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Additional Incentives for the Manufacturing Sector


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Reinvestment Allowance

Generally, Reinvestment Allowance (RA) is given to companies engaged in manufacturing*, and selected agricultural activities that reinvest for the purposes of expansion, automation, modernisation or diversification of its existing business into any related products within the same industry on condition that such companies have been in operation for at least 12 months. This condition has been revised to at least 36 months, effective from the year of assessment 2009.

The RA is given at the rate of 60% on the qualifying capital expenditure incurred by the company, and can be offset against 70% of its statutory income for the year of assessment. Any unutilised allowance can be carried forward to subsequent years until fully utilised.

A company can offset the RA against 100% of its statutory income for the year of assessment if:

1 The company undertakes reinvestment projects in the promoted areas (i.e. Pahang included the designated “Eastern Corridor”); or
2 The company attains a productivity level exceeding the level determined by the Ministry of Finance.

Note: For further details on the prescribed productivity level for each sub-sector, contact the Inland Revenue Board (IRB).

The RA will be given for a period of 15 consecutive years beginning from the year the first reinvestment is made. Companies can only claim the RA upon the completion of the qualifying project, i.e. after the building is completed or when the plant/machinery is put to operational use. With effect from the year of assessment 2009, company purchasing an asset from a related company within the same group where RAQ has been claimed on that asset is not allowed to claim RA on the same asset.

Assets acquired from the reinvestment cannot be disposed off within a period of 2 years from the time of the reinvestment and with effect from the year of assessment 2009 this provision is extended to 5 years.

Companies that intend to reinvest before the expiry of its tax relief period, can surrender their Pioneer Status or Pioneer Certificate for purpose of cancellation and be eligible for RA.

Applications for RA should be submitted to the Inland Revenue Board (IRB), while applications for the surrender of Pioneer Status or Pioneer Certificate for RA should be submitted to the Malaysian Investment Development Authority (MIDA)


Accelerated Capital Allowance

After the 15-year period of eligibility for RA, companies that reinvest in the manufacture of promoted products are eligible to apply for Accelerated Capital Allowance (ACA). The ACA provides a special allowance, where the capital expenditure is written off within 3 years, i.e. an initial allowance of 40% and an annual allowance of 20%.

Applications should be submitted to the Inland Revenue Board (IRB), accompanied by a letter from Malaysian Investment Development Authority (MIDA) certifying that the companies are manufacturing promoted products.

SMEs are eligible for the following incentives:

1 ACA on expenses incurred on plant and machinery acquired in the year of assessment 2009 and 2010. This allowance is to be claimed within 1 year that is in the year of assessment the asset is fully acquired. This incentive is effective for the year of assessment 2009 and 2010; and
2 SMEs are not subject to the minimum limit of RM10,000 for capital allowance on small value assets. This incentive is effective from the year of assessment 2009. 
 
Applications for ACA should be submitted to the Inland Revenue Board (IRB).


Accelerated Capital Allowance on Equipment to Maintain Quality of Power Supply

In order to reduce the cost of doing business caused by interruptions in the power supply, companies which incur capital expenditure on equipment to ensure the quality of power supply are eligible for Accelerated Capital Allowance (ACA) for a period of 2 years which allows the companies to write off the capital expenditure within 2 years, i.e. an initial allowance of 20% and an annual allowance of 80%.

Only equipment determined by the Ministry of Finance is eligible for the ACA.

Applications should be submitted to the Inland Revenue Board (IRB).


Tax Exemption on the Value of Increased Exports

In order to promote exports, manufacturing companies in Malaysia qualify for:
 
1 A tax exemption on statutory income equivalent to 10% of the value of increased exports, provided that the goods exported attain at least 30% value-added; or
2 A tax exemption on statutory income equivalent to 15% of the value of increased exports, provided that the goods exported attain at least 50% value-added. 

And to further encourage the export of Malaysian goods, a locally-owned manufacturing company with Malaysian equity of at least 60% is eligible for:
 
1 A tax exemption on statutory income equivalent to 30% of the value of increased exports, provided the company achieves a significant increase in exports;
2 A tax exemption on statutory income equivalent to 50% of the value of increased exports, provided the company succeeds in penetrating new markets;
3 A full tax exemption on the value of increased exports, provided the company achieves the highest increase in export in its category.

Claims should be submitted to the Inland Revenue Board (IRB).


Double Deductions for Expenses to Obtain Halal Certification and Quality Systems and Standards Certifications

In order to enhance the competitiveness of Malaysian companies in the global market for halal products including halal food, double deduction will be given for the purpose of income tax computation to companies which incur expenses in obtaining:
 
A Quality system standards certification as well as halal certification from JAKIM
B International quality systems and standards certification

Claims should be submitted to the Inland Revenue Board (IRB).
1 A tax exemption on statutory income equivalent to 10% of the value of increased exports, provided that the goods exported attain at least 30% value-added; or
2 A tax exemption on statutory income equivalent to 15% of the value of increased exports, provided that the goods exported attain at least 50% value-added. 
 


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