Incentive For the Tourism Industry

Incentive For the Tourism Industry

Tourism projects, including eco-tourism and agro-tourism projects, enjoy tax incentives. These include hotel businesses, construction of holiday camps, recreational projects including summer camps, and construction of convention centres with a capacity to accommodate at least 3,000 participants.

Hotel business refer to the following:
>>Construction of medium and low-cost hotels (up to a three-star category hotel as certified by the Ministry of Tourism)
>>Expansion/modernization of existing hotels

1. Main Incentives For the Tourism Industry

(i) Pioneer Status

A company granted Pioneer Status enjoys a 5-year partial exemption from the payment of income tax. It will only have to pay tax on 30% of its statutory income, commencing from its Production Day which is determined by the Minister of International Trade and Industry.

Applications received from companies located in promoted areas i.e the States of Perlis, Sabah, Sarawak, the Federal Territory of Labuan and the designated ‘Eastern Corridor’ of Peninsular Malaysia are eligible for a 100% tax exemption of their statutory income during the 5 year exemption period. This incentive applies to all applications received by 31 December 2010.

Accumulated losses and unabsorbed capital allowances incurred during the pioneer period by companies whose pioneer status will expire on and after 1 October 2005 are allowed to be carried forward and deducted against post-pioneer income of a business relating to the same promoted activity or promoted product.

Applications should be submitted to MIDA.

(ii) Investment Tax Allowance

As an alternative to Pioneer Status, a company may apply for Investment Tax Allowance (ITA). A company granted the ITA gets an allowance of 60% of the qualifying capital expenditure incurred within five years from the date on which the first qualifying capital expenditure is incurred.

Companies can offset this allowance against 70% of their statutory income in the year of assessment. Any unutilised allowance can be carried forward to subsequent years until the whole amount has been used up. The remaining 30% of the statutory income will be taxed at the prevailing company tax rate.

Applications received from companies located in the promoted areas i.e. the States of Perlis, Sabah and Sarawak, the Federal Territory of Labuan and the designated “Eastern Corridor” of Peninsular Malaysia, will enjoy an allowance of 100% on the qualifying capital expenditure incurred within a period of five years. The allowance can utilised to offset against 100% of the statutory income for each year of assessment. All project applications received by 31 December 2010 will be eligible for this incentive.

Applications should be submitted to MIDA

(iii) Additional Incentives for Hotels and Tourism Projects

Applications received by MIDA from companies to reinvest in the expansion, modernisation and renovation of hotels and tourism projects will be eligible for another round of Pioneer Status or Investment Tax Allowance. However, hotels and tourism projects located in the promoted areas are eligible for the Pioneer Status incentive in accordance with that given to promoted areas:

a) Pioneer Status, with a 100% income tax exemption. Accumulated losses and unabsorbed capital allowances incurred during the pioneer period by companies whose pioneer status will expire on and after 1 October 2005 are allowed to be carried forward and deducted against post-pioneer income of a business relating to the same promoted activity or promoted product; or

b) Investment Tax Allowance of 100%. The allowance can be offset against 100% of the statutory income in each year of assessment. Any unutilised allowances can be carried forward to subsequent years until the whole amount has been fully utilised.

(iv) Incentives for the Luxury Yacht Industry

The luxury yacht industry is promoted as part of tourism product and is eligible for the following incentives:

>>Companies that construct luxury yachts are eligible for the Pioneer Status incentive

Applications should be submitted to MIDA

>>Companies that carry out repair and maintenance activities for luxury yachts in the island of Langkawi, Malaysia are eligible for an income tax exemption of 100% for five years.

Applications should be submitted to the Ministry of Finance

>>Companies that provide chartering services of luxury yachts in the country are eligible for an income tax exemption of 100% for a period of five years.

Claims should be submitted to the IRB.

2. Additional Incentives for the Tourism Industry

(i) Double Deduction on Overseas Promotion

Hotels and tour operators qualify for a double deduction on the expenditure incurred for promotional activities overseas. The qualifying expenditure are:

>Expenditure on publicity and advertisement in any mass media outside Malaysia

>Expenditure on the publication of brochures, magazines and guide books, including delivery costs that are not charged to the oversea customer;

>Expenditure on market research into new markets overseas, subject to the prior approval of the Minister of Tourism;

>Expenditure that includes fares to any country outside Malaysia to negotiate or secure a contract for advertising or participating in trade fairs, conferences or forums approved by the Minister of Tourism. Such expenses are subject to a maximum of RM300 per day for lodging and RM150 per day for food for the duration of the stay overseas;

>Expenditure in organizing trade fairs, conferences of forums approved by the Minister of Tourism; and

>Expenditure on the maintenance of sales office overseas for purposes of promoting tourism in Malaysia

Claims should be submitted to the IRB.

(ii) Double Deduction on Approved Trade Fairs

Companies also enjoy a double deduction on expenditure incurred in participating in an approved international trade fair in Malaysia.

Claims should be submitted to the IRB.

(iii) Tax Exemption for Tour Operators

a) Foreign Tourists

Tour operators who bring in a at least 500 foreign tourists in a group in a year through groups, inclusive of tours that enter and exit the country by air, sea or land transportation, will be exempted from tax in respect of income derived from the business of operating such tours. This incentive is only applicable to tour operators licensed by the Ministry of Tourism.

b) Local Tourists

Companies that organise domestic tour packages for at least 1,200 local tourists per year get a tax exemption on the income earned. A domestic tour means any tour package within Malaysia participated by local tourists (excluding inbound tourists) by air, land or sea transportation involving at least one night’s accommodation.

Effective from 2 September 2006, the incentive is extended for another 5 years from the year of assessment 2006 until the year of assessment 2011.
Claims should be submitted to the IRB.

(iv) Tax Exemption for Promoting International Conference and Trade Exhibition

a) Local companies, which promote international conferences in Malaysia, qualify for tax exemption on the income earned from bringing at least 500 foreign participants into the country.

b) Income earned from organizing international trade exhibitions in Malaysia qualifies for tax exemption as long as the exhibitions are approved by MATRADE and the organizers bring in at least 500 foreign visitors per year.
Claims should be submitted to the IRB.

(v) Deduction on Cultural Performance

Expenditure incurred by companies promoting and managing a musical or cultural group and sponsoring local and/or foreign cultural performance as approved by the Ministry of Tourism, qualifies for a single deduction.

To further encourage the private sector to sponsor local arts, cultural and heritage performances and shows, expenditure incurred in sponsoring such performances and shows be increased from RM300,000 to RM 500,000. However, the ceiling for deduction allowed on foreign performances and shows remains at RM200,000 per year effective from year of assessment 2007.

Claims should be submitted to the IRB.

(vi) Incentive for Car Rental Operators

Operators of car rental services for tourists are eligible for full excise duty exemption on the purchase of national cars.

However, effective 2 September 2006, to enable tourist to explore challenging destinations, tour operators are also eligible for a 50% excise duty exemption on locally assembled 4WD vehicles.

Applications should be submitted to the Ministry of Finance.

Source: MIDA: Malaysia: Investment in the Manufacturing Sector: Policies, Incentives and Facilities
February 2007

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