This Public Ruling issued by the Inland Revenue Board of Malaysia (IRBM) provides guidance on the investment tax allowance available to companies participating in manufacturing promoted products in Malaysia.
It covers the ITA for promoted products under the general list, high technology companies, small scale companies, selected industries, and for reinvestment.
The ruling explains the qualifications, application process, rates, and tax treatment of the ITA.
Key Content:
Companies manufacturing promoted products can apply to the Minister of International Trade and Industry for ITA
ITA is a tax deduction on qualifying capital expenditure (QE) incurred for manufacturing the promoted product
The Minister determines the list of promoted products eligible for ITA from time to time
Approved ITA specifies the allowance rate on QE, exempt statutory income rate, and incentive period
ITA rates range from 60-100% of QE and can be used to offset 70-100% of statutory income from the business of the promoted product
Unutilized ITA can be carried forward until fully utilized
QE includes factory, plant and machinery costs for the promoted product but excludes buildings used as living accommodation
Separate accounts must be kept as per approval conditions
To apply for an investment tax allowance for reinvestment, a manufacturing company interested in or intending to participate in the production of promoted products in Malaysia must submit a written application to obtain approval from the Minister, with the concurrence in writing of the Minister of Finance.
Upon successful application, an investment tax allowance approval letter is issued to the applicant, outlining the terms and conditions that the company must adhere to throughout the incentive period. Further details on the application and approval process can be found in Public Ruling No. 4/2023, titled "Investment Tax Allowance – Overview," available on the official portal of the Inland Revenue Board of Malaysia at www.hasil.gov.my.
The tax treatment for companies producing promoted products in the manufacturing sector and high technology companies, as outlined in the PR, involves the provision of an investment tax allowance.
However, there is a specific distinction regarding the eligibility and scope of the incentive, particularly for high technology companies.
For companies in the manufacturing sector producing promoted products, the investment tax allowance is a tax incentive given in the form of a tax deduction on the qualifying expenditure incurred by a manufacturing company for the purpose of producing a promoted product.
This allowance is aimed at encouraging investment in the manufacturing sector by allowing companies to claim a deduction based on their capital expenditure related to the production of promoted products.
High technology companies, on the other hand, are eligible to apply for this investment tax allowance if they are involved in promoted activities or in the production of promoted products in the field of emerging and new technologies.
However, it is important to note that royalties and other income derived from intellectual property rights cannot be included in the incentive scope of investment tax allowance for high technology companies.
This exclusion is in compliance with the requirements of the Forum on Harmful Tax Practices (FHTP) and is a measure adopted to fulfill Malaysia's commitment as an associate member of the Base Erosion and Profit Shifting (BEPS) under the Organisation for Economic Co-operation and Development (OECD).
In summary, while both sectors can benefit from the investment tax allowance, high technology companies face specific restrictions regarding the inclusion of income from intellectual property rights in the incentive scope, reflecting a nuanced approach to tax treatment based on the nature of the company's activities and the strategic objectives of the tax policy.
Conclusion:
The ITA provides a significant tax incentive for companies manufacturing promoted products in Malaysia.
Companies can get an allowance of up to 100% of qualifying capital expenditure to offset up to 100% of statutory income from the promoted product business.
Unutilized allowance can be carried forward, providing a substantial tax benefit over multiple years. Companies need to review the promoted product lists, apply to the Minister, obtain approval, and comply with conditions to benefit from this incentive.
Reference:-