Special Reinvestment Allowance 2020

Overview of Special Reinvestment Allowance 2020

Manufacturing and agricultural company are eligible for Reinvestment Allowance(RA) as long as the companies incurred qualifying costs for qualifying projects.

So what is “qualifying cost” and “qualifying project”?

Key takeaways:

You will understand: -

1. Qualifying projects

2. Qualifying costs

Summary of learnings:

A) Qualifying Projects:

Qualifying projects are Expansion, Modernization, Automation and, Diversification. Let me explain by simple illustration as below: -

1. Expansion - Increase of a production capacity

Illustration:

i) Company A increased production from 12,000 units to 20,000 units per month.

ii) Company B is a manufacturer of rubber gloves, which goes into the manufacturing of cotton gloves. [similar products but different materials]

2. Modernization - Upgrading of manufacturing equipment and processes

Illustration:

i) Company C acquire new machines to cut down the number of processes, production time, and manpower.

3. Automation - Change manual operation into mechanical operation

Illustration:

i) Company D invested in a robotic arm for packaging which was done manually previously.

4. Diversification - Produce additional or new related products relating to the same industry

Illustration:

i) Company B, a rubber gloves manufacturer goes into rubber shoes.

[same materials but different products]

B) What is the Qualifying Cost?

Capital investment incurred for the “qualifying activity” is eligible for reinvestment allowance.

Two types of Qualifying Cost:

i) Factory: New / Extension of factory

ii) Plant and Machinery: New machines use in the production (replacement are not allowed)

Exemptions

Capital cost incurred by the director, staff, or third-party usage is exempted.
Capital cost which is not incurred for production purpose
The company already enjoys other tax incentives. (Such as tax incentives from Promotion on Investment Act 1986, Investment Incentive Act 1968, Group relief or others)

Sources: - Reinvestment Allowances Part 1 – Manufacturing activity:

http://lampiran1.hasil.gov.my/pdf/pdfam/PR_10_2020.pdf

Stay tuned to our next ektp on “Requirements on documentations” and “Tax treatment” on Reinvestment allowance.

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