(Tax Update) Reinvestment Allowance Public Ruling

(Tax Update) Reinvestment Allowance Public Ruling

The Reinvestment Allowance (RA) offers a significant tax incentive for Malaysian companies committed to reinvesting in qualifying projects related to agricultural, manufacturing, and integrated activities.

This guide simplifies the complex aspects of RA and explains how businesses can capitalize on this opportunity to reduce their tax liabilities.

Objectives of RA

Our primary goal is to ensure that businesses are well-informed about the benefits of RA and the conditions under which they can claim this allowance.

This is particularly pertinent for companies planning substantial reinvestment into their operational capabilities.

Eligibility Criteria of RA

Company status

Taxpayer must be a resident company in Malaysia.

Operational duration

Must have been in operation for at least 36 months.

Project types

Investment must be directed towards expansion, modernization, or automation of existing business operations within the same industry, or diversification into related products within the same industry.

Qualifying Expenditures

Capital expenditure

Costs associated with the acquisition of new machinery, upgrading existing facilities, diversification or expanding production capacity are eligible.

Specific activities

For agricultural businesses, eligible expenses might include land preparation, crop planting, and installation of irrigation systems.

Financial Advantage:

Tax deduction

RA allows for a claim of 60% of qualifying capital expenditure incurred during the year, which can be deducted against the statutory income of the business.

Limitation

The amount of RA claimed is restricted to 70% of the statutory income from the business for the year.

Tax Implications:

By reducing taxable income, RA not only decreases the immediate tax burden but also improves cash flow, enabling further investment in business growth and innovation. This fosters a cycle of reinvestment and development, enhancing long-term business viability and competitiveness.

How to Claim

Documentation

Companies need to include RA claims in their annual tax returns using the specific forms provided by the Inland Revenue Board of Malaysia (IRBM).

Compliance

It is essential to retain all documents related to RA claims as these may be required for audit purposes.

Latest Development RA

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).

Conclusion

The RA provides a tangible incentive for businesses to reinvest in enhancing their operational capacities. By understanding and utilizing this tax incentive, companies can significantly benefit from reduced tax liabilities while strategically positioning themselves for future growth.

Source

Public Ruling 10/2022 Reinvestment Allowance Part 1 - Manufacturing Activity
Public Ruling 11/2022 Reinvestment Allowance Part 2 - Agricultural and Integrated Activity

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