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Guidelines on automation capital allowance for the services sector
In Budget 2020, to enhance productivity and efficiency in the labour-intensive industries, it was proposed that the existing automation capital allowance (ACA) incentive be expanded to the services sector (see Special Tax Alert: Highlights of Budget 2020). The incentive will apply to applications received by the Malaysian Investment Development Authority (MIDA) from 1 January 2020 to 31 December 2021.
Following the above proposal, MIDA has recently issued the guidelines and procedures, dated 1 January 2020, for the application of ACA by existing companies in the services sector.
The guidelines stipulate that ACA of 200% will be given on the first RM2 million incurred on the purchase of machinery and equipment for business purposes, from the year of assessment (YA) 2020 until YA 2023. This incentive is mutually exclusive from other incentives, including pioneer status or investment tax allowance under the Promotion of Investments Act 1986 and income tax exemptions under the Income Tax Act 1967 (ITA). The approval for this incentive will be provided under Sections 127(3)(b) and 154(1)(b) of the ITA.
To qualify for the incentive, the following conditions must be adhered to:
(i) The company must be a Malaysian-resident company which is incorporated under the Companies Act 2016.
(ii) The company is engaged in service activities and has incurred expenditure on machinery, equipment or software that fulfils the criteria as outlined in the Appendix to this Alert.
(iii) The automation machinery, equipment or software is used directly in the process of carrying out the services and adopts technology that is more advanced in improving the delivery of the services.
(iv) The machinery, equipment or software must be used for at least one month after installation, for the purpose of technical verification by SIRIM. The assets should not be disposed of within five years.
(v) The company has been in operation for at least 36 months.
(vi) The company possesses a valid business license from the local authority.
(vii) The company possesses a permit, license, registration, accreditation, certificate, approval letter, or supporting letter from the relevant Ministry, Agency or Regulator (whichever applicable).
(viii) Applications for the incentive should be received by MIDA between 1 January 2020 and 31 December 2023.
The guidelines also explain the application process, the documents which are to be furnished in support of the application, and the procedures for the application.
In addition to the guidelines, further details are available on the MIDA website [Forms & Guidelines - MIDA | Malaysian Investment Development Authority > Services Sector > M) Automation Capital Allowance] as outlined below:
(a) ACA application form for the services sector
(b) Process workflow for the ACA application
(c) Process workflow for the SIRIM verification
(d) SIRIM verification of machine or equipment for ACA
(e) SIRIM contact details for verification process
APPENDIX
Eligibility of machinery, equipment or software to qualify for the ACA incentive
|
Eligible |
Not eligible |
|---|---|
|
The machinery and equipment or software embedded in the machinery and equipment is eligible for the incentive subject to the following criteria:
(a) Reduction in number of workers or operators involved in its operations, or |
- Office suites
|