1 Incentives for the Aerospace, Shipbuilding & Shiprepairing Industries in Malaysia _____________________________ Malaysian Industrial Development Authority

2  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)

3 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

4 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

5 Functions of MIDA STATUS OF INDUSTRIES

6 Background of Aerospace Industry Functions of MIDA Background 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

7 Functions of MIDA Current Status COMPANIES IN PRODUCTION : (Licenced/non-licenced companies)  Parts/Components Manufacturing - 7  Repair/Overhaul/Maintenance Activities – 28

8 Functions of MIDA Aerostructure 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

9 Functions of MIDA Status 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.

10 Functions of MIDA Status (cont…) MAJOR SHIPYARDS MALAYSIA MARINE AND HEAVY ENGINEERING (MMHE) BOUSTEAD NAVAL SHIPYARD SABAH SHIPYARD RAMUNIAN SHIPYARD SASACOM SHIPYARD MUHIBBAH MARINE ENGINEERING

11 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

12  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…)

13 Expatriate posts Automatic approval to employ any number of expatriates required: Policies (cont…) CompaniesNo.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

14 INCENTIVES

15 Functions of MIDA Incentives The major incentives are provided under: 1)Promotion of Investments Act (PIA), )Income Tax Act, )Customs Act, 1967 / Sales Tax Act, 1972

16 Functions of MIDA Promotion of Investments Act (PIA), 1986 Incentives

17 Functions of MIDA General Incentives

18 Functions of MIDA Incentives  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

19 Functions of MIDA Incentives Criteria For Granting Pioneer Status / ITA Promoted product/activity Value added – at least 25% Managerial, Technical and Supervisory Index -At least 15%

20 Functions of MIDA Incentives 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

21 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

22 Functions of MIDA Incentives for High Technology Companies Incentives

23 Functions of MIDA Incentives  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.

24 Functions of MIDA Incentives 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%

25 Functions of MIDA Incentives 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)

26 Functions of MIDA Incentives for Strategic Projects Incentives

27 Functions of MIDA Incentives  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.

28 Functions of MIDA Incentives to Strengthen Industrial Linkages Incentives

29 Functions of MIDA Incentives 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

30 Incentives Customised Incentives (Pre-Package)

31 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

32 Functions of MIDA Income Tax Act, 1967 Incentives

33 Functions of MIDA Reinvestment Allowance (RA) Incentives

34 Functions of MIDA Incentives 60% of qualifying capital expenditure of existing companies which incur capital expenditure for the purpose of approved expansion60% of qualifying capital expenditure of existing companies which incur capital expenditure for the purpose of approved expansion Given for a period of 15 consecutive years from year reinvestment is first madeGiven for a period of 15 consecutive years from year reinvestment is first made Offset against 70% / 100%* of statutory incomeOffset against 70% / 100%* of statutory income * Location in Eastern Corridor/Sabah/Sarawak * Location in Eastern Corridor/Sabah/Sarawak

35 Functions of MIDA Customs Act, 1967 & Sales Tax Act, 1972 Incentives

36 Functions of MIDA Import Duty and Sales Tax Exemptions Incentives

37 Functions of MIDA Incentives (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)

38 Functions of MIDA Incentives (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)’

39 Functions of MIDA Industrial Master Plan 3

40 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

41 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

42 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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