The definition of R & D in the Promotion of Investment Act 1986 is as follows:

"Research and development means any systematic or intensive study carried out in the field of science or technology with the object of using the results of the study for the production or improvement of materials, devices, products, produce or processes but does not include:

• Quality control of product or routine testing of materials, devices products or produce;
• Research in the social science or humanities;
• Routine data collection;
• Efficiency surveys or management studies;
• Market research or sales promotion."

To further strengthen the foundation for a more integrated R & D in the future, companies which carry out designing or prototyping as an independent activity are eligible for incentives.

CONTRACT R&D COMPANY

A contract R&D Company (i.e. a company that provides R & D services in Malaysia only to companies other than its related companies) is eligible to apply for Pioneer Status with full income tax exemption at statutory income level for five years or an Investment Tax Allowance (ITA) of 100% on qualifying capital expenditure incurred within 10 years. The ITA can be utilised to offset against 70% of the statutory income in the year of assessment.

R&D COMPANY

An R&D company (i.e. company which provides R & D services in Malaysia to its related companies or to any other companies) is eligible to apply for an ITA of 100% on qualifying capital expenditure incurred within 10 years. The ITA can be utilised to offset against 70% of the statutory income in the year of assessment. The related companies concerned will not enjoy double deduction for payments made to the R&D Company for the use of its services, unless the R&D Company opts not to avail itself to the ITA.

ELIGIBILITY

Contract R & D and R & D companies are eligible to apply for the various incentives provided they fulfil the following criteria:

• Research undertaken should be in accordance with the needs of the country and bring benefit to the Malaysian economy
• at least 70% of the income of the company should be derived from research and development activities;
• for manufacturing-based R&D, at least 50% of the workforce of the company must be appropriately qualified personnel performing research and technical functions; and
• for agricultural-based R&D, at least 5% of the workforce of the company must be appropriately qualified personnel performing research and technical functions

IN-HOUSE RESEARCH

Companies that carry out in-house research in Malaysia (i.e. R&D carried out within a company for the purpose of its own business) are eligible to apply for ITA of 50% on qualifying capital expenditure incurred within 10 years. The ITA can be utilised to offset 70% of the statutory income in the Year of Assessment.

DOUBLE DEDUCTION FOR RESEARCH & DEVELOPMENT

Double deduction is allowed on revenue expenditure incurred by a person on research directly undertaken by him or on his behalf, which is approved by the Minister of Finance. Double deduction is allowed on payment for the use of services of approved research institutes, R&D companies or contract R&D companies, as well as on cash contribution made to approve research institutes.

OTHER INCENTIVES

• Industrial Building allowance in the form of an initial allowance of 10% and an annual allowance of 3% is available for buildings used for purposes of approved R&D.
• Capital allowance on capital expenditure incurred in the provision of plant and machinery used for R & D.
• Machinery / equipment, materials, raw materials / component parts and samples used for R&D purposes are eligible for exemption from import duties, sales tax and excise duties.