Unlocking Tax Incentives for Approved Food Production Projects

Did you know that you could be eligible for tax incentives of up to 100% of your statutory income for a maximum of 10 years by participating in an approved food production project? This article provides an overview of the approved projects, qualifying criteria, and the application process to help you navigate this beneficial opportunity.

Approved Food Production Project
The project in relation to an approved food production projects are as follows:

1. Planting of kenaf, industrial crop, vegetables, fruits, herbs, spices, or cash crop;
2. Aquaculture;
3. Rearing of cows, buffaloes, goats, sheep, or deer;
4. Deep sea fishing;
5. Apiculture (rearing of honey or urena lobata bees);
6. Planting of feed mill cultivated in a project which has been identified by the Ministry of Agriculture and Food Security (MAFS) and approved by the Minister of Finance (Minister);
7. High seas fishing; or
8. Planting of seeds for agrofood.

Who are qualified for this incentive
The incentives are applicable to:

1. A qualified person participating or intending to participate in an approved food production project; and
2. A company that has made an investment in its related company undertaking an approved new food production project.

A qualified person refers to a person who undertakes an approved food production project as follows:

1. A company incorporated under the Companies Act 2016;
2. An-agro based co-operative society;
3. An Area Farmers' Association;
4. A Federal Farmers' Association;
5. A State Farmers' Association;
6. An Area Fishermen's Association;
7. A Federal Fishermen's Association;
8. A State Fishermen's Association; and
9. Sole proprietorship, partnership or association solely engaged in agriculture or fishery for the approved project.

The application for tax incentive for an approved food production project shall be made and submitted to MAFS.

Application is Applicable for New or Expansion Project
A person participating or intending to participate in an approved food production project shall apply for the incentive of a new project or an expansion project of food production in which:

1. An application is submitted to MAFS for that qualifying project within a specified period;
2. The project has not commenced on the date the application is received by the MAFS; and
3. The project commences within one (1) year from the date of approval given by the MAFS.

Categories of Approved Food Production Project
(a) New project
Description
A new food production project is the first project carried out by a qualified person for the purpose of undertaking an approved food production project, and the new project is approved by the Minister.

Exemption
Tax exemption of 100% for a period of ten (10) consecutive years of assessment (YA) in respect of the statutory income, commencing from the first YA in which the qualified person derived the statutory income in relation to the approved project.

(b) Expansion project
An expansion project is a project which is carried out by a qualified person for the purpose of expanding his/her existing approved food production project, where the expansion project:

1. Has not granted a tax exemption;
2. Involves a new area of land (refers to land other than those involved in the planting activity, poultry rearing, and aquaculture (pond)); and
3. Is approved by the Minister

Exemption
Tax exemption of 100% for a period of five (5) consecutive YAs in respect of the statutory income commencing from the first YA in which the qualified person derived the statutory income from the existingprojects and the expansion projects. That first YA shall not be earlier than the YA in respect of the basis period in which the date of approval by the Misnister falls.

Note
The person who has been granted approval must ensure that all the conditions specified in the approval letter have been met before the tax exemption can be enjoyed or put into effect.

Capital Allowances
The statutory income of a new or an expansion project in the basis period for each of the exempted YA is to be determined after deducting capital allowances under Schedule 3 notwithstanding that no claim for such allowances has been made.

Adjusted Losses
Any amount of adjusted loss incurred in the YA immediately prior to the commencement of the exemption period and within the period of exemption, may be carried forward and be deducted from the statutory income of the project after the exemption period has ended until it is fully absorbed.

The loss must be fully absorbed from statutory income in respect of the same business activity.

Separate Accounts
The qualified person which is exempted from payment of the income tax for a new food production project shall maintain a separate account for the approved project from the income derived from the other projects.
 

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Investor Company

Tax Treatment

1. Investor company that made investment in related companies shall be allowed a deduction in the basis period for a YA an amount equivalent to the value of investment for the sole purpose of financing the new approved food production project.
2. The value of investment claimed as a deduction in ascertaining the adjusted income for the investor company:
   • Shall be equivalent to the expenditure incurred by the related company in the basis period for the same YA;
   • Shall be made for a period and up to an amount as approved by the Minister through the MAFS;
   • Shall not be disposed of within five (5) years from the date of the last investment made if such investment is in the form of holding of paid-up share capital in respect of ordinary shares; and
   • The applications to make additional investments shall be submitted to the MAFS with justification and only eligible to apply before the tax exemption period regarding the approved food production projects begins.
3. The tax deduction can only be claimed by a company for a period of three (3) consecutive YAs commencing from the YA the application is approved by the Minister.
4. Where the company has made an investment in the form of holding of paid up ordinary share capital and claimed a deduction in respect of that investment receives an amount as consideration for the disposal of shares, the amount received by that company as consideration for the disposal of such shares shall be added in ascertaining its adjusted income in the basis period for the YA in which that amount was received. And the amount addded back or brought to tax shall not exceed the total deduction allowed in relation to that investment.

Eligible Investor Company
Company eligible to claim for deduction as follow:

1. A company incorporated under the Companies Act 2016;
2. Resident in Malaysia and at least sixty percent (60%) of its paid-up share capital in respect of ordinary shares are directly owned by Malsyaian citizens;
3. Made an investment in a related company that undetakes an approved new food production project;
4. Holds at least seventy percent (70%) of its paid-up share capital in respect of ordinary shares in a related company;
5. Made an application for an approved food production project to the MAFS within a specified period;
6. Made an investment in the form of cash or holding of paid-up share capital in respect of ordinary shares in a related company and must be of reasonable amount compared to the size of the project; and
7. Investing in an approved food production project involving capital expenditure and working capital.

Cessation of Deduction
The deduction by investor company shall not be allowed in the basis period for a YA in whcih the related company derived its first statutory income from the approved food production project.

In accordance with Public Ruling No. 5/2023 issued by Lembaga Hasil Dalam Negeri on 20 November 2023.