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Incentives for the Aerospace,

Shipbuilding & Shiprepairing Industries in

Malaysia

_____________________________Malaysian Industrial Development

Authority

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Established in 1967 under Act of Parliament, 1965

The principal Malaysian Government agency responsible for the promotion and coordination of industrial development in the country

First point of contact for investors who intend to set up projects in the manufacturing and its related services sectors in Malaysia

On 27 March 2004, the Government has also mandated MIDA to become the single window for services sector

Malaysian Industrial Development Authority (MIDA)

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Functions of MIDA

PLANNING

• Planning for industrial development

• Recommend policies and strategies

on industrial promotion and

development

PLANNING

• Planning for industrial development

• Recommend policies and strategies

on industrial promotion and

development

PROMOTION

• Foreign Direct Investment

• Domestic Investment

• Cross Border Investment

• Manufacturing Related Services

PROMOTION

• Foreign Direct Investment

• Domestic Investment

• Cross Border Investment

• Manufacturing Related Services

FOLLOW-UP/MONITORING

• Assist companies in the

implementation and operation of

their projects

• Advisory Services

FOLLOW-UP/MONITORING

• Assist companies in the

implementation and operation of

their projects

• Advisory Services

EVALUATION

• Manufacturing licences

• Tax incentives

• Expatriate posts

• Duty exemption

• RDC, IPC and R&D status

EVALUATION

• Manufacturing licences

• Tax incentives

• Expatriate posts

• Duty exemption

• RDC, IPC and R&D status

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Government Representatives based in MIDA

Immigration Department

Royal Customs Department

Department of Occupational

Health & Safety

Department of Environment

Ministry of Finance

Ministry of Human Resource

Telekom Malaysia Berhad

Tenaga Nasional Berhad

Immigration Department

Royal Customs Department

Department of Occupational

Health & Safety

Department of Environment

Ministry of Finance

Ministry of Human Resource

Telekom Malaysia Berhad

Tenaga Nasional Berhad

Functions

Advise and assist investors on matters relating to tax, labour, immigration, customs, utilities, occupational, safety, and health, and environment

Coordinate applications for approval and other matters under the purview of the relevant ministries and departments

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Functions of MIDAFunctions of MIDA

STATUS OF INDUSTRIES

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Background of Aerospace IndustryFunctions of MIDAFunctions of MIDABackground of Aerospace Industry

• Aerospace sector in Malaysia is relatively new and undeveloped

• Military’s requirement – supervised by the Defence Ministry

• Civil aviation – regulated by the Department of Civil Aviation

• The industry can be divided into 3 sectors:

1) Light Aircraft Assembly

2) Parts & Components Manufacturing

3) Repair/Overhaul/Maintenance Activities

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Functions of MIDAFunctions of MIDA Current Status

COMPANIES IN PRODUCTION :

(Licenced/non-licenced companies)

Parts/Components Manufacturing - 7

Repair/Overhaul/Maintenance Activities – 28

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Functions of MIDAFunctions of MIDAAerostructure Manufacturing & Design

Companies In Malaysia

Composite Manufacturing:

• CTRM - Government Owned Company• ACM - A Boeing, Hexel and Malaysian JV Company

Metal Manufacturing:

• SME AEROSPACE - Malaysian Private Company• UPECA AEROTECH - Malaysian Private Company• LKT ENGINEERING - Malaysian Private Company

Aerospace Design Houses: ouses:

• CTRM EXCELNET - Government Owned Company• AVIATION DESIGN CENTRE - Malaysian Private Company• STRAND AEROSPACE MALAYSIA - UK Company in Malaysia

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Functions of MIDAFunctions of MIDAStatus of Shipbuilding & Shiprepairing

Industry

• The shipbuilding and shiprepairing industry includes the manufacture of ships, boats, patrol vessels, barges, leisure crafts, yachts, hydrofoils, hovercrafts and shiprepairing activities.

• This industry is fragmented, with majority of the companies being small-sized shipyards

• There are six large shipyards involved in shipbuilding & shiprepairing and metal fabrication activities.

• The largest shipyard is capable of building vessels up to 30,000 DWT and repairing vessels of up to 450,000 DWT.

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Functions of MIDAFunctions of MIDAStatus (cont…)

MAJOR SHIPYARDS

• MALAYSIA MARINE AND HEAVY ENGINEERING (MMHE)

• BOUSTEAD NAVAL SHIPYARD

• SABAH SHIPYARD

• RAMUNIAN SHIPYARD

• SASACOM SHIPYARD

• MUHIBBAH MARINE ENGINEERING

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Policies

Manufacturing Licence

Under the Industrial Coordination Act (ICA), 1975 manufacturing companies are required to apply for manufacturing licence if:

i) shareholders fund is RM2.5 million or more; or

ii) full-time employees is 75 or more

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Equity Ownership

• 100% foreign equity ownership is allowed, irrespective of the level of exports

Repatriation of Profits

• Liberal Exchange Control Policy. Companies are free to repatriate profits, dividends, commissions and royalties

Government’s Delivery System

• Special project officers in MIDA to ‘hand-hold’ and assist investors in obtaining all necessary approvals until they are operational

Policies (cont…)

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Expatriate postsAutomatic approval to employ any number of expatriates required:

Policies (cont…)

Companies No.of Post Eligible

Duration

Foreign paid-up capital of US$2 million and above

Up to 10 posts (including 5 key posts)

• Key post-permanent

• Exec.post-10 years

• Non-exec.post-5 years

Foreign paid-up capital of more than US$200,000 but less than US$2mil.

Up to 5 posts(incl. at least 1 key post)

• Key post-permanent

• Exec-post – 10 years

• Non-exec.post-5 years

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INCENTIVES

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Functions of MIDAFunctions of MIDAIncentives

The major incentives are provided under:

1) Promotion of Investments Act (PIA), 1986

2) Income Tax Act, 1967

3) Customs Act, 1967 / Sales Tax Act, 1972

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Functions of MIDAFunctions of MIDA

Promotion of Investments Act (PIA), 1986

Incentives

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Functions of MIDAFunctions of MIDA

General Incentives

Incentives

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Functions of MIDAFunctions of MIDAIncentives

Pioneer Status

• Partial/full relief from payment of income tax

• Exemption of income tax on 70% / 100%* of statutory income for 5 years

Investment Tax Allowance (ITA)

• 60% / 100%* of qualifying capital expenditure incurred within 5 years deducted from statutory income

• Deduction of 70% / 100%* of statutory income in any one year

* Location in Eastern Corridor/Sabah/Sarawak

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Functions of MIDAFunctions of MIDAIncentives

Criteria For Granting Pioneer Status / ITA

• Promoted product/activity• Value added – at least 25%• Managerial, Technical and Supervisory Index

- At least 15%

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Functions of MIDAFunctions of MIDAIncentives

Promoted products/activities

Aerospace, Shipbuilding and Shiprepairing Industries:

i) Manufacture and assembly of aircraft;ii) Manufacture of aircraft equipment, components, accessories or parts thereof;iii) Manufacture of ground support equipment for the aerospace industry; iv) Maintenance, repair, overhaul or service (MRO) of aircraft, aircraft components or accessories or testing and repairing of avionics

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Incentives

Promoted products (cont…)

v) Hovercraft, leisure craft;vi) Shipbuilding*vii)Shiprepairing* viii) Steel fabricated products*ix) Engineering supporting products/activities such as metal castings, forgings, surface treatment, machining etc.

* promoted in Eastern Corridor/Sabah/Sarawak only

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Functions of MIDAFunctions of MIDA

Incentives for High Technology Companies

Incentives

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Functions of MIDAFunctions of MIDAIncentives

Pioneer Status

Exemption of income tax on 100% of statutory income for 5 years

Investment Tax Allowance (ITA)- 60% of qualifying capital expenditure incurred

within 5 years deducted from statutory income.

- 100% deduction against statutory income in any one year.

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Functions of MIDAFunctions of MIDAIncentives

Criteria For The Grant Of High Tech Incentives

• Local R&D expenditure to gross sale

- At least 1% on annual basis

• Science and technical graduates to total workforce

- At least 7%

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Functions of MIDAFunctions of MIDAIncentives

Hi-Tech Promoted Products/Activities

Design or development and production or assembly of:

I. Aircraft

II. Aircraft equipment, components, accessories or parts of aircraft

Modification and/or conversion of aircrafts

Refurbishment or re-manufacture of aircraft equipment, components or accessories or parts of aircrafts

Application or production of advanced materials (e.g. high strength composites)

Development and production of advanced electronics (e.g. communication equipment/avionics)

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Functions of MIDAFunctions of MIDA

Incentives forStrategic Projects

Incentives

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Functions of MIDAFunctions of MIDAIncentives

PS with tax exemption of 100% of statutory income for 10 years

ITA of 100% on qualifying capital expenditure incurred within 5 years

Projects/activities eligible

- Of national importance & heavy capital investment with long gestation period, involve high levels of technology and are integrated, generate extensive linkages, and have significant impact on the economy.

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Functions of MIDAFunctions of MIDA

Incentives to Strengthen Industrial Linkages

Incentives

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Functions of MIDAFunctions of MIDAIncentives

Vendors, including SMIs, can apply for: PS with tax exemption of 100% of statutory

income tax for 5 years ITA of 60% or 100% for 5 years – to offset against

100% of statutory income

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Incentives

Customised Incentives(Pre-Package)

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Incentives

Special package of incentives (pre-package/customised) which could cover both tax and non-tax incentives

The special package granted is negotiable, based on request of the company and the merits of each case

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Functions of MIDAFunctions of MIDA

Income Tax Act, 1967

Incentives

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Functions of MIDAFunctions of MIDA

Reinvestment Allowance Reinvestment Allowance (RA)(RA)

Incentives

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Functions of MIDAFunctions of MIDAIncentives

• 60% of qualifying capital expenditure of existing 60% of qualifying capital expenditure of existing companies which incur capital expenditure for companies which incur capital expenditure for the purpose of approved expansionthe purpose of approved expansion

• Given for a period of 15 consecutive years from Given for a period of 15 consecutive years from year reinvestment is first madeyear reinvestment is first made

• Offset against 70% / 100%* of statutory incomeOffset against 70% / 100%* of statutory income

* * Location in Eastern Corridor/Sabah/SarawakLocation in Eastern Corridor/Sabah/Sarawak

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Functions of MIDAFunctions of MIDA

Customs Act, 1967 & Sales Tax Act, 1972

Incentives

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Functions of MIDAFunctions of MIDA

Import Duty and Sales Tax Exemptions

Incentives

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Functions of MIDAFunctions of MIDAIncentives

(A) Aircraft & Aircraft Parts/Components Assembler/Manufacturer/Shipbuilding & Shiprepairing

(i) Exemption from import duty and sales tax on machinery/equipment/spare parts (PC1)

(ii) Exemption from import duty & sales tax on raw materials/components (PC2)

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Functions of MIDAFunctions of MIDAIncentives

(B) Maintenance, Repair & Overhaul (MRO) Activities

Blanket approval for import duty and sales tax exemption on raw materials, machinery, equipments, replacement parts and consumables for MRO companies

Subject to the condition that each import is attached with one of the ‘Certificated of parts and components issued by the original equipment manufacturer (OEM)’

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Functions of MIDAFunctions of MIDA

Industrial Master Plan 3

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IMP3

Objective: To achieve long-term global industrial

competitiveness through transformation and

innovation of manufacturing and services sector

Encompasses a 15 year period (2006 – 2020) Aims to improve & strengthen the country’s

global competitiveness across 3 economic pillars;• Manufacturing• Agriculture and agro-based industries• Services

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IMP 3

Strategic Thrusts:

• Strengthening Malaysia’s position as major global trading nation

• Generating investments in targeted growth areas

• Integrating Malaysian companies into regional and global networks

• Ensuring sustainable industrialisation, with consideration of environmental and regional balance

• Sustaining manufacturing sector’s significant contribution to economic growth

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IMP3

• Positioning services sector as major source of growth

• Facilitating development and application of technologies

• Developing innovative and creative human capital

• Strengthening role of private sector institutions

• Creating competitive business operating environment

Strategic Thrusts:

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