FISCAL REGIMES

Malaysia maintains a fiscal system, which is consistent, fair, transparent and competitive. Mineral producers are required to pay an income or corporate tax based on the profits of their operations. Malaysia's corporate tax today is 28 per cent, one of the lowest in the region. Export duties on most minerals have been abolished. Most raw minerals are subject to low or zero level import duty. For those still subject to import duties, the importer may apply to the government for a waiver. Imported machineries and equipment for use in mining projects are subject to the general schedule of import tariffs but an application can be made on a case-by-case basis. Value-based royalties are assessed by some individual states on some mineral commodities. Certain area-based land premiums and rental fees, processing and application fees for mining lands are imposed by the states.

a) Corporate Income Tax

A company, whether resident or not, is assessable on income accrued in or derived from Malaysia or derived from sources outside Malaysia and remitted by a resident company is exempted from tax, excluding case of the banking and insurance business, and sea and air transport undertakings. A company is corporated resident in Malaysia if the control and management of its affair are exercised in Malaysia.

A tax of 28% applies to both resident and non-resident companies. A company carrying on upstream operations is subject to a Petroleum Income Tax of 38%.

Dividend Witholding Tax

Non-resident individuals are subject to a final withholding tax of:

10% on special classes of income such as the use of moveable property; technical advice, as services; installation services on the supply of plant, machinery, etc.; and personal services associated of tangible property. Effective from 21 September 2002, payments to non-residents for services rendered will not be liable to the withholding tax of 10%.
10% on royalties
15% on interest
15% on the services of a public entertainer

An employee on short-term visit to Malaysia enjoys tax exemption from a exercised in Malaysia when his presence does not exceed 60 days in a a calendar year. However, the non-resident individual who performs independent services such as consultancy services is not exempted.

Royalty

Besides premium and annual rent on the mining land, royalty is another form of tax that can be levied by a State or a Territory to raise revenue from any mineral produced within its boundary. This output-related tax is a percentage of the value of production based on a price fixed by government on the mineral.

Import and Export Duty on minerals

In Malaysia, import and export duties on minerals are mostly imposed ad valorem specific duties on a items. Nevertheless, over the last few years, Malaysia has abolished all the duties on minerals, except for import duty of certain types of minerals. However, import and export duties on mineral products are mostly imposed.

Incentives

Companies investing in mining and mineral exploration per se currently do not enjoy much front-end investment incentives. However, those involved in mineral processing and the manufacturing of mineral-based products do enjoy several investment incentives and other facilities. The principal incentives for such investments and facilities are provided for in the Promotion of Investments Act 1986, the Income Tax Act 1967, the Custom Act 1967, the Sales Tax Act 1972 and the Excise Act 1976. These incentives include the pioneer status, which takes the form of partial exemption from corporate tax, and the investment tax allowance, which provides for an allowance amounting to 60% of the qualifying capital expenditure incurred on the project within five years from the date of first incurrence of capital expenditure. There are also incentives for high technology industries that provide full tax exemption of a company's statutory income for five years, for strategic industries where full corporate tax exemption can be granted for a period of ten years, and for R&D activities carried out in the field of science and technology with the object of using the results of the R&D for the production and improvement of materials, devices, products, produce or processes. For companies, which do not qualify for any of the above incentives, they can apply for the reinvestment allowance. Export incentives are granted to companies exporting products in the form of export credit refinancing (ECR), double deduction for expenses for promotion of exports, double deduction of export credit insurance premiums and industrial building allowance for buildings used as warehouses for storing goods for exports. There are also incentives given for manpower training and full import duty exemption on raw materials for products that are exported, and also exemption from import duty and sales tax on machinery and equipment used directly in the production process or used for environmental control, recycling, maintenance and quality control.

As embodied in the National Mineral Policy, the Malaysian Government welcomes foreign investment. Malaysia's equity policy in projects involving the extraction or mining and processing of minerals is such that majority foreign equity participation of up to 100 percent is permitted. In determining the percentage, three criteria will be considered, namely the level of investments, technology and risk involved in the projects, the availability of Malaysian expertise in the areas of exploration, mining and processing of the minerals concerned and the degree of integration and level of value-added involved in the projects.

In keeping with the objective of ensuring increasing Malaysian participation in mining activities, it is the policy of the Government to also encourage mining projects to be undertaken on a joint-venture basis between Malaysian and foreign partners. All such participation is exclusively on a paid, carried interest basis or other similar arrangements.

A private investor that has been approved with a given equity condition will not be requested to restructure his equity at any time, notwithstanding the fact that he may have undergone an expansion or diversification, provided that the he continues to comply with the original conditions of approval and retains the original features of the project.

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