Pioneer status and investment tax allowance

This tax is specifically suitable for companies with large capital investment but cannot generate returns over a short time. No, as the exemption is based on income, not on capital expenditure incurred. Appendix A contains the CA rules for pioneer companies. Other observations The non-pioneer loss thus utilised against the SI of the pioneer company in respect of the pioneer business for a YA shall be disregarded for the purposes of sections 43 2 and 44 2 of the Act This means that any non-pioneer loss should first be set off against current year pioneer income and the amount of such loss thus utilised is no longer available for set off against current year non-pioneer income.

While reading this article, candidates are expected to refer to the relevant provisions of the Act and PIA, as amended. Section A2 c iiiivand v require candidates to be able to determine tax liabilities of companies, involving application of the following exemptions and reliefs:. Candidates must first study closely the source authority for these incentives — ie the relevant laws, and the respective IRB public rulings or guidelines, where available, to obtain a good general understanding. This article aims to augment that understanding through comparison, contrasting, and analysis. The production day is significant as it marks the commencement of the PS — ie the TRP subsists for exactly five years from the production day. Separate accounts must be kept for each pioneer business, distinct from the rest of the business activities. A pioneer company is deemed to have three periods in its lifecycle: pre-pioneer, pioneer and post-pioneer periods.

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While reading this article, candidates are expected to refer to the relevant provisions of the Act and PIA, as amended. Section A2 c iiiivand v require candidates to be able to determine tax liabilities of companies, involving application of the following exemptions and reliefs:.

Candidates must first study invetsment the source authority for these incentives — ie the relevant laws, and the respective IRB public rulings or guidelines, where available, to obtain a good general understanding.

This article aims to pioneer status and investment tax allowance that understanding through comparison, contrasting, pioneeg analysis. The production day is significant as it marks the commencement of the PS — ie the TRP subsists for exactly five years from the production day. Separate accounts must be kept for each pioneer business, distinct from the rest of the business activities. A pioneer company is deemed to have three periods in its lifecycle: pre-pioneer, pioneer and post-pioneer periods.

The pioneer business is deemed to have permanently ceased at the end of the TRP. A new stauts post-pioneer business is deemed to pioneer status and investment tax allowance commenced on the day following the end of the TRP.

This has implications for CA. Treatment of CA — pre-pioneer, pioneer, post pioneer CAs are compulsorily deducted from alllowance AI of a pioneer business — ie the income of pioneer company onvestment reduced by CAs notwithstanding that no claim for such allowances is.

Appendix A contains the CA rules for pioneer companies. As they are highly technical, illustration 1 below is provided to explain them:. The manufacturing business commenced on 1 November The ‘production day’ for PS purposes was ascertained to be 1 September ABC closes accounts annually to 31 December.

Computation and deduction of CAs — click. Illustration 2 below serves to illustrate the mechanism of exemption of pioneer income. In particular, note the following:. Illustration 2 Sample computations for a pioneer company. Computation of tax charged — click. ITA and PS are mutually exclusive. Also, once a promoted product has been granted ITA, the said promoted product cannot qualify for another round of ITA investmemt on after the five year TRP from the date on which the approval is agreed to take effect.

QCE and forecast income for the promoted product is expected to be as follows:. Computation and set-off of ITA — click. General RA is an incentive provided under the Act [Schedule 7A] to encourage reinvestment or continued investment by foreign and domestic investors, hence the rather long year Investjent.

RA shares similarities with ITA in its features and the incentive mechanism. If a company is of the view that it fulfils the stipulated requisites, it may claim RA in the relevant tax return. There is no requirement to apply for prior approval from pioner authority. In the past, there has been a high incidence of DGIR’s differing interpretation regarding:.

Many cases went to the courts for judicial determination. These cases were ;ioneer by laws being amended and public rulings issued to better reflect DGIR’s interpretation. The situation has now stabilised somewhat and the following features are now applicable:. Comparison and analysis Below is an analysis of the three incentive measures to help candidates in the selection of the appropriate incentive to optimise tax benefits.

Where the asset is used for the pioneer business and continues to be used for the post-pioneer business:. Where pre-pioneer CAs cannot be utilised or cannot be utilised in full, such unabsorbed CAs are set off against the income from the pioneer business. Where CAs cannot be fully utilised by stagus pioneer invvestment for the YA in the basis period immediately prior to the YA in the basis period in which the day of commencement of the post-pioneer business falls, such unabsorbed CAs shall be carried forward to be set off against the income of the post-pioneer business.

Rules on absorption of losses for a pioneer company The following rules are deduced by reading together s21A of PIA and sections 43 and 44 of the Act. The pioneer income of a pioneer company invesment reduced to the extent of any adjusted loss for the basis period for a YA in respect of a business relating to:. This means that current year non-pioneer loss should be utilised taz current year pioneer income. This refers to a non-pioneer business, but more significantly, it excludes the current year pre-pioneer loss — ie in the first YA in which TRP commences.

This means that the pre-pioneer loss for the YA in which TRP commences cannot be set-off against pioneer income. This loss is twx treated under the loss provisions in the Act, under s44 2 against aggregate income from non-pioneer sources, failing which it is to be carried forward and set off against non-pioneer business income under s43 2. Pioneer status, investment tax allowance, and reinvestment allowance. This article is relevant to section A2 c of the syllabus and study guide.

Section A2 c iiiivand v require candidates to be investmeng to determine tax liabilities of companies, involving application of the following exemptions and reliefs: iii Pioneer status, statuus Investment tax allowance, and v Reinvestment allowance. The incentive measures discussed in this article are:. Mode of incentive Incentive measure Full or partial exemption of statutory income Pioneer status Additional relief ihvestment qualifying capital expenditure Investment tax allowance Reinvestment allowance.

QCE was incurred as follows:. Based on the above, the three periods are: Pre-pioneer period: 1 November to 31 August Pioneer period: 1 September to 31 August Post-pioneer period: 1 September et seq Allowane basis periods are as follows:.

YA Computation of tax charged — click here Investment tax allowance General Like PS, ITA is an incentive measure available only for promoted products or promoted activities. Reinvestment allowance RA General RA is an incentive provided under the Act [Schedule 7A] to encourage reinvestment or continued investment by foreign and domestic investors, hence the rather long year TRP. In the past, there has been a high incidence of DGIR’s differing interpretation regarding: What constituted qualifying capital expenditure What staus of the ‘factory’ qualified, and What activities constituted ‘manufacturing’.

Plant and machinery only includes those used directly in the manufacturing activity. Stats assets used after the manufacturing process do not qualify for RA.

Must have ‘qualifying project’, as defined, for manufacturing or farming business TRP Five years from the production day Five years from pkoneer agreed effective date alllowance approval 15 consecutive years from the first claim of RA Capital intensive? Absorption is at SI, no balance ppioneer to form part of total income No. Appendix A CA rules for a pioneer company 1. Where a pre-pioneer asset is used in a pioneer business: the RE at the end of the basis period for the YA immediately prior to the YA in the basis period during which the An commences, is deemed to be the RE on the commencement of the pioneer business QCE incurred in the period in which the date of cessation of the pre-pioneer business falls, is deemed to be incurred on the day of commencement of the pioneer business.

Where the asset is used for the pioneer business and continues to be used for the post-pioneer business: the RE at investmetn end of the basis period from the YA immediately prior to the YA in the basis period in which the day of commencement of the post-pioneer business falls, is deemed to be the RE on the day of commencement of the post-pioneer business any QCE incurred during the basis period in which the date of cessation of pioneer business falls shall be deemed to be incurred on the day of commencement of the post-pioneer business.

Any unabsorbed pioneer CAs are carried forward to the following YA during the pioneer alpowance. Appendix B Rules on absorption of losses for a pioneer company The following rules are deduced by reading together s21A of PIA and sections 43 and 44 of the Act. Other observations The non-pioneer loss thus utilised against the SI of the pioneer company in respect of the pioneer business for a YA shall be disregarded for the purposes of sections 43 2 and 44 2 of the Act This means that any innvestment loss should first be set off against current year pioneer income and the amount of such loss thus utilised is no longer available for set off against current year non-pioneer income.

Related Links. Student Accountant hub. Need not be promoted product. Must have ‘qualifying incestment, as defined, for manufacturing or farming business. Must have substantial capital syatus, and must be incurred during the five year TRP.

Allowwnce prior approval from any authority is needed. But the claim is subject to DGIR’s scrutiny and interpretation. No, as the exemption is based on income, not on capital expenditure incurred. CAs alloowance compulsorily deducted. Special rules apply on eligibility and set-off of CAs. Unabsorbed RA may be carried forward to be set-off against SI of same business until fully absorbed.

Pioneer income after CAs and losses is exempt and credited to exempt account for distribution of exempt dividend. Amount of RA absorbed against SI is credited to exempt account for distribution of exempt dividend. PS is beneficial if substantial pioneer profits are generated early in the TRP.

ITA is beneficial for capital intensive projects. This refers to a non-pioneer business current year alloawnce This means that current year non-pioneer loss should be utilised against current year pioneer income.

This refers to a non-pioneer business, but more significantly, it excludes the current year pre-pioneer loss — ie in the first YA in which TRP commences This means that the pre-pioneer loss for the YA in which TRP commences cannot be set-off against pioneer income.

ITA is beneficial for capital intensive projects. Where the asset is used for the pioneer business and continues to be used for the post-pioneer business:. Illustration 2 below serves to illustrate the mechanism of exemption of pioneer income. Where CAs cannot be fully allownce by the pioneer business for the YA in pioneer status and investment tax allowance basis period immediately prior to the YA in the basis period in which the day of statsu of the post-pioneer business falls, such unabsorbed CAs shall be carried forward to be set off against the income of the post-pioneer business. This preview shows page 28 — 31 out of 32 pages. Appendix A contains the CA rules for pioneer companies. The manufacturing business commenced on 1 November Absorption is at SI, no balance goes to form part of total income No. PS is beneficial if substantial pioneer profits are generated early in the TRP. Any unabsorbed pioneer CAs are carried forward to the following YA during the pioneer period. According to the Income Tax Act Schedule 7A- Reinvestment Allowance Subject to this Schedule, where a company which is resident in Malaysia has been in operation for not less than investmenh months; and has incurred in the basis period for a year of assessment capital expenditure on a factory, plant or machinery used in Malaysia for the purposes of a qualifying project there shall be given to the company for that year of assessment a reinvestment allowance of an amount equal to sixty per cent of that expenditure:Provided that such expenditure shall not include capital expenditure incurred on plant or machinery which is provided wholly or partly for the use of a director, or an individual who is a member of the management, or administrative or clerical staff. Infestment an example, certain statuss are only available to private limited companies Sdn. Hidden categories: Shatus articles from August All orphaned articles Articles lacking sources from March All articles lacking sources Articles with multiple maintenance issues. General RA is investmwnt incentive provided under the Act [Schedule 7A] to encourage reinvestment or continued investment by foreign and domestic investors, hence the rather long year TRP. These cases were followed by laws being amended and public rulings issued to better reflect DGIR’s interpretation.