Additional Incentives for the Manufacturing Sector
i. Reinvestment Allowance
Reinvestment Allowance (RA) is available for existing companies engaged in manufacturing and selected agricultural activities that reinvest for the purposes of expansion, automation, modernisation or diversification into any related products within the same industry on condition that such companies have been in operation for at least 36 months.
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 maximum period of seven consecutive years of assessments and the period commences immediately after the end of fifteen year. A company can offset the RA against 100% of its statutory income for the year of assessment if the company attains a productivity level exceeding the level determined by the Ministry of Finance. For further details on the prescribed productivity level for each sub-sector, please contact the Inland Revenue Board.
The RA will be given for a period of fifteen 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 RA has been claimed on that asset is not allowed to claim RA on the same asset.
Assets acquired for the reinvestment cannot be disposed within a period of five years from the time of the reinvestment effective from the Year of Assessment 2009.
Companies that intend to reinvest before the expiry of its tax relief period, can surrender their Pioneer Status or Pioneer Certificate for the purpose of cancellation and be eligible for RA.
Applications for RA should be submitted to IRB while applications for the surrender of Pioneer Status or Pioneer Certificate for RA should be submitted to MIDA.
ii. Accelerated Capital Allowance
a) Reinvestment for promoted activities or products
After the fifteen 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 three years, i.e. an initial allowance of 40% and an annual allowance of 20%.
Applications should be submitted to the IRB accompanied by a letter from MIDA certifying that the companies are manufacturing promoted activities or products.
b) Waste Recycling
Effective from the Year of Assessment 2001, a manufacturing company which has incurred on Qualifying Expenditure for the purpose of its business may claim ACA on the plant and machinery which are:-
• Used exclusively or otherwise for the recycling of wastes, or
• Used for the further processing of the wastes into a finished products.
Applications for ACA should be submitted to IRB
iii. Incentive for Industrial Building System
Industrial Building System (IBS) will enhance the quality of construction, create a safer and cleaner working environment as well as reduce the dependence on foreign workers. Companies which incur expenses on the purchase of moulds used in the production of IBS components are eligible for Accelerated Capital Allowances (ACA) with effect from year of assessment 2006 at rate of 40% for Initial Allowance and 20% for Annual Allowance.
Applications should be submitted to IRB.
iv. Group Relief
Group relief is provided under the Income Tax Act 1967 to all locally incorporated resident companies. Effective from year 2019, a company that qualifies for group relief may surrender a maximum of 70% of its adjusted losses to be offset against the income of another company within the same group for three consecutive years of assessment. The following conditions must be met by both the claimant and surrendering companies:
a) The claimant and the surrendering companies each has paid-up capital of ordinary shares exceeding MYR 2.5 million at the beginning of the basis period;
b) Both the claimant and the surrendering companies must have the same accounting period.
c) The shareholding, whether direct or indirect of the claimant and the surrendering companies in the group must not be less than 70%;
d) The 70% shareholding must be on a continuous basis during the preceding year and the relevant year;
e) Losses resulting from the acquisition of proprietary rights or foreign-owned companies should be disregarded for the purpose of group relief;
f) Companies currently enjoying the following incentives are not eligible for group relief:
- Pioneer Status
- Investment Tax Allowances/ Investment Allowance
- Reinvestment Allowance
- Exemption of shipping profits
- Exemption of Income Tax under Section 127 of the Income Tax Act 1967
Claims should be submitted to IRB
v. Automation Capital Allowance (Automation CA)
Manufacturing company (labour and non-labour intensive industry) operating at least 36 months in Malaysia is eligible for
Category 1: High labour intensive industries (rubber products, plastics, wood, furniture and textiles)
i. Automation Capital Allowance of 200% on the first RM4 million expenditure incurred within five (5) year of assessment from 2015 to 2020; and
Category 2: Other industries
ii. Automation Capital Allowance of 200% will be provided on the first RM2 million expenditure incurred within five (5) year of assessment from 2015 to 2020.
Applications should be submitted to MIDA.