Introduction
Malaysia R&D double deduction is a tax incentive provided under the Income Tax Act 1967 (ITA) to encourage innovation. Companies conducting qualifying research and development (R&D) activities may claim either a single deduction or a double deduction for approved expenditures. These incentives reduce taxable income while supporting scientific and technological growth.
Types of R&D Deductions
Single Deduction – ITA Section 34(7)
- Applies to revenue expenditure incurred on qualifying R&D activities.
- Approval is not required, but records must be kept separately.
Double Deduction – ITA Section 34A
- Granted for approved in-house R&D activities.
- Excludes capital expenditure such as buildings, land, and machinery.
- Pioneer companies are not eligible under Section 34A.
Double Deduction – ITA Section 34B
- Applies to:
- Cash contribution to an approved research institute
- Payments for services from an approved research institute or company
- Payments to an R&D company or contract R&D company
- Excludes capital expenditure.
Qualifying R&D Expenditure
1. Raw Materials
- Directly used in R&D activities.
- Must exclude fixed assets.
- Includes moulds/dies with lifespan <1 year.
2. Manpower
- Only basic salary of research employees qualifies.
- Must apportion cost if employee works part-time on R&D.
- Excludes EPF, SOCSO, bonuses, medical fees, and benefits-in-kind.
3. Technical Services
- Consultancy, analytical services, testing, and evaluation.
- Payments overseas >30% of total R&D cost → not eligible for double deduction, but allowed as single deduction.
4. Travelling Costs
- Eligible: travel to R&D stations, exhibitions, vendor meetings.
- Allowance capped at RM400 per person.
- Course/seminar fees directly related to R&D are claimable.
5. Transportation Costs
- Transporting raw materials for R&D qualifies.
- Must apportion based on quantity used.
- Excludes fixed assets, postage, and non-R&D transport.
6. Maintenance Costs
- Directly related to R&D vehicles, machinery, and buildings.
- Excludes capital improvements, cars for consultants, and non-R&D plant.
7. Rental
- Vehicles, machinery, and buildings directly used for R&D.
- Apportionment required if shared use.
- Excludes rentals for administration, production, or personal use.
8. Other Expenditures
- Utilities (water, electricity), courier, stationery, lab costs.
- Excludes books, magazines, insurance, and taxes.
Tax Treatment of R&D Expenditures
According to Public Ruling 10/2021:
- If charged to Profit or Loss Statement → add back, then deduct twice the amount.
- If capitalised in the Balance Sheet → deduct twice the qualifying expenditure in tax computation.
- Pioneer companies → may only claim direct revenue expenditure under Section 34A(4).
Key Takeaways
- Single deduction → Section 34(7), revenue expenditure.
- Double deduction → Section 34A (in-house, approved), Section 34B (donation/service payments).
- Excludes capital expenditure.
- Strict record-keeping required.
- Overseas R&D expenditure limited to 30%.
- Pioneer companies have restrictions.
FAQ
Q1: What is the main difference between single and double deduction?
Single deduction applies to revenue expenditure without approval, while double deduction requires approval and provides a higher tax benefit.
Q2: Can pioneer companies claim double deduction?
No. Pioneer companies may only claim direct revenue expenditure under Section 34A(4).
Q3: Are capital expenditures eligible?
No. Land, buildings, plant, and permanent structures do not qualify.
Q4: Can overseas R&D services qualify for double deduction?
Only if ≤30% of total R&D cost. Otherwise, the expenditure qualifies for single deduction.
Q5: What records must be kept?
Companies must maintain separate accounts for each R&D activity, regardless of approval status.
For more details, you may refer to the link below:
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