Malaysia’s Tax Incentives for Solar Systems
Companies that are eligible can enjoy two main types of tax incentives (CA and GITA) if they install a solar system at their premise. These two incentives can provide relief of up to 48% of the total investment cost in the solar system (e.g. RM 480K claimable for a RM 1M solar project). In the country's mission to achieve a 31% reliance on renewable energy by 2025 and 40% by 2035, the Malaysian government has demonstrated a strong commitment by supporting these tax benefits, in addition to the Net Energy Metering (NEM) program for the nation.
Businesses with high electricity bills should seize the opportunity to capitalize on these unprecendented incentives before it is too late. It is unlikely for our government to sustain these incentives for the long-term and in such substantial amount. Examples of business types that could significantly benefit from a reduction in their electricity bills include manufacturing or production facilities, warehouses, and administrative offices — that consume high amounts of electricity for heating and cooling. Now, let's delve into an understanding of the two tax incentives:
Green Investment Tax Allowance (GITA)
Companies (Sdn. Bhd. and Bhd.) that have installed a solar system can benefit from a tax allowance equal to 100% of the total project cost, also known as 'Qualifying Capital Expenditure' (QCE). This tax allowance, based on the Malaysia corporate tax rate of 24%, can be offset against 70% of the company's taxable income in the initial year of assessment. The remaining balance can be carried forward for a maximum of 3 years or until fully utilized.
For more info on who is eligible to GITA please visit the link below
https://www.myhijau.my/green-incentives/
Capital Allowance (CA)
Capital Allowance (CA) enables companies (Sdn. Bhd. and Bhd.) to alleviate the loss of depreciation of a purchased business asset. This provision aims to encourage Malaysian companies to invest in assets that enhance their business. It is given to owners of businesses who invest in solar installation. It is deductible from “adjusted income” for the cost of solar installation under Schedule 3 of Income Tax Act 1967. For instance, when a company acquires a solar PV system (classified as 'Plant & Machinery'), it qualifies for CA, allowing the company to deduct 100% of the acquisition cost from its taxable income, thereby reducing the overall tax burden. Capital Allowance comprises an Initial Allowance (IA) of 20% in the first year and an Annual Allowance (AA) of 14% over six years until it reaches 100% claimed. Companies can claim 24% of the total solar project cost through CA.
Refer to the table below for a comprehensive overview of both tax incentives.
For GITA claiming 100% on Year 1 is possible if 70% of the taxable statutory income is more than the GITA total claim value.
Note that these incentives are only applicable to companies that undertake qualifying green technology projects for business or own consumption.
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