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The Income Tax (Capital Allowance) (Development Cost for Customised Computer Software) Rules 2019 (“the Rules”) have been gazetted on 3 October 2019.  The Rules allow for CA to be fully claimed on the development cost of customised software over four years by a resident person in Malaysia based on an initial allowance of 20% and annual allowances of 20%.

The Rules revoke the Income Tax (Deduction for Information Technology-Related Expenditure) Rules 2000 and shall have effect from Year of Assessment (“YA”) 2018.  The Rules can be accessed via the above link.

Outline of the Rules

Pursuant to the Rules, “development cost for customised computer software” means consultation fee, payment for rights of software ownership and incidental fee relating to the development of customised computer software.  The terms highlighted are not defined and it remains to be seen whether the Rules also cover self-developed software.  Further clarifications from the Inland Revenue Board will have to be sought on the application of the Rules.

The Rules are not applicable where a person has claimed in respect of that customised computer software:

(a) any incentive under the Promotion of Investments Act 1986;

(b) any deduction under Section 33 of the Income Tax Act 1967 (“the ITA”);

(c) any deduction under Section 34A of the ITA;

(d) reinvestment allowance under Schedule 7A to the ITA;

(e) investment allowance for service section under Schedule 7B to the ITA;

(f) accelerated capital allowance under any rules made under Section 154 of the ITA; or

(g) tax exemption under paragraph 127(3)(b) or subsection 127(3A) of the ITA in respect of his statutory income which is equivalent to any part or the whole of the amount of the development cost for customised computer software incurred by the person.

Consideration to Submit an Amended Return for YA 2018

Where your Company has incurred development costs for customised computer software for YA 2018 but did not claim CA, you may wish to revise the tax computation and submit an amended Tax Return. The Inland Revenue Board is likely to conduct a desk audit on the submission of the amended Tax Return.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

Contact KPMG

Should you have any questions or require further clarification, please do not hesitate to contact any of our Executive Directors, Directors, Associate Directors or Managers whom you are accustomed to dealing with or who are responsible for the tax affairs of your organisation at the following telephone numbers for respective offices:

Petaling Jaya Office

Tai Lai Kok
Executive Director –
Head of Tax and Head of Corporate Tax
+ 603 7721 7020

Long Yen Ping
Executive Director –
Head of Global Mobility Services
+ 603 7721 7018

Bob Kee
Executive Director –
Head of Transfer Pricing
+ 603 7721 7029

Ng Sue Lynn
Executive Director –
Head of Indirect Tax
+ 603 7721 7271

Soh Lian Seng
Executive Director –
Head of Tax Risk Management
+ 603 7721 7019

Nicholas Crist
Executive Director –
Corporate Tax
+ 603 7721 7022

Dato’ Leanne Koh
Executive Director – 
Corporate Tax
+ 603 7721 7026

Neoh Beng Guan
Executive Director – 
Corporate Tax
+ 603 7721 7025

Ong Guan Heng
Executive Director – 
Corporate Tax
+ 603 7721 7027

Chang Mei Seen
Executive Director – 
Transfer Pricing
+ 603 7721 7028

Ivan Goh
Executive Director – 
Transfer Pricing
+ 603 7721 7012




Evelyn Lee 
Executive Director –
Penang Tax
+604 238 2288 (ext. 312)

Regina Lau
Executive Director –
Kuching & Miri Tax
+6082 268 308 (ext. 2188)

Titus Tseu
Executive Director –
Kota Kinabalu Tax
+6088 363 020 (ext. 2822)

Ng Fie Lih
Executive Director –
Johor Bahru Tax
+607 266 2213 (ext. 2514)

Crystal Chuah Yoke Chin
Tax Manager –
Ipoh Tax
+605 253 1188 (ext. 320)