Green Technology Financing And Tax Incentives
In alignment with the commitment to achieve sustainable development goals, Government of Malaysia (Government) has been introducing economic devices to stimulate investment from the private sector in the country’s green technology innovation.
The Green Technology Financing Scheme has been introduced to bolster the Sustainable and Responsible Investment (SRI) in Malaysia by, among others, supplying a fund to finance the issuance of SRI Sukuk and green bonds.
On the other hand, tax incentives are granted through Green Investment Tax Allowances for the acquisition of green technology assets or undertaking of green technology projects, and Green Income Tax Exemption for green technology service provider companies. Nevertheless, these tax incentives would be mutually exclusive.
This alert seeks to briefly discuss the green technology financing and tax incentives.
Green Technology Financing Scheme[1]
Green Technology Financing Scheme may seem analogous to conventional financing schemes in the sense that they would be paid back throughout the tenure period along with interest, it puts emphasis on environmentally sustainable economic activity. Companies that are interested in developing green technology projects are eligible to become applicants for green project certification. Successful applicant can then apply for financing at any participating financing institution. The Government will bear 2% of the total interest or profit charged by the financing institution and guarantee 60% of the total approved loan.
Green Investment Tax Allowance (GITA) Assets[2]
For Green Investment Tax Allowance Assets, the companies that have incurred qualifying capital expenditure in green technology assets are eligible to become applicants. The green technology assets must be owned by a company, which is approved by the Ministry of Finance, verified by Malaysian Green Technology and Climate Change Corporation (MGTC), and listed under the MyHIJAU Directory. Furthermore, green technology assets must be used in a business carried out by a company in Malaysia and for its own consumption.
The rate of the incentive is 100% of qualifying capital expenditure incurred from 25th October 2013 until 31st December 2023 on approved green technology assets. Allowance can be offset against 70% of statutory income in the year of assessment. MGTC will deal with the submission of applicants, technical verification, and annual verification throughout the incentive period.
Green Investment Tax Allowance (GITA) Projects[3]
For Green Investment Tax Allowance Projects, companies that undertake a qualifying green technology project are eligible to become applicants. The main assets must be owned by a company recognised and registered under MyHIJAU Mark or product certification that is accepted by MGTC.Applications must also be submitted to the Malaysian Investment Development Authority (MIDA) before the first qualifying capital expenditure incurred, and the projects must obtain a Conditional Approval letter from MIDA.
The rate of the incentive is 100% of qualifying capital expenditure incurred on approved green technology assets. Allowance can be offset against 70% of statutory income in the year of assessment. The incentive is for a 3-year period, starting from the date of the first qualifying capital expenditure incurred after the application is received by MIDA between 1st January 2020 and 31st December 2023. While MIDA handles the submission of applications, MGTC will deal with the technical and annual verification.
Green Income Tax Exemption (GITE) Services[4],
For Green Income Tax Exemption Services, companies that provide green technology services are eligible to become applicants. Services must be verified by MGTC and listed under the MYHIJAU Directory. Companies must employ at least 5 full-time employees in Malaysia, with at least 2 competent personnel having a certificate of competency in green technology. Furthermore, companies must also have a green policy and Standard Operating Procedure ensuring the quality of services. 100% of income must be derived from green technology services. In addition to that, companies must undertake at least 3 qualifying activities, which can include audit, engineering procurement, consultancy, advisory, system design, testing, commissioning, installation, maintenance, repair, overhaul, funding, certification and verification.
The rate of the incentive is the tax exemption of 70% of the statutory income derived from providing the qualifying green services. The period of incentive is 3 years starting from the issuance of the first invoice relating to green technology services after the application is received by MIDA between 1st January 2020 to 31st December 2023. While MIDA handles the submissions of applications, MGTC will deal with the technical and annual verification.
Green Investment Tax Allowance (GITA) Solar Leasing Services[5]
For Green Investment Tax Allowance Solar Leasing Services, companies qualified in undertaking solar leasing activities are eligible to become applicants. Companies must have been verified by the Sustainable Energy Development Authority (SEDA) and listed under the Registered Solar PV Investor (RPVI) Directory. Furthermore, companies must employ at least 5 full-time employees in Malaysia, with at least 2 competent personnel having a certificate of competency in green technology. In addition to that, at least 60% of the equity of the company must be held by Malaysians. The income qualifying for exemption must be derived from sales of electricity or leasing activities.
The rate of the incentive is a tax exemption of 70% on statutory income for solar leasing activity for a period up to 10 years of assessment, commencing from the date of first invoice issued by RPVI to lessee as verified by SEDA. This date shall not be earlier than the date of application made to MIDA.Incentives will be given based on tiers, with the first being a period of 5 years between 3MW to 10MW, and the second being a period of 10 years between 10MW to 30MW. While the submission of the application is made to MIDA, the technical and annual verification is handled by SEDA.
Recent developments[6]
To encourage the adoption of green technology in Malaysia, the government is proposing to enhance existing funding programmes and tax incentives through the Budget 2023.
It is proposed that the period to apply for GITA and GITE be extended to 31st December 2025, and the tax allowance and exemptions be extended from three years to five years.
Apart from that, the government is also improving GTFS by increasing the guaranteed value from RM 2 billion to RM 3 billion, expanding the scope of the guarantee to the electric vehicle (EV) sector with a guarantee limit of up to 60%. The application date for the scheme will be extended from end of this year to 2025.
Financing guarantees for the waste management sector will also be increased to up to 80% under the GTFS.
To further reduce carbon emissions in Malaysia, the Budget 2023 extended the exemptions on import and excise duties on completely built-up EVs until 31st December 2024, and exemptions on approved permit fees for the import of EVs until 31st December 2023. EV charger manufacturers will enjoy 100% tax exemptions on their statutory incomes, and 100% Investment Tax Allowance, from the year of assessment 2023 until the year of assessment 2032.
Conclusion
With the cognizance to develop sustainability frameworks are on the rise, more businesses are budging towards responsible investments. Green financing and tax incentives have been a great opportunity for the companies to utilise and benefit from to build a greener corporate profile. Such a profile would make a company stand out from the rest and give an edge in developing better rapport with its stakeholders. We encourage businesses to be a part of the growth of green economy and take advantage of these economic devices.
Authored by Jay Kam Jia Yang, a Pupil with the firm’s Corporate practice.
24 March 2023