On 24 January 2024, the Inland Revenue Board of Malaysia published Public Ruling No. 1/2024, Investment Tax Allowance – Promoted Product Under The Manufacturing Sector. This public ruling outlines specific guidance related to the manufacturing sector, complementing the previous guidance outlined in the Public Ruling No. 4/2023, Investment Tax Allowance – Overview.

Objective

This Public Ruling (PR) provides an explanation regarding the investment tax allowance that can be applied for by a company which participates or intends to participate in a business in the manufacturing sector in relation to the production of a promoted product that is listed in Malaysia, reinvestment in particular industries and selected industries, as well as for high technology companies and small-scale companies. Explanations in this PR do not cover the production of promoted products under the provisions of sections 4A, 4B, and 4E of the Promotion of Investments Act 1986 (PIA).

Introduction

Companies in the manufacturing sector that participate or intend to participate in producing a promoted product in Malaysia may apply to the Minister to enjoy investment tax allowance. Investment tax allowance is a tax incentive given in the form of a tax deduction (allowance) on the qualifying expenditure (QE) incurred by a manufacturing company in the basis period for a YA for the purpose of producing a promoted product. Typically, the company will spend a substantial amount of capital in preparation for the production/manufacturing of such promoted products. Accordingly, the greater the capital expenditure incurred, the greater the amount of investment tax allowance that the company can claim, subject to the conditions set for each category of approved investment tax allowance.

Promoted product under the manufacturing sector

The Minister, with the concurrence in writing of the Minister of Finance, will determine the promoted products from time to time for the purpose of the investment tax allowance incentive. The list of promoted products under the manufacturing sector has been published through the gazetting of several subsidiary legislatives. Products that have national and strategic importance can also be determined on a case-by-case basis as promoted products.

Investment tax allowance

Application and approval of the investment tax allowance

Any manufacturing company that participates in or intend to participate in Malaysia in the production of promoted products may submit a written application to obtain investment tax allowance approval from the Minister, with the concurrence in writing of the Minister of Finance. An investment tax allowance approval letter is issued to a successful applicant, stating the terms and conditions that the company must comply with throughout the incentive period.

Terms and conditions of approval of the investment tax allowance 

The investment tax allowance approved by the Minister is subject to terms and conditions, including the condition to keep a separate account, with the concurrence in writing of the Minister of Finance. These terms and conditions are stated in the approval letter for investment tax allowance, and the company must abide by the terms and conditions throughout the incentive period. The claim for investment tax allowance can only be made after a confirmation letter of compliance with the terms and conditions of investment tax allowance approval has been issued by Malaysian Investment Development Authority (MIDA).

On 10 November 2023, the Inland Revenue Board of Malaysia (IRBM) issued Public Ruling No. 4/2023, providing guidance on the investment tax allowance for companies involved or planning to engage in business activities related to promoted activities or the production of promoted products in Malaysia.