Introduction
Malaysia R&D incentives are designed to encourage companies to invest in research and development activities. Under the Income Tax Act 1967, businesses can benefit from Industrial Building Allowance (IBA) and Capital Allowances (CA) for qualifying R&D expenditure. These incentives reduce taxable income while supporting innovation and growth.
Types of R&D Incentives in Malaysia
Industrial Building Allowance (IBA)
- Applies to capital expenditure on constructing or purchasing a building used for R&D.
- Includes alteration or renovation of rented premises for R&D purposes.
- Must qualify as building expenditure under the Income Tax Act 1967.
Capital Allowances (CA)
- Granted on plant and machinery used for approved R&D activities.
- Capital expenditure must be incurred on assets directly supporting R&D.
- Approval from the Minister is required under Section 34A ITA.
Eligibility and Conditions
- R&D activities must meet the definition under Section 2 ITA.
- Expenditure must be directly related to R&D, not general operations.
- Capital nature costs (land, permanent structures) are excluded.
Malaysia R&D Incentives: IBA vs Capital Allowances
| Category | Industrial Building Allowance (IBA) | Capital Allowances (CA) |
|---|---|---|
| Scope | Buildings used for R&D purposes | Plant & machinery used for R&D purposes |
| Expenditure | • Construction/purchase of R&D building • Alteration/renovation of rented premises for R&D |
• Purchase of machinery/equipment for R&D • Capital expenditure approved under s.34A ITA |
| Approval Required | No pre-approval required if qualifying expenditure | Must be approved by the Minister under s.34A ITA |
| Deduction Type | Industrial Building Allowance (annual allowance until cost is written off) |
Capital Allowance (initial allowance + annual allowance) |
| Exclusions | Buildings not used directly for R&D | Machinery not related to R&D, personal/administrative use |
Key Takeaways
- Malaysia R&D incentives cover Industrial Building Allowance (IBA) and Capital Allowances (CA).
- IBA applies to R&D-related buildings or renovations.
- CA applies to plant and machinery used for R&D with ministerial approval.
- Both incentives reduce taxable income and promote innovation.
FAQ
Q1: What is the main difference between IBA and CA for R&D?
A1: IBA applies to buildings used for R&D, while CA applies to machinery and equipment for R&D.
Q2: Can rented premises qualify for IBA?
A2: Yes, if capital expenditure is incurred for alteration or renovation for R&D purposes.
Q3: Does every R&D expenditure qualify for CA?
A3: No. Only capital expenditure on plant and machinery directly used for R&D, approved under Section 34A ITA.
Q4: Are land and permanent structures included?
A4: No. Land and permanent structures are excluded from both IBA and CA.
Q5: How can companies apply for these incentives?
A5: Companies must maintain detailed records of R&D expenditure and comply with the Income Tax Act. Approval from the Minister may be required for CA claims.
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