Rules for Double Deduction of Tax for Expenditure for Vendor Development Programme Gazetted
11 January 2022
The
Income Tax (Deduction of Expenditure in Relation to Vendor Development Programme) Rules 2022 [P.U.(A) 2/2022] (‘
the Rules’) were gazetted on 6 January 2022 and have effect from the year of assessment (‘
YA’) 2021.
Deduction
Rule 4(1) of the Rules allow an anchor company to deduct the amount incurred by that anchor company in carrying out the following activities in relation to the Vendor Development Programme (‘
VDP’) in the basis period for a YA for the purposes of ascertaining its adjusted income for that period:
- activities relating to product development, namely product quality development, product innovation or research and development;
- activities relating to capability improvement namely certification programme, assessment programme or business process re-engineering; or
- activities relating to human capital namely hard skill training, lean management, financial management system or capacity building.
The amount of deduction allowed under rule 4(1) shall be equivalent to twice the amount of expenditure incurred by the anchor company, subject to the following:
- the maximum amount of deduction must not exceed RM500,000 for each YA;
- the amount must not include capital expenditure incurred on plant, machinery, fixtures, land, premises, buildings, structures or works of a permanent nature or on alterations, additions or extensions thereof or in the acquisition of any rights in or over any property, incurred by the anchor company;
- the amount must be verified by the Minister of Entrepreneur Development and Cooperatives (‘Minister’); and
- the deduction under rule 4(1) shall be for a period of three consecutive YAs commencing from the YA in the basis period in which the first expenditure specified in rule 4(1) is incurred.
Key definitions
For the purposes of the Rules:
- the VDP is a programme approved by the Minister, which is to be implemented by an anchor company in developing a new vendor company or strengthening the development of existing vendor company, at domestic and international level;
- an ‘anchor company’ must: (i) be incorporated or deemed to be registered under the Companies Act 2016 (‘CA 2016’); (ii) be resident in Malaysia; (iii) be a participant in the VDP; and (iv) have signed a memorandum of understanding with the Ministry of Entrepreneur Development and Cooperatives under the VDP from 1 January 2021 until 31 December 2025; and
- a ‘vendor company’ must: (i) be incorporated or deemed to be registered under the CA 2016; (ii) be resident in Malaysia; and (iii) be a manufacturer or supplier of components, or service provider of the anchor company under the VDP.
Comments
We advise taxpayers to confirm the amount verification process with the Minister and to verify the amount for each YA in a timely manner to ensure compliance with the tax filing deadline.
It is hoped that the double deduction of income tax for qualifying expenditure under the VDP, albeit limited to a maximum sum of RM500,000 for each YA, will give impetus to anchor companies to develop programmes that will upskill their vendor companies.
Alert prepared by Sheba Gumis (Partner) of the Corporate Practice and Desmond Liew (Senior Associate) of the Tax Practice of Skrine.
This alert contains general information only. It does not constitute legal advice nor an expression of legal opinion and should not be relied upon as such. For further information, kindly contact skrine@skrine.com.