Principal Hub – the hybrid model for economic gains

There are many companies involved in off-shoring activities and services.

These companies have deployed their business worldwide.

As these changes occur, Malaysian Investment Development Authority (MIDA) believes in stepping up its game by keeping abreast with the developments in the business landscape.

To this end, MIDA is fine tuning and innovating its policies and incentives to promote the manufacturing and services sectors in Malaysia.

The Principal Hub incentive is one of the latest measures by MIDA to enhance the business environment.

According to MIDA’s CEO, Datuk Azman Mahmud, MIDA is responsive towards global business changes and incentives are reviewed to ensure Malaysia’s competitive advantages are sustained in attracting investments.

The Principal Hub incentive, effectively implemented on May 1, replaces the existing International Procurement Centres (IPC), Regional Distribution Centres (RDC) and Operational Headquarters (OHQ) incentive schemes.

“It (the Principal Hub incentive) is a hybrid of all these (IPC, RDC and OHQ),” explains Azman.

The establishment of this incentive scheme complements the increasing trend of global off-shoring activities by encouraging foreign companies to leverage on Malaysia’s competitive position in Asean and the Asia Pacific.

“It complements the manufacturing sector because once you produce the goods, there are a lot of other things (that can be done and needs to be done).

The whole ecosystem needs to be in place in Malaysia, not only for managing the supply chain in Malaysia but in the region.

“It is also in-line with the objectives of Malaysia’s Economic Transformation Plan to encourage manufacturing activities to move up the value chain and undertake more value added activities in the services sector,” he adds.

MIDA is looking at encouraging Malaysian-owned and incorporated businesses to provide services related to the function of the headquarters and expertise to overseas companies.

It will also boost the growth of the services sector and position Malaysia as part of the integrated global supply chain in sectors where Malaysia has the comparative edge.

Aside from that, Malaysia offers a cost competitive location for investors intending to set up offshore operations for services and manufacturing activities, including in the areas of resource-based industries, high-technology industries, knowledge-based and advanced technology industries for regional and international markets.

For this scheme, the agency is targeting multinational companies (MNCs) and large local companies (manufacturing and services companies) that have regional or global presence and networking.

They are also looking at MNCs which have a manufacturing base in Malaysia or Asean that intend to move-up the value chain into services activities and with supply chain connectivity within the region.

Azman points out that through the incentive, there are a number of economic gains that can be achieved, such as high value job creation, transfer of knowledge and skill, making Malaysia the regional operation and trading hub, an increase in business spending and even high utilisation of the country as a logistics hub.

“If we do not create a conducive environment for multinational companies and Malaysian-companies to take advantage of the economic growth and business opportunities in various countries, then we will be left behind.

“We have to be innovative in our policies and strategies to attract investments so that Malaysia will be strongly integrated into the region as well as other (markets),” says Azman.

This is where the Principal Hub incentive scheme will play a big role.

It allows MNCs and local companies to enjoy the benefits of customs duty exemptions in free industrial zones, licensed manufacturing warehouses, and free commercial zones.

Aside from that, companies can take advantage of relaxed equity ownership guidelines and MNCs can hire expatriates based on their business requirements.

Form a tax perspective, Principal Hub companies are placed in a 3-tier tax scheme based on their level value of creation.

Under this scheme, they pay tax rates of 0% up to 10% over a 5-year period that may be extended.

However, these are all subjected to the number of skilled jobs created and annual business spending of the company.

Each tier differs in terms of the number of countries served. As a company moves from Tier-3 to Tier-1, it must serve an increasing number of countries, from three countries up to five. And this is excluding Malaysia.

Aside from some of the above, in order for companies to qualify for this scheme, it must possess a paid-up capital of more than RM2.5 million and for companies that involve in trade in goods activities minimum annual sales of RM300 million is required throughout the incentive period.

The companies must carry out at least three qualifying services, of which one of the services must be in the strategic services cluster.

Strategic services include brand management, corporate finance advisory services, IP management and strategic business planning and corporate development.

For those who are interested in the incentive, further details can be found on MIDA’s website under the link for forms and guidelines on the new incentives under 2015 budget.

All applications received by MIDA from Maya 1, 2015 until April 30, 2018 are eligible to be considered for the Principal Hub incentive.

Source : The Edge Malaysia