Pioneer status is one of the tax incentives granted under the Promotion of Investments Act 1986, providing tax exemption on part or all of a statutory income for companies participating in promoted activities or producing promoted products. In this article, we will provide an introduction to Pioneer Status incentives, outlining their benefits and detailing the eligibility criteria required to qualify for these incentives. 

What is Pioneer Status?  

There are several tax incentives available under the Promotion of Investments Act 1986. Among these, the most frequently used incentives for manufacturing and services companies are Pioneer Status and Investment Tax Allowance. The Pioneer Status incentive is a profit-based incentive, particularly beneficial for companies expecting to generate substantial profits in the coming years.

A company engaged in promoted activities or producing promoted products can apply to the Malaysian Investment Development Authority (MIDA) to benefit from the Pioneer Status incentive. Once approval has been granted, the company must apply to the Minister for a pioneer status certificate within 24 months, or within an extended period allowed. The pioneer certificate will certify the company’s status as a ‘pioneer company’, and it will also state the ‘production day’ from which the tax relief will start.

Mechanism of Pioneer Status 

The tax relief period for a pioneer company is 5 years starting from the production day stated in the pioneer certificate. An extension could be granted for the next 5 years, subject to conditions. During this period, part or all of the statutory income of the pioneer business will be exempt from tax.    

The amount of exemption granted under pioneer status is 70% of a company’s statutory income. The maximum amount of exemption that can be granted under pioneer status is 100% of a company’s statutory income, subject to conditions. If a company is granted a 70% exemption, the balance 30% of statutory income will be deemed as total income and chargeable to tax at the prevailing corporate tax rate. Therefore, it will not form part of the company’s aggregate income, and as a result, cannot used to offset any business loss from non-pioneer activities or any approved donations.  

If the business of the promoted activity or promoted product of the pioneer company is carried out before or after the tax relief period, the business of such company shall be classified into three different categories – (i) pre-pioneer business; (ii) pioneer business; and (iii) post-pioneer business. It is crucial for companies to understand the tax treatments for the above categories. 

When a company with pioneer status incurs losses during the pioneer period, these losses are classified as pioneer losses. Any unabsorbed losses and capital allowances at the end of the pioneer period can be carried forward to the post-pioneer period.  

However, effective from YA 2019, any unabsorbed pioneer losses after the end of the tax relief period will only be allowed to be carried forward for a maximum period of 7 consecutive YAs. The 7 consecutive YAs will start immediately after the basis period of the YA in which the tax exemption period ends. Any unabsorbed pioneer losses after the 7 consecutive YAs will be disregarded.