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This article is relevant for candidates preparing for the P6 (MYS), Advanced Taxation exam and is based on prevailing laws as at 31 March 2016. The article is written to provide an overview of the health tourism industry in Malaysia and the government’s effort in promoting this growing industry. 

My first exposure to health tourism dated way back 30 years ago when one of my relatives had to undergo a heart surgery and coming from a small town in Sarawak, Malaysia, she decided to have the surgery performed in Singapore. It is possible to have the procedure done locally, but this would mean a long waiting time in a public hospital and at that point in time, there was no private hospital in Sarawak. Not a cheap option, the family had to spend the entire life savings in exchange for a new lease of life for her. If the above situation happens now, her options would be very different. Equipped with the latest technology, there are many private hospitals which today can perform such a procedure in Malaysia. The waiting period is also much shorter compared to almost three decades ago.  In addition, with the rapid growth of private healthcare facilities in the country, Malaysia has now become one of the chosen destinations for foreigners to seek medical treatment. 

Health Tourism – the process

Typically, the process involved in health tourism begins with the individual who intends to seek medical treatment abroad contacting a health tourism provider. The provider usually requires the patient to provide information such as medical reports, nature of ailment, local doctor’s opinion, and diagnosis. Subsequently, a certified medical practitioner will advise on the appropriate medical treatment, discuss the likely cost involved, choice of hospitals and destinations as well as duration of stay.

After signing consent bonds and agreements, the patient is given recommendation letters for a medical visa, to be procured from the relevant embassy after which the patient travels to the destination country where a medical tourism provider assigns an executive to arrange for the patient’s accommodation, treatment and any other form of care. 

A less elaborate type of health tourism would involve individuals signing up for a wellness package which may involve the tourist coming to Malaysia for a relaxing holiday with alternative traditional preventive treatments incorporated such as health massages, herbal treatments, etc. In addition, another form of health tourism would be a tour package which incorporates a comprehensive medical examination. In addition to taking the tourist for sightseeing tour, the tour operator would allocate a day in its itinerary where the tourist would be brought to a medical centre to undergo a medical check-up.

The growing industry

The rapid growth in health tourism industry is due to a combination of factors:

  • Increase in the number of ageing global population with chronic diseases
  • Global disparity in cost for the provision of healthcare services
  • Increasing waiting time at home hospitals
  • The rise in improved service quality for healthcare services provided in developing countries
  • Medical labour market fluidity


From the global trend, we see that the Western countries in Europe and USA are a major source of health tourists whilst countries in Asia and Latin America have increasingly becoming the major beneficiaries of health tourism. 

Malaysia’s share of the global health travel market is still very small. Recognising this as an important sector, health tourism has also been identified as one of the key areas under the National Key Economic Areas (NKEA) as an engine of growth for the country.

Incentivising the industry

In promoting the health tourism industry, fiscal incentives offered by the Government can play a part.  Currently, the Government has already provided various tax incentives for the health tourism industry, discussed below:

Further deduction for promotion of export of services
Where healthcare service providers are incurring expenditure for the promotion of exports for the healthcare services, the company would be eligible to enjoy a further deduction benefit. What this means is that for every RM1 spent, businesses would be eligible to claim a tax deduction equivalent to RM2.

Expenses for the purpose of export of services which will be eligible for the further deduction include:

  • market research
  • cost of preparing technical information
  • travel fares to a country outside Malaysia undertaken for the promotion of export of services, subject to a maximum of RM300 per day for accommodation and a maximum of RM150 per day for sustenance
  • expenses for the cost of maintaining sales offices overseas
  • publicity and advertisement in any media outside Malaysia
  • participation in a trade or industrial exhibition in Malaysia or overseas which is approved by Malaysia External Trade Development Corporation (MATRADE)
  • participation in exhibitions held in a Malaysian Permanent Trade and Exhibition Centre overseas which is approved by MATRADE.


Example 1
Antioxidant Hospital Sdn Bhd (AHSB) operates a private hospital in Penang, Malaysia. Since 2010, it has a sales office in Jakarta, Indonesia to promote its wellness and medical examination packages in the Indonesian market. For the current financial year, the company has incurred the following expenses:

 RM 
Office rental100,000 
Staff costs200,000 
Office overheads
60,000 
Advertisement of wellness packages
     - Indonesia
     - Malaysia


80,000
50,000
 
 490,000 


Based on the above, the expenses that would qualify for further deduction are as follows:

 RM 
Office rental100,000 
Staff costs200,000 
Office overheads
60,000 
Advertisement of wellness packages
     - Indonesia
     - Malaysia *


80,000
Nil
 
Amount eligible for further deduction440,000 


* Advertising in Malaysia is not eligible for a further deduction.

Double deduction for expenses incurred in obtaining recognised accreditation
In order to give confidence to foreign patients coming to Malaysia seeking medical treatments, it is important that the Malaysian facilities must achieve certain quality standards.

In order to encourage Malaysian providers to obtain accreditation of their facilities, a double deduction benefit is given for expenses incurred by a private hospital in obtaining domestic or internationally recognised accreditation such as from the Malaysian Society for Quality in Health (MSQH) or the Joint Commission International (JCI).  

The double deduction will normally be given in the basis period when the certification is obtained by the private hospital.

Example 2
AHSB, which makes up its accounts to 31 December annually, made an application for the MSQH certification in the financial year ended 31 December 2015. The cost incurred to prepare and submit the application is RM120,000. The amount has been charged as an expense against the Statement of Profit or Loss of the company. The certificate was issued on 13 February 2016.

For the year of assessment 2015, the cost incurred to obtain MSQH certification is not allowed as a tax deduction as such expenditure is regarded as capital expenditure. The company was not entitled to a double deduction because the certification has not been obtained. Therefore, AHSB should disallow the expenses of RM120,000 in preparing its tax computation for the year of assessment 2015. As AHSB subsequently obtained the certification in year of assessment 2016, AHSB will be eligible for the double deduction claim. In the tax computation for the year of assessment 2016, AHSB will be entitled to deduct RM240,000 to arrive at the adjusted income of the company.

Tax exemption on the value of increased exports
Under the Income Tax (Exemption) (No. 9) 2002 (2002 Order), companies that export services are given exemption on their statutory income equivalent of 50 per cent of the value of the increased exports in the provision of private healthcare to foreign clients in and from Malaysia but to a limit of 70 per cent of the statutory income. For the purpose of this incentive, ‘foreign clients’ include:

  • non-Malaysian citizen coming to Malaysia to seek treatment
  • non-Malaysian citizen that participates in Malaysia My Second Home Programme and his dependants
  • non-Malaysian citizen holding a Malaysian student pass and his dependants
  • non-Malaysian citizen holding a Malaysian work permit and his dependants, or
  • Malaysian citizen who is a non-resident living abroad and his dependants.


Any unutilised allowance can be carried forward to subsequent years until fully utilised.

Example 3
Probiotics Medical Centre Sdn Bhd (PMC), having a paid up ordinary share capital of RM5 million, operates a private medical facility in Johor, Malaysia. For the year of assessment 2016, the company has statutory income from its medical facility of RM500,000. The analysis of its health tourism revenue is as follows:

 Year of assessment 2015
RM
Year of assessment 2016
RM
 
Foreign patients referred by foreign hospitals200,000500,000 

Patients from Japan taking medical check-ups during their tours in Malaysia

50,000400,000 

One Indonesian patient who has Malaysian citizenship

60,00050,000 

Foreign tourists, seeking medical treatment in the hospital’s accident and emergency unit

20,000

100,000 
 330,0001,050,000 


Based on the above, PMC will be eligible to claim tax exemption on the value of increased exports of RM365,000 calculated as follows:

 Year of assessment 2015
RM
Year of assessment 2016
RM
 
Foreign patients referred by foreign hospitals200,000500,000 

Patients from Japan taking medical check-ups during their tours in Malaysia

50,000400,000 

One Indonesian patient who has Malaysian citizenship *

NilNil 

Foreign tourists, seeking medical treatment in the hospital’s accident and emergency unit

20,000

100,000 
 270,0001,000,000 
Increase in value of exports (RM1,000,000 – RM270,000) 730,000 
Amount of exemption (50%) 365,000 


* As the Indonesian patient has obtained Malaysian citizenship, the individual cannot be regarded as a foreign client for the purpose of this incentive.

The tax position of PMC for the year of assessment 2016 would be as follows:

 RMRM 
Statutory income 500,000 
Less: Tax exemption on the value of increased exports365,000  
Restricted to 70% (350,000)(350,000) 
Amount available for carry forward
15,000

_______
 
Chargeable income 150,000 
Tax liability @ 24% 36,000 


Tax exemption for hospitals registered with the Malaysia Healthcare Tourism Council (MHTC)
To ensure that the promotion of the country’s health tourism is coordinated, the Government has established the Malaysia Healthcare Tourism Council (MHTC). The Council was established to facilitate the strategic development of Malaysia’s healthcare travel industry and to raise the country’s profile as a globally preferred destination for world class healthcare services.

Private healthcare service providers who intend to participate in health tourism can register with MHTC whereby various efforts would be undertaken by MHTC to promote these facilities in the international markets.

In order to encourage private healthcare service providers to invest in state-of-the-art technologies, companies that establish new private healthcare facilities or existing private healthcare facilities undertaking expansion, modernisation or refurbishment for the purposes of promoting healthcare travel are eligible to apply for Income Tax Exemption equivalent to Investment Tax Allowance (ITA) of 100% on the qualifying capital expenditure incurred within a period of five years.

The allowance can be offset against 100% of the statutory income for each year of assessment. Any unutilised allowance can be carried forward to subsequent years until fully utilised. For the purposes of this article, this incentive is referred as the MHTC incentive.

In order to qualify for the tax incentive, the following conditions must be met:

  • The company must be incorporated in Malaysia
  • The facility must be approved and licensed by the Ministry of Health
  • The facility must be registered with MHTC as a healthcare facility for the promotion of healthcare travel
  • For each year of assessment the healthcare travellers should form at least 5% of its total patients and at least 5% of its gross income should be generated from healthcare travellers.


Healthcare travellers are defined as:

  • A non-Malaysian citizen who participates in the Malaysia My Second Home Programme
  • An expatriate who is a non-Malaysian citizen holding a Malaysian work permit and his dependents, or
  • A non-Malaysian citizen who visits and receives treatment from private healthcare facilities in Malaysia.


In order to avail of the incentive, the company must submit an application to the Malaysian Investment Development Authority (MIDA) which must be made no later than 31 December 2017. For a new facility, the application must be submitted prior to the commencement of the hospital business and in the case of expansion, modernisation or refurbishment of an existing facility, the application must be submitted before the first qualifying capital expenditure is incurred.

A company is eligible for the tax incentive once only.

The eligible capital expenditure includes building, plant and machinery, medical devices or other facilities in accordance with criteria as set out by the Ministry of Finance and used for the purpose of the qualifying project and shall be verified by the Ministry of Health.

Example 4
Wellness Hospital Sdn Bhd (WHSB), which makes up its accounts to 31 December annually, has established a new hospital facility in Sarawak, Malaysia. The company was given approval for the MHTC incentive by MIDA on 1 February 2015. The hospital building costing RM5 million was constructed on land owned by the company worth RM1 million. The qualifying medical plant and machinery (incurred on 13 May 2016) was RM1,500,000, of which only RM1,300,000 was verified by the Ministry of Health.

Based on the above, qualifying capital expenditure eligible for the MHTC incentive would be as follows:

 RM 
Land costNot eligible 
Building cost5,000,000 
Plant and machinery
(certified amount)
1,300,000 
Qualifying capital expenditure eligible for MHTC incentive6,300,000 


The commencement of the tax relief period is to be determined by MIDA based on the first qualifying capital expenditure incurred by the company. Where the qualifying capital expenditure is incurred prior to the commencement of the business, for the purpose of the incentive claim, the expenditure will be deemed to be incurred when the business commences. However, it should be noted that this would not impact the commencement of the tax relief period.

Example 5
Following from Example 4, the first qualifying expenditure incurred by the company has been determined by MIDA as 1 June 2015 and the hospital commenced its business on 18 July 2016.

The tax relief period for WHSB would be from 1 June 2015 to 31 May 2020. This is notwithstanding that the hospital business would only commence from 18 July 2016. As the expenditure has been incurred prior to the commencement of the hospital business, for the purpose of the incentive claim, the amount is deemed to be incurred when the business commenced – ie 18 July 2016 – and therefore, WHSB can only effect the MHTC incentive claim in the year of assessment 2016.

Example 6
Following from Example 4, WHSB intends to construct two additional hospital facilities in Sabah, Malaysia and Pahang, Malaysia. The construction of both facilities would likely commence from January 2019 with expected completion in December 2020. WHSB will register the Sabah facility with MHTC as the facility is expected to have at least twenty per cent of its patients and revenue from health travellers. The Pahang facility will mainly serve local patients.

In relation to the Sabah facility, as the facility will only complete in December 2020, it would have fallen outside the MHTC tax relief period which ends on 31 May 2020. Whilst the Sabah facility can be regarded as an expansion project, it is not possible for WHSB to apply for another round of tax incentives as the MHTC incentive is only given to a company once. Therefore, as a planning point, consideration may be given for WHSB to undertake the Sabah facility under a separate company.

For the Pahang facility, as the facility is not registered with MHTC, it would not be eligible for the tax incentive. In this respect, where WHSB continues to undertake the Pahang facility, it would need to keep separate accounts between the Sarawak and Pahang facilities as the MHTC incentive can only be utilised against the income derived from the Sarawak facility (being an approved MHTC facility). 

Written by a member of the P6 examining team

Last updated: 12 Oct 2016