[World Tax News] Malaysia Releases Guidance on Investment Tax Allowance for Manufacturing Industry and More

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  • Last Updated on 24 February, 2024

Guidance on Investment Tax

Editorial Team – [2024] 159 taxmann.com 420 (Article)

World Tax News provides a weekly snippet of tax news from around the globe. Here is a glimpse of the tax happening in the world this week.

1. Malaysia Releases guidance on investment tax allowance for manufacturing industry

The Malaysian Inland Revenue Board has released Public Ruling (PR) No. 1/2024, focusing on Investment Tax Allowance for Promoted Products within the Manufacturing Sector. This directive provides detailed instructions tailored to this sector, expanding upon the guidance previously provided in Public Ruling No. 4/2023, which offered an overview of investment tax allowances.

This PR clarifies the investment tax allowance for companies engaging or planning to engage in manufacturing, focusing on promoted products listed in Malaysia, reinvestment in specific industries, high-tech, and small-scale enterprises. It excludes explanations for promoted products under sections 4A, 4B, and 4E of the Promotion of Investments Act 1986 (PIA).

An investment tax allowance is a tax incentive given as a tax deduction (allowance) on the qualifying expenditure (QE) incurred by a manufacturing company in the basis period for a YA to produce a promoted product.

Typically, the company will spend a substantial amount of capital in preparation for the production/manufacturing of such promoted products. Accordingly, the greater the capital expenditure incurred, the greater the amount of investment tax allowance the company can claim, subject to the conditions set for each approved investment tax allowance category.

The list of promoted products under the manufacturing sector has been published through the gazetting of several subsidiary legislatives.

Source: Public Ruling

2. Switzerland publishes Related Party Interest Rate Safe Harbor Limits for 2024

The Swiss Federal Tax Administration has released two circulars outlining the safe harbor interest rate thresholds for shareholder and related party financing in 2024. The applicable rates vary depending on whether the financing is denominated in Swiss francs or a foreign currency.

A. Loan transactions in Swiss Francs

(a) Loans to shareholders or related parties:

(i) If financed through equity, a minimum interest rate of 1.5% applies.

(ii) If financed through debt, the interest rate consists of the actual interest expense (cost) plus 0.50% for amounts up to CHF 10 million and an additional 0.25% for amounts exceeding CHF 10 million. However, in any case, the interest rate is set at a minimum of 1.5%.

(b) Loans from shareholders or related parties:

(i) For real estate loans, the interest rate ranges from at least 2.25% to a maximum of 3.50%, depending on the nature of the property and the financed amount.

(ii) Regarding business loans received by:

        • Commercial and industrial companies, the interest rate caps at 3.75% for amounts up to CHF 1 million and 2.0% for amounts exceeding CHF 1 million.
        • Holding and asset management companies, the interest rate is capped at 3.25% for amounts up to CHF 1 million and 1.75% for amounts exceeding CHF 1 million.

B. Loans in Foreign Currency (Loans to shareholders or related parties)

(a) Financed through equity: For loans denominated in EUR, the interest rate is set at 2.50%, while for loans denominated in USD, it stands at 4.25%. For other currencies, the interest rate varies between 0.50% and 10.25%.

(b) Financed through debt: The interest rate comprises the actual interest expense (cost) plus 0.50%. For loans in EUR, the minimum interest rate is 2.50%, for loans in USD, it is 3.75%; and for other currencies, it ranges from 0.50% to 10.25%.

Source: Circular by Federal Tax Administration

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