Direct Taxation

AMENDMENTS TO TAX INCENTIVES – BIONEXUS INCENTIVES

General

We refer to our e-CTIM TECH-DT 90/2018 which highlighted the information provided by the Ministry of Finance on Malaysia’s Participation in the Forum on Harmful Tax Practices (FHTP).  In line with Malaysia’s commitment to FHTP, amendments to legislation relating to tax incentives that have been identified for FHTP evaluation have been gazetted. The following Amendment Orders that were issued (Gazetted date 31/12/2018) (refer to our e-CTIM TECH-DT 3/2019 dated 9 January 2019) relate to BioNexus incentives.

 

P.U.(A)

Citation

Commencement

Deemed to have effect from –

381

Income Tax (Exemption) (No. 2) 2009 (Amendment) Order 2018

16/10/2017, except for paragraphs 2 and 3 which are deemed to have come into operation on 2/9/2006.

395

 

 

 

 

Income Tax (Exemption) (No. 17) 2007 (Amendment) Order 2018

 

16/10/2017, except for the following:

Paragraph/ subparagraph

Deemed to have effect from –

2, 3(a), 6

1/5/2005

3(b)

11/8/2016

 

 

 

 

Main Amendments and Objectives

The table below highlights the main amendments in each Order, and the purpose of the amendment (in relation to compliance with FHTP requirements).  Please refer to the Amendment Order for the wording of each amendment, as well as other amendments not highlighted here.

 

 

P.U.(A)

Paragraph (#) of this Order

 

Amendment

 

Purpose

 

381

Principal Order (PO) – Income Tax (Exemption) (No. 2) Order 2009 [P.U.(A) 156/2009]

3(b)

Amends paragraph 3 of the PO by inserting subparagraphs (2A), (2B) and (2C) after subparagraph (2)

Introduces grandfathering rules that apply to existing companies enjoying this incentive.

4

Inserts a new paragraph 3A after paragraph 3 of the PO.

Excludes intellectual property (IP) income from exemption under this incentive.

Note 1 – Although substance requirements are not specified in this Order, the PO states that a BioNexus status company is one which has been granted exemption under Income Tax (Exemption) (No. 17) Order 2007, which has been amended by P.U.(A) 395/2018 (see below). Subparagraph 3(1A) of the second-mentioned Order (as amended) lists the substance requirements that must be met by a BioNexus status company.

Requirement for substantial activities (see Note 1)

395

PO – Income Tax (Exemption) (No. 17) Order 2007 [P.U.(A) 371/2007]

4(b)

Amends paragraph 3 of the PO by inserting subparagraph (1A) after subparagraph 3(1)

Lays down the conditions relating to the requirement for substantial activities for preferential tax treatment.

4(c)

 

 

Inserts subparagraphs (2A), (2B) and (2C) after subparagraph 3(2)

Introduces grandfathering rules that apply to existing companies enjoying this incentive.

5

Inserts a new paragraph 3A after paragraph 3.

Excludes intellectual property (IP) income from exemption under this incentive.

6

Inserts a new Schedule after paragraph 11

Lists the following as “qualifying activities”:

1.    Industrial biotechnology

2.    Healthcare biotechnology

3.    Agricultural biotechnology

 

 

 

Members may read the Orders in full at the official website of the Attorney General’s Chambers.