Key Takeaway
- Industrial Building Allowance (IBA) is a tax incentive in Malaysia that allows businesses to claim deductions on the cost of constructing or purchasing qualifying industrial buildings, reducing overall taxable income.
- Eligibility depends on the building’s purpose and use, with qualifying structures typically used for manufacturing, storage, or approved industrial activities, and supported by proper documentation of capital expenditure.
- IBA is claimed through structured allowances over time, commonly with an initial allowance (around 10%) and annual allowances (around 3%), making it a long-term tax planning tool for businesses investing in infrastructure.
Industrial Building Allowance (IBA) is a form of capital allowance granted for qualifying industrial buildings.
A building is an industrial building if it is used for the purposes of a business and:
- it is used as a factory
- it is used as a dock, wharf, jetty or other similar building
- it is used as a warehouse and the business consists or mainly consists of the hire of storage space to the public
- the business is that of a water or electricity undertaking supplying water or electricity for consumption by the public or a telecommunication undertaking providing telecommunication services to the public
- it is used in connection with the working of a farm and the business consists or mainly consists of the working of the farm, with or without other farms, or
- it is used in connection with the working of a mine and the business consists or mainly consists of the working of a mine, with or without other mines.
| No. | Types of industrial building (IB) | Relevantparagraph in Schedule 3of the ITA | % | |
| InitialAllowances | Annual Allowances | |||
| 1. | Factory, dock, wharf, jetty, warehouse, buildings for the supply of water, electricity, and telecommunication, buildings in a farm or mine. | 63 | 10 | 3 |
| 2. | Buildings included in the definition of ‘factory’. | 64(a) | ||
| 3. | Building used for storage which is within the same curtilage as a factory. | 64(b) | ||
| 4. | Building for the facility of employees such as canteen, restroom, recreation room, lavatory, bathhouse, bathroom and washroom (provided there is an IB in use in the business). | 65(1) | ||
| 5. | Building for the welfare of workers and living accomodation for employees working in a farm. | 65(2) | ||
| 6. | Licensed private hospital, maternity home and nursing home. | 37A | ||
| 7. | Building used for research. | 37B | ||
| 8. | Warehouse. | 37C | – | 10 |
| 9. | Building used for an approved service project. | 37E | 10 | 3 |
| 10. | Hotel. | 37F | ||
| 11. | Airport. | 37G | ||
| 12. | Motor racing circuit. | 37H | ||
| 13. | Building used as living accomodation for employees (provided there is an IB in use in the business). | 42(1) | 40 | 3 |
| 14. | Building used as living accommodation for employees, provided by a person carrying on a business of manufacturing, hotel or tourism or an approved services project under Schedule 7B of the ITA. | 42A(1) | – | 10 |
| 15. | Child care centre provided by an employer. | 42A(2) | ||
| 16. | Buildings for schools or educational institutions. | 42B | ||
| 17. | Buildings for industrial, technical or vocational training. | 42C | ||
| 18. | Public Roads. | 67A | 10 | 6 |
| 19. | Buildings on a build-lease-transfer basis. | 67B | ||
Key Rates and Eligibility for Industrial Building Allowance in Malaysia
The Industrial Building Allowance (IBA) in Malaysia is a valuable tax relief for businesses investing in qualifying industrial buildings. Generally, the initial allowance is 10%, followed by an annual allowance of 3%, which allows the cost of the building to be written off over time.
To qualify, the building must be used for specific purposes such as manufacturing, storage, or certain approved services. It’s also important that the building is in use and that capital expenditure is properly documented. Understanding these conditions and rates can help businesses effectively plan their capital investments and reduce their tax burden over the long term.