Tax incentive to cut taxpayers tax - reinvestment allowance Part 1

Tax incentive to cut taxpayers tax - reinvestment allowance Part 1

Tax incentive to cut taxpayers tax - reinvestment allowance Part 1

Reinvestment Allowance (RA) - Part 1

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).

Key takeaways:

  1. What is Reinvestment Allowance (RA)?

  2. Period of Eligibility

  3. Conditions of Eligibility

What is Reinvestment Allowance (RA) for manufacturing?

Reinvestment Allowance (RA) is an incentive for manufacturing companies to encourage reinvestment or continued investment by foreign and domestic investors. 

Period of Eligibility

The eligible company is entitled to claim RA for 15 continuous years.

Conditions of Eligibility 

Manufacturing company has to meet the following criteria to be eligible for this allowance:

  1. Operates in manufacturing business for at least 36 months.

  2. Definition of manufacturing for the purpose of RA as follows:-

              i.      Conversion of organic or inorganic materials into a new product;

             ii.      Assembly parts into pieces of machine or products; or

            iii.      Mixing of materials by chemical reaction processes

This means that activities such as installation of machinery or simple operations that does not requires special skills or equipment are not considered as manufacturing in the context RA.

3.     Company is a Malaysia resident (at least held one meeting of Board of Directors in Malaysia in the year).

  1. Company has incurred capital expenditure on a factory, plant or machinery used in Malaysia for the purposes of a qualifying project in the year of tax claim.

So what are the projects that are qualified for this allowance?

Stay tuned to next week e-KTP for Reinvestment Allowance Part 2

Source LHDN Public Ruling 10/20 Reinvestment Allowance : PR10/2020

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