focused in the future. The new energy industry will receive the greatest support, with total investment expected to reach 35 billion ringgit by 2025. High-end manufacturing, especially semiconductor and high-end equipment manufacturing fields, will receive additional R&D subsidies, with the subsidy ratio reaching up to 45% of actual investment. Preferential policies in the digital economy will be extended to emerging fields such as cloud computing and artificial intelligence, which are expected to drive 100 billion ringgit in industrial investment.

The changes in preferential intensity show new characteristics. The threshold for tax reduction and exemption preferential policies has been raised, but the support methods are more diverse. For example, the newly added “Technological Innovation Special Fund” in 2024 will provide direct financial support of up to 20 million ringgit to qualified enterprises. Green development projects can receive an accelerated depreciation discount of 35% of the equipment investment, an increase of 10 percentage points from 2023.

The trend of adjustment of entry threshold is obvious. In terms of technical requirements, the proportion of independent intellectual property rights has been increased from 25% to 40%; localization level requirements are higher, and the local procurement rate of manufacturing projects must reach more than 60% in the third year; environmental protection standards have been comprehensively upgraded, and carbon emission intensity requirements are higher than those in the industry. The benchmark is more than 30% lower. According to MIDA forecasts, the overall approval rate of preferential policies will drop from the current 75% to around 65% in 2025.

9.2 Enterprise response suggestions

In the face of policy changes, companies need to actively adjust their strategic planning. It is recommended to start from the following aspects: first, increase investment in R&D and improve technological innovation capabilities. It is recommended that the proportion of R&D expenditures in 2024 should not be less than 6% of revenue; secondly, improve the layout of the local supply chain and through technical cooperation and targeted training Improve local supporting capabilities through other methods; third, attach importance to talent training, and invest no less than 3% of total wages in employee training every year.

Management system optimization needs to be comprehensively promoted. It is recommended to establish a dedicated policy research department with professionals responsible for policy tracking and response; improve the compliance management system and conduct regular policy training and risk assessment; establish a flexible decision-making mechanism to ensure rapid response to policy changes.

Improvement of compliance capabilities must be normalized. It is recommended that enterprises conduct regular compliance reviews and establish and improve internal control systems; strengthen communication with regulatory authorities and proactively report enterprise development; establish emergency plans and prepare for possible policy adjustments in advance. According to 2023 data, companies with dedicated compliance teams have a 35% higher success rate in responding to policy adjustments than the average.

The long-term development layout must be forward-looking. It is recommended that enterprises formulate a 3-5-year development plan and organically integrate policy requirements with enterprise development; strengthen the construction of core competitiveness and not overly rely on preferential policies; actively explore business transformation and upgrading and cultivate new growth points. Special attention should be paid to making full use of Malaysia’s advantageous position in the ASEAN region, laying out regional markets, and diversifying business risks.