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There is no better example of the Malaysian government's aggressive pursuit of foreign investment - especially in technology -- than the Multimedia Super Corridor, an audacious attempt to build an Asian version of Silicon Valley on rolling hills outside Kuala Lumpur that were once home abandoned tin mines and palm oil plantations. But it is hardly the only example.
The government has signed Investment Guarantee Agreements with more than 60 countries. The pacts allow foreign investors to freely transfer profits and capital, as well as provide protection against nationalization and expropriation. Foreign investors may establish a branch or a local company, or enter joint ventures with local firms. Those intending to set up manufacturing or assembly facilities must apply for a license from the Ministry of International Trade and Industry, however.
The government is particularly interested in promoting high-tech industries and value-added manufacturing for export. Both local and foreign companies can apply for investment incentives, including tax breaks. Corporate tax rates have been reduced from 30% to 28% beginning assessment year 1998 and further tax incentives have been instituted to encourage corporate debt restructuring and mergers, as well as to help develop the bond market and venture capital industry.
Companies that produce so-called "promoted products" or engage in "promoted activities" can apply for pioneer status, which allows exemption of 70% of profits for five years, with the remaining 30% taxed at the prevailing rate. The list of promoted products and activities include manufacturing, agriculture, hotel, tourism, research and development, and technical or vocational training. A 100% exemption may be given to those with capital-intensive, high-technology projects with extensive industrial links. Those producing products or engaged in activities that are deemed of national or strategic importance to the country may be granted full tax exemption on statutory income for 10 years. Companies may also apply for investment tax allowance and reinvestment allowance as alternatives to pioneer status.
The government has also designed incentives to encourage export of locally produced products, research and development, and human resources training. It also has an incentive package to attract companies to set up their operational headquarters in Malaysia.
Personal income tax for non-residents is 29% on net income derived from Malaysian sources. Tax assessment is based on income received in the current year. The current assessment system will be changed into a self-assessment system starting with companies in 2001; businesses, partnerships and cooperatives in 2003; and salaried groups in 2004.
Useful government contacts:
International Trade and Industry
Inland Revenue Board of Malaysia (Companies Branch)
Free Zones and Industrial Estates
Malaysia has 14 free industrial zones and 8 free commercial zones -- the Multimedia Super Corridor being the most famous of them. Goods and services may be brought into and produced in the free zones without payment of duties and taxes. Industrial zone locators must export at least 80% of its production, while the commercial zones are designed for trading, breaking bulk, grading, repackaging, re-labeling and transit operations.
Malaysia also has more than 200 industrial estates, which allow foreign companies to purchase land and construct their own buildings. Minimum monthly rental fees start at RM0.50 per square foot. Prices and leases vary. Average construction costs of a factory building ranges from RM40 per sq.ft. for reinforced concrete structures to RM110 per sq.ft. for factories with clean room facilities.
The Multimedia Super Corridor (MSC) is a 50-kilometer-by-10-kilometer tract stretching from the Kuala Lumpur City Centre to the KL International Airport. It offers tax breaks and special privileges to companies that qualify -- software firms, electronic publishers, telecommunication specialists and other multimedia ventures. But the investment perks are only offered to those companies willing to contribute advanced technology and expertise, rather than simply set up assembly or manufacturing operations. By the end of 2000, more than 190 companies were expected to be operating out of the zone.
The nucleus of the super corridor development is Cyberjaya, a new town that attracted 66 companies, has a projected population of 10,000 and some 93,000 square meters of office space available by December 2000. The seat of the federal government and the administrative capital were moved to another so-called Smart City, Putrajaya, where the concept of an almost entirely electronic government is being introduced.
MSC's recently introduced Central Incubator aims to nurture the businesses of small and medium enterprises through its National Incubator Network Shared Services. The incubator would provide hands-on management assistance, access to finance and shared office services with inputs from IBM and Hewlett Packard, among others.
Malaysian Industrial Estates Sdn. Bhd.
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