KUALA LUMPUR (June 3): BMI said Malaysia’s latest tax reforms, outlined in Budget 2024, highlight the government's aim to stimulate domestic startups, drive clean energy investment and modernise tax administration.

In a note on May 31, BMI said innovative start-up businesses, green technology sectors and service-oriented companies are most likely to benefit from the recent changes.

On the other hand, sellers of low-value imported goods, and entities involved in real estate transactions and the sale of equities in unlisted companies face increased tax burdens.

BMI was referring to key tax incentives, namely Reinvestment Allowance, Electric Vehicle (EV) Tax Incentives and Global Services Hub Tax Incentive.

The firm noted that the EV tax incentives are extended to 2027, allowing tax deductions of up to RM300,000 per rental EV for up to two years.

The Reinvestment Incentive under the Industrial Master Plan 2030 allows resident manufacturing and agricultural companies to claim a reinvestment allowance for 15 years, with Tier 1 permitting a 100% offset and Tier 2 permitting a 60% offset against statutory income.

“Specifically, it effectively lowers the tax burden on companies that undertake capital investments to modernise machinery, upgrade technology or diversify into higher-value products,” BMI added.

Meanwhile, from October 2023 to December 2027, companies setting up global service hubs enjoy a reduced tax rate of 5% or 10% on service income and a 15% rate for three foreign C-suite executives for three years.

“This incentive covers income from services or a mix of services and trading, targeting strategic business functions. Eligibility hinges on outcome-based conditions, including operational spending, high-value employment, and contributions to local education and ESG initiatives,” it added.

BMI said that while Malaysia's corporate income tax rate is high by regional standards, the introduction of targeted investment incentives is poised to enhance investment appeal in key innovative and sustainable sectors.

“This strategy will enhance Malaysia's attractiveness as an investment hub before the GMT (global minimum tax) comes into effect.

“Once the GMT is adopted broadly across Asia, competition edge will shift, as low tax rates will no longer be a draw for foreign direct investment, given the tax floor will be uniform in adopting markets,” it added.

Consequently, economies like Malaysia will need to offer additional incentives to enhance their attractiveness to businesses, according to BMI.

“Such proactive measures are expected to strengthen Malaysia's overall value proposition for companies operating within its borders,” it said.

BMI also noted the capital gains tax on Malaysian firms and controlled foreign companies, effective January 2024, was accelerated to comply with European Union requirements and includes specific exemptions until 2026 for unit trusts.

“Since this is a new tax in Malaysia, there may be areas of uncertainty that could require further professional guidance,” it added.

Additionally, Malaysia introduced a 10% sales tax on low-value imported goods starting January 2024 to support local industries, and the service tax will rise from 6% to 8% on March 1, 2024, excluding essential services.

“The [service] tax hike is unlikely to raise operating costs for businesses and impact profit margins, as these businesses will likely pass on the costs to consumers,” it added.