(Tax Update) Can a landlord claim Industrial Building Allowance on his/her building?

Navigating the tax benefits associated with Industrial Buildings (IB) and the Industrial Building Allowance (IBA) in Malaysia can significantly impact your business’s financial planning.

This blog post, tailored for KTP’s clients with minimal tax knowledge, breaks down these concepts into understandable segments. Here, we reference the Public Ruling 8/2016, Public Ruling 8/2016 and Schedule 3 of the Income Tax Act 1967 which provides the guidelines on IBA.

Understanding Industrial Buildings (IB)

An industrial building in Malaysia includes properties used for manufacturing, processing, storage, or any other similar industrial purposes. These buildings are pivotal for businesses involved in production and operations, making them eligible for tax deductions through the IBA.

Here’s a more detailed list of the types of buildings that can qualify for IBA, as described in the public ruling o 3/2018, 8/2016 and Schedule 3 of the Income Tax Act 1967

Factories : Buildings used primarily for manufacturing or processing goods and materials. This includes all structures used in connection with manufacturing, such as storage facilities for raw materials and finished products if they are on the same site as the factory.
Warehouses : Specifically those used in connection with a qualifying industrial activity, such as storage of goods to be processed or manufactured.
Workshops : Buildings where goods are produced or repaired, as long as they are part of a larger industrial operation.
Buildings used for Research and Development : Buildings used specifically for industrial or scientific research related to the manufacturing process.
Buildings housing Industrial Power Generation : Includes buildings that house machinery used for generating power for industrial activity, as long as the power is used for operating the industrial facility.
Agricultural Buildings : Includes buildings used for the processing of agricultural produce, such as mills for processing rice or sugar.
Buildings used in Mining and Quarrying : Any building used directly in connection with mining operations or the processing of minerals.

Business Operator is the Owner of the Building

Commencing from the year of assessment 2016, the provision under subparagraph 16B(1), Schedule 3 of the ITA clarifies that a person who is eligible to claim IBA must be the owner and business operator of the above-mentioned types of industrial buildings.

A building owner who rents out his building to another person to carry on the business is not eligible to claim IBA on that building although the tenant uses it as an industrial building.

It is important to note that the tenant is eligible to claim IBA in respect of the capital expenditure incurred by him on alteration or renovations on the building that he uses as an industrial building.

What is Industrial Building Allowance (IBA)?

IBA is a tax relief mechanism designed to encourage the construction or purchase of industrial buildings. It allows businesses to deduct a percentage of the expenditure incurred on these buildings from their taxable income, effectively reducing the overall tax burden.

For detailed rate (initial and annual) allowance, you may refer to the Public Ruling 8/2016 Industrial Building Part 1.

Visit Us

Wisma KTP, 53 Jalan Molek 1/8, Taman Molek, 81100 Johor Bahru
Wisma THK, 41, Jalan Molek 1/8, Taman Molek, 81100 Johor Bahru

KTP (Audit, Tax, Advisory)

An approved audit firm and licensed tax firm operating under the KTP group based in Johor Bahru providing audit, tax planning, advisory and compliance services to clients

THK (Secretarial, Bookkeeping, Payroll, Advisory)

A licensed secretarial firm in Johor Bahru providing fast reliable incorporation, secretarial services, corporate compliance services, outsourcing bookkeeping, and payroll services to clients