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Malaysia Updates Public Rulings on the Reinvestment Allowance for Manufacturing and Agricultural Activities — Orbitax Tax News & Alerts

The Inland Revenue Board of Malaysia (IRBM) has published Public Ruling No. 10/2022 and Public Ruling No. 11/2022, which provide updated guidance on the reinvestment allowance (RA) for manufacturing activity and agricultural and integrated activities, respectively. The RA allows qualifying companies to claim an allowance in an amount equivalent to 60% of qualifying capital expenditure incurred in the basis period for a year of assessment, which may be deducted against up to 70% of statutory income per year.

Both public rulings include guidance on:

  • Projects that qualify for the RA;
  • Expenditures that qualify for the RA;
  • Period of eligibility;
  • Computation of the RA; and
  • Limitation of the maximum period to absorb RA balances.

Public Ruling No. 10/2022 on manufacturing activities replaces Public Ruling No. 10/2020. The main update concerns claims for additional RA for companies that have exhausted their eligibility period (generally 15 years). The update adds that a company can also claim additional RA under the PENJANA package (RA PENJANA) for the basis period YA 2020 to 2024 if it meets all the following conditions:

  • The company has incurred qualifying expenditure for manufacturing projects or agricultural activities as specified in Schedule 7A of the Income Tax Act;
  • The RA claim period for 15 consecutive years has ended; and/or
  • The three years of assessment for additional RA for the assessment years 2016 until 2018 has ended.

Public Ruling No. 11/2022 on agricultural and integrated activities replaces Public Ruling No. 11/2020. The main updates include the addition of new paragraphs 8 and 9 concerning the qualifying period and tax treatment, with the prior paragraphs renumbered accordingly. The new paragraphs clarify:

  • A company is entitled to claim RA for 15 consecutive years of assessment;
  • A company whose RA and Additional RA claims have ended on or before YA 2019 is entitled to make a RA claim under the PENJANA package (RA PENJANA);
  • An eligible company can claim RA for an amount equivalent to 60% of the capital expenditure incurred in the basis period for a year of assessment in relation to an agricultural project in Malaysia for the purposes of any qualifying project; and
  • RA is to be deducted against the statutory income of a business but is restricted to 70% of the statutory income.

Lastly, both Public Rulings contain new guidance regarding the carry forward of unabsorbed RA, including that Unabsorbed RA PENJANA balances must be calculated separately from unabsorbed RA balances. The unabsorbed RA PENJANA will be allowed to be carried forward for a maximum period of 7 consecutive YAs after the RA PENJANA qualifying period ends, which is in YA 2024. The calculation of the 7 years period for accumulated unabsorbed RA PENJANA begins from YA 2025. Any unabsorbed RA PENJANA at the end of YA 2031 will be disregarded.