Tax incentives for the Tun Razak Exchange project

Tax incentives for the Tun Razak Exchange (TRX) project

The TRX project, previously known as the Kuala Lumpur International Financial District, is a component of the Economic Transformation Programme. To attract leading financial organizations to operate in the TRX, a number of incentives were proposed in Budget 2012 and subsequently legislated via the gazettement of Rules and/or Orders on 31 January 2013 (see Tax Alert No. 4/2013).

Following the above, five Amendment Rules or Amendment Orders were gazetted on 27 December 2021

The Income Tax (Industrial Building Allowance) (Tun Razak Exchange Marquee Status Company) Rules 2013 [P.U.(A) 27/2013] provide that a commercial building constructed or purchased by a Tun Razak Exchange Marquee (TRXM) status company in the TRX shall be treated as an “industrial building” (IB) and thus qualify for IBA, where:

(a) The company owns the commercial building, and

(b) The commercial building is used by the company for the purpose of a business as specified in the Schedule of the Rules

The Rules provide for an annual allowance of 10% on the qualifying building expenditure (QBE). 

Following the above, the Income Tax (Industrial Building Allowance) (Tun Razak Exchange Marquee Status Company) (Amendment) Rules 2021 [P.U.(A) 473] were gazetted. The Amendment Rules:

(a) Clarify that:

- The Rules shall apply in respect of QBE incurred by a TRXM status company for the purpose of its business, as specified in the Schedule, for an IB referred to in Rule 5 (previously Rule 3) of the Rules
- The definition of “disposed of” includes a situation where the commercial building ceases to be used for the purposes prescribed in Rule 5 (previously Rule 3) of the Rules

(b) Clarify that in computing IBA in a situation where only part of the building is used as an IB, the capital expenditure incurred for the construction or purchase (previously, construction only) of the part of the building that is not used as an IB will need to be taken into account

(c) Extend the incentive and provide that the Rules will not apply to QBE incurred after 31 December 2025 (previously 31 December 2020)

The Amendment Rules are deemed to be effective from YA 2014 (similar to P.U.(A) 27/2013).

The Income Tax (Accelerated Capital Allowance) (Tun Razak Exchange Marquee Status Company) Rules 2013 [P.U.(A) 29/2013] provide an initial allowance of 20% and an annual allowance of 40% on renovation costs (as specified in the Schedule of the Rules) incurred by a TRXM status company for a building located in the TRX and used for the company’s business.

Following the above, the Income Tax (Accelerated Capital Allowance) (Tun Razak Exchange Marquee Status Company) (Amendment) Rules 2021 [P.U.(A) 474] were gazetted. The Amendment Rules provide that:

(a) The incentive is extended, and the Rules will apply to the renovation costs incurred for a building located in the TRX and used for the company’s business from 1 January 2014 to 31 December 2025

(b) The Rules are effective from 1 January 2014

Previously, P.U.(A) 29/2013 stated that the Rules were effective from 1 January 2014 to 31 December 2020.

The Amendment Rules are deemed to be effective from 1 January 2014.

The Income Tax (Deduction for Relocation Costs for Tun Razak Exchange Marquee Status Company) Rules 2013 [P.U.(A) 30/2013] provide that in ascertaining the adjusted income of a TRXM status company from its business for a YA, a deduction for relocation costs (as specified in the Schedule of the Rules) incurred by the company to relocate the whole or part of its business to the TRX shall be allowed, provided that such relocation takes place by 31 December 2020. The deduction shall be in respect of costs which are not deductible under Section 33(1) of the ITA.

Following the above, the Income Tax (Deduction for Relocation Costs for Tun Razak Exchange Marquee Status Company) (Amendment) Rules 2021 [P.U.(A) 475] were gazetted. The Amendment Rules extend the incentive and provide that the deduction shall be allowed for relocations that takes place by 31 December 2025.

The Amendment Rules are effective from YA 2021.

The Income Tax (Deduction for Rental Payments) (Tun Razak Exchange Marquee Status Company) Rules 2013 [P.U.(A) 31/2013] provide that in ascertaining the adjusted income of a TRXM status company from its business for a YA, an additional deduction (i.e., deduction in addition to any deduction allowable under Section 33(1) of the ITA), equal to half of the rental payments incurred by the company for renting a commercial building in the TRX for its business, shall be allowed. The Rules are effective from YA 2014 and does not apply to a TRXM company that commences the undertaking of its business in the TRX after 31 December 2020.

Following the above, the Income Tax (Deduction for Rental Payments) (Tun Razak Exchange Marquee Status Company) (Amendment) Rules 2021 [P.U.(A) 476] were gazetted. The Amendment Rules extend the incentive and provide that the additional deduction shall apply to a TRXM company that commences undertaking its business in the TRX by 31 December 2025.

The Amendment Rules are effective from YA 2021.

The Income Tax (Exemption) (No. 4) Order 2013 [P.U.(A) 28/2013] provides a 70% tax exemption on statutory income derived by an approved developer from:

(a) The disposal of any building or rights over any building or part of a building, up to YA 2022, and

(b) The rental of a building or part of a building, up to YA 2027

The “building” refers to a building located within the TRX which is constructed by the approved developer according to the development plan for the TRX. The exemption applies for a maximum of five consecutive YAs.

Following the above, the Income Tax (Exemption) (No. 4) 2013 (Amendment) Order 2021 [P.U.(A) 477] was gazetted. The key updates are as follows:

• The definition of “building” has been updated to mean “any building” (previously, a building) located within the TRX
  
  
• The exemption for the disposal of any building or rights over any building or part of a building is extended until YA 2025
  
  
• References to Subsubparagraph 3(1)(a) or (b) in the Order have been amended to accurately state Subsubparagraph 4(1)(a) or (b) instead
  
  
• The Amendment Order clarifies under a special provision that:

(i)   Subject to Point (ii) below, the Income Tax (Property Development) Regulations 2007 [P.U.(A) 277/2007] shall apply to the income of an approved developer derived from the business referred to in Point (a) above

(ii)  Regulation 6 of P.U.(A) 277/2007 shall not apply to the income of an approved developer derived from the business referred to in Point (a) above, where the developer carries on a property development project using the build-then-sell method

The Amendment Order is deemed to be effective from YA 2013 (similar to P.U.(A) 28/2013).