On 11 October 2019, the Minister of Finance YB Lim Guan Eng unveiled the Malaysian Budget 2020 ("Budget"). With the theme "Driving Growth and Equitable Outcomes Towards Shared Prosperity", the Budget has four main thrusts: (i) driving economic growth in the new economy and digital era; (ii) investing in Malaysians: levelling-up human capital; (iii) creating a united, inclusive and economic society; and (iv) revitalising public institutions and finances.
To leverage opportunities arising from the US-China trade war, a central aim of the Budget is to encourage economic growth through foreign direct investments into Malaysia. An emphasis is also placed on measures to develop the nation's digital economy, in line with global digitalisation trends.
1. Digital Economy Updates and Incentives
1.1. Customised Packaged Investment Incentives
In a bid to attract foreign direct investment, the Government is making available up to RM 1 billion worth of customised packaged investment incentives annually over a period of 5 years. These incentives are targeted at "Fortune 500 companies and global unicorns in high technology, manufacturing, creative and new economic sectors".
These companies must each invest at least RM 5 billion in Malaysia to spur additional economic activities. It is the Government's intention that these additional economic activities support small and medium enterprises ("SMEs"), generate 150,000 high-quality jobs over the next 5 years and strengthen the nation's manufacturing and service ecosystems.
1.2. Incentives for the Electrical and Electronics ("E&E") Industry
The local E&E industry plays a pivotal role in Malaysia's economy and remains a key driver of the nation's industrial development. It is proposed that more tax incentives be granted in the E&E space to further promote high-value added activities to transition into the 5G digital economy and Industry 4.0. These incentives include:
(a) an income tax exemption of up to 10 years for E&E companies investing in selected knowledge-based services; and
(b) a special income tax exemption equivalent to investment tax allowance of 50% on qualifying capital expenditure incurred within a period of 5 years for E&E companies that have exhausted the 15-year eligibility period to claim reinvestment allowance. This special allowance can be set-off against 50% of the statutory income for each year of assessment. Applications for this special allowance should be submitted to the Malaysian Investment Development Authority ("MIDA") during the period between 1 January 2020 until 31 December 2021.