Capital allowances replace accounting depreciation for tax purposes in Malaysia. Under Schedule 3 of the Income Tax Act 1967, businesses can claim Initial Allowance (IA) and Annual Allowance (AA) on qualifying capital expenditure.
| Asset Category | Initial Allowance (IA) | Annual Allowance (AA) | Notes |
|---|---|---|---|
| Plant & Machinery (general) | 20% | 14% | Standard rate for most equipment |
| Motor Vehicles | 20% | 20% | QE capped at RM300,000 (non-commercial) |
| Heavy Machinery | 20% | 20% | Construction, mining equipment |
| ICT Equipment & Computers | 20% | 40% | Accelerated rate — written off in ~2 years |
| Office Equipment | 20% | 10% | Printers, copiers, phones |
| Furniture & Fittings | 0% | 10% | No initial allowance |
| Renovation (s.7 Sch 3) | — | — | RM300,000 cap per 3-year period |
| Small Value Assets | 100% | — | Assets ≤ RM2,000 each, max RM20,000/year |
In the first year of acquisition, you claim both IA and AA. In subsequent years, only AA is claimed until the asset is fully written off or disposed.
Example: A company buys machinery for RM100,000. Year 1: IA 20% (RM20,000) + AA 14% (RM14,000) = RM34,000 claim. Year 2 onwards: AA 14% (RM14,000) per year on reducing balance.
For non-commercial motor vehicles (cars), the qualifying expenditure is capped at RM300,000. If you buy a car for RM500,000, only RM300,000 qualifies for CA. Exception: vehicles used exclusively for business (e.g., taxi, rental car) have no cap.
Renovation of business premises qualifies for a special allowance capped at RM300,000 per 3-year period. This is claimed equally over 3 years (RM100,000/year for max claim). Applies to renovation of premises used for business purposes.
When an asset is disposed, if the sale proceeds are less than the residual expenditure, a balancing allowance (additional deduction) is given. If proceeds exceed residual expenditure, a balancing charge (additional income) applies. This is governed by paragraphs 15-16 of Schedule 3.
Krofio AI computes all of this automatically from your financial statements.
Try Krofio — RM49/report →ICT equipment and computers qualify for IA 20% and AA 40%, meaning they are effectively written off in about 2 years.
Yes, non-commercial vehicles are capped at RM300,000 qualifying expenditure. Commercial vehicles used exclusively for business have no cap.
Business premises renovation qualifies for up to RM300,000 allowance per 3-year period, claimed equally over 3 years.