Capital allowance (tax depreciation) on industrial buildings, plant, and machinery is available at prescribed rates for all types of businesses. Initial allowance is granted in the year the expenditure is incurred and the asset is in use for the purpose of the business. Annual allowance at the prescribed rates calculated on cost is given for every year during which the asset is in use at the end of the basis year for the purposes of the business. The following are examples of capital allowance rates currently available:
||Initial allowance (%)
||Annual allowance (%)
|Industrial building, whether constructed or purchased
|General plant and machinery
|Furniture and fixtures
|Small value assets of less than MYR 1,300 (subject to a maximum total cost of MYR 13,000)
* Restrictions apply on maximum qualifying capital expenditure.
Accelerated capital allowance is available for certain types of industrial building, plant, and machinery, some of which includes buildings used as a warehouse, buildings used as a school or an educational institution, computers, information technology equipment, environmental protection equipment, waste recycling equipment, and plant and machinery used in specific industries.
Cost of acquisition of goodwill/amortisation of goodwill is not deductible, as these expenses are capital in nature.
In general, start-up expenses incurred before the commencement of a trade, profession, or business are capital in nature, as they were expended to put the person in a position to earn income. However, there are specific deductions allowed, such as incorporation expenses and recruitment expenses (conditions apply).
Interest expense is allowed as a deduction if the expense was incurred on any money borrowed and employed in the production of gross income or laid out on assets used or held for the production of gross income. Where a borrowing is partly used to finance non-business operations, the proportion of interest expense will be allowed against the non-business income.
Debts must be specifically identified and reasonably estimated to be irrecoverable to qualify for a tax deduction.
Donations to charitable institutions
A deduction is allowed for cash donations to approved institutions (defined) made in the basis period for a year of assessment. The deduction is limited to 10% of the aggregate income of that company for a year of assessment.
Fines and penalties
Fines and penalties are generally not deductible.
Taxes on income are generally not deductible, whereas indirect taxes are deductible.
Net operating losses
The carryforward of business losses and capital allowances is not available for deduction in subsequent years of assessment if the company does not meet the conditions of a shareholders’ continuity test. However, per policy issued by the Ministry of Finance, these conditions currently apply only to dormant companies. Carryforward of business losses and capital allowances is unlimited in time for non-dormant companies. However, with effect from year of assessment 2019, unutilised losses in a year of assessment can only be carried forward for a maximum period of 7 consecutive years of assessment. Accumulated unutilised losses brought forward from year of assessment 2018 can be utilised for another 7 years of assessment and will be disregarded in year of assessment 2026.
Current-year business losses may be utilised against all sources of income. Utilisation of carried-forward losses is restricted to income from business sources only. Utilisation of capital allowance is also restricted to income from the same underlying business source.
Currently, there are no provisions to carry back losses to prior years of assessment.
Payments to foreign affiliates
A Malaysian company can claim a deduction for royalties, management service fees, and interest charges paid to foreign affiliates, provided that these are made at arm’s length and the relevant WHTs, where applicable, have been paid.