Malaysia Depreciation

Initial and Annual Allowances: Malaysia's Two-Part System

Malaysia's capital allowance framework under the Income Tax Act 1967 divides deductions into two components for qualifying plant expenditure (QPE). The initial allowance is a one-time deduction of 20% of asset cost in the year of acquisition, regardless of when during the year the asset is purchased. The annual allowance then applies to the remaining 80% at rates ranging from 10% to 40% depending on asset type. Office furniture and fixtures attract a 10% annual allowance (reaching full write-off in nine years including the initial allowance year). General machinery is depreciated at 20% per year, while computers and ICT equipment qualify for a 40% annual allowance, achieving full write-off in three years. LHDN (Lembaga Hasil Dalam Negeri) requires that the asset be owned by the taxpayer and used in its business. Assets under hire-purchase arrangements qualify as the hirer is treated as owner from the date of agreement — operating leases do not qualify in the lessee's hands.

Accelerated Capital Allowances for ICT and Green Assets

Malaysia regularly grants accelerated write-off through annual Finance Acts for strategic sectors. ICT equipment and software benefit from an accelerated structure: 20% initial allowance plus 80% annual allowance, enabling full write-off within two years. Green technology assets qualifying under the Green Technology Tax Incentive — solar photovoltaic systems, energy storage, and certified energy-efficient equipment — may receive 100% capital allowance in the year of acquisition. Companies approved under the Investment Tax Allowance (ITA) regime can claim 60% of qualifying capital expenditure as an ITA offset against 70% of statutory income, on top of normal capital allowances, effectively subsidising large-scale investment in promoted industries. Qualifying manufacturing companies in promoted sectors can achieve near-zero effective tax rates in early operation years through Pioneer Status tax holidays followed by ITA periods.

Industrial Building Allowances

Buildings used for industrial purposes qualify for a separate industrial building allowance (IBA) under Schedule 3 of the Income Tax Act. A standard factory building qualifies for a 10% initial allowance and a 3% annual allowance, writing off the total cost over approximately 30 years. Purpose-built hotels qualify at higher rates. Approved child care centres, hospitals, and buildings for specific promoted activities may attract accelerated IBAs at the Minister's discretion. Unlike plant allowances, the IBA runs with the original construction cost — a purchaser of a second-hand factory begins the allowance calculation afresh based on the purchase price rather than the original cost, which can create significant differences in the allowance quantum depending on how the acquisition price was negotiated and whether it includes goodwill or other non-building components.