Introduction
The investment tax allowance in Malaysia (ITA) is a major incentive provided under the Promotion of Investments Act (PIA) 1986. It is granted to companies undertaking promoted activities or products (PAPP) in sectors such as manufacturing, agriculture, tourism, and research & development.
Approved by the Malaysian Investment Development Authority (MIDA), the ITA provides additional tax relief based on qualifying capital expenditure (QCE) incurred during a defined tax relief period (TRP).
What is Investment Tax Allowance (ITA)?
The ITA encourages capital investment by allowing a 60% allowance on QCE incurred over a five-year tax relief period.
A company can apply for ITA or Pioneer Status (PS) for different PAPPs, but not both for the same project.
However, ITA cannot be claimed during the same basis period if the company also enjoys:
- Reinvestment Allowance (RA)
- Export income exemption
- Other overlapping PIA 1986 incentives
How Investment Tax Allowance Works
- Application: Submit to MIDA for approval.
- Approval Basis: Usually granted when QCE is first incurred.
- Tax Relief Period (TRP): Starts from the date of MIDA approval and lasts 5 years.
- Backdated approval possible (up to 3 years before application).
- Ownership: The company must own the qualifying assets.
👉 Claiming ITA does not affect Schedule 3 allowances such as capital allowance or industrial building allowance on the same asset.
Qualifying Capital Expenditure (QCE)
1. Manufacturing
Includes expenditure on:
- Factory buildings
- R&D buildings
- Plant and machinery (excluding office equipment)
2. Agriculture
Includes expenditure on:
- Land clearing and crop planting
- Irrigation, drainage, and access roads
- Staff accommodation buildings
- R&D buildings
- Agricultural plant and machinery
3. Hotel Business
Includes expenditure on:
- Construction, alteration, or renovation of hotel buildings
- Plant and machinery used in hotel operations
4. Tourism Projects
Includes expenditure on:
- Land clearing, landscaping, and infrastructure
- Construction of facilities or exhibits
- Buildings, plant, and machinery for tourism use
❌ Exclusion:
Assets used by directors or administrative staff do not qualify as QCE.
Computation of ITA
| Item | Description |
| Rate | 60% of QCE incurred during TRP |
| Deduction Limit | Offset against up to 70% of statutory income (SI) |
| Unutilized ITA | Carried forward indefinitely until fully utilized |
| Tax-Exempt Income | Portion deducted represents exempt income for that YA |
| Dividend Distribution | Two-tier exempt dividends allowed if company is tax resident |
Formula:
ITA Available = (Current Year ITA + Brought Forward ITA)
Deduction = 70% of SI of the promoted business
Withdrawal of Investment Tax Allowance
If a qualified asset is disposed of within 5 years from acquisition, the ITA is withdrawn unless disposal is due to natural disaster.
An asset is deemed disposed when:
- Sold, transferred, or assigned
- Ceased to be used (classified as “asset held for sale”)
- Alienated, regardless of related or unrelated parties
Tax Implications
- ITA Claimed: Added back to statutory income in the year of disposal
- Unutilized ITA: Cannot be carried forward after disposal
Key Takeaways
- ITA offers 60% allowance on qualifying capital expenditure.
- Applies to manufacturing, agriculture, hotel, and tourism sectors.
- Relief period is 5 years, with indefinite carry-forward for unutilized ITA.
- Asset disposal within 5 years triggers ITA withdrawal.
- MIDA approval and ownership of QCE are essential.
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If you need professional tax advisory services regarding the Malaysia Income Tax Act 1967, our team is ready to assist you. Contact us here to discuss how we can support your business.
