Common Mistakes in Reinvestment Allowance

Common Mistakes in Reinvestment Allowance

Reinvestment Allowance is a red flag to IRBM so Reinvestment Allowance is always scrutinized by our IRBM during tax audit/investigation.

What is reinvestment allowance?

Reinvestment allowance (RA), as the name suggests, is an incentive to encourage companies to reinvest and expand their businesses. It is only granted after the company has been in business for a certain period of time, and only to companies resident in Malaysia.

How good is reinvestment allowance?

The allowance is given for 15 years from the first year of claim. The allowance is computed at 60% of QCE incurred and can be utilised against 70% of statutory income

Latest development in reinvestment allowance

Budget 2021 has announced that a special Reinvestment Allowance (RA) will be given for eligible manufacturing and agricultural projects in Years of assessment (YA) 2020 to YA 2022.

This means that eligible companies that have fully utilized their 15-years RA can enjoy additional RA claims for 3 years (YA2020 to YA2022).

Common mistakes in claiming reinvestment allowance

  • The purchase invoice is the only supporting document available. The absence of a project paper, feasibility study, business plans, budgets, directors resolutions, and other relevant documents supporting the project;

  • Mismatch between the company incurring the investments and the company using the plant and machinery;

  • Claim RA on assets incurred for the benefits of related companies/directors.

  • Claim RA on non-qualifying activities.

  • Claim RA on the transfer of assets from related parties who have previously claimed RA on the same assets.

  • The absence of payment records to support the qualified assets.

  • Supporting documents are not kept for at least 7 years.

  • Clain RA concurrently with other tax incentives (like PS, ITA & etc).

  • No written/ pictorial production flow on the qualifying project

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