Capital allowances

Depreciation

Expenditure incurred in relation to assets with a beneficial life of more than one year are categorized and depreciated from the month of acquisition by the consistent use of either the straight-line or the declining-balance method, as follows:

1.Category 1 – 50% (declining-balance) or 25% (straight-line) on assets with a beneficial life of four years. Examples of assets in this category are computers, printers, scanners, furniture and equipment constructed of wood/rattan, office equipment, motorcycles, special tools for specific industries/services, kitchen equipment, manual equipment for agriculture, farming, forestry and fishery industries, light machinery for the food and drink industries, motor vehicles for public transportation, equipment for the semi-conductor industry, tools and accessories for deep water anchor equipment rentals, and base station controller for the cellular telecommunication services.

2.Category 2 – 25% (declining-balance) or 12.5%

(straight-line) on assets with a beneficial life of eight years. Examples of assets in this category are furniture and equipment constructed of metal, air conditioners, cars, buses, trucks, speed-boats, containers and the like. The category also covers machinery for agriculture, plantations, forestry activity, fisheries, for food and
drink, light machinery, logging equipment, equipment
for construction, heavy vehicles for transportation, warehousing, and communication, telecommunications equipment, equipment for the semi-conductor industry, tools for deep water anchor equipment rentals, and tools for cellular telecommunication services.

3.Category 3 – 12.5% (declining-balance) or 6.25%

(straight-line) on assets with a beneficial life of 16 years. Examples of assets in this category are machines for general mining other than in the oil and gas sector, machines for the textile, timber, chemical and machinery industries, heavy equipment, docks and vessels for transportation and communication, and other assets noti ncluded in the other categories.

4. Category 4 – 10% (declining-balance) or 5% (straight-line) on assets with a beneficial life of twenty years. Examples of assets in this category are heavy construction machinery, locomotives, railway coaches, heavy vessels, and docks.

5. Building category5% (straight-line) on assets in the permanent building category with a useful life of 20 years; or 10% (straight-line) on assets in the non-permanent building category with a useful life of ten years. Included in the cost of the buildings is the Duty on the Acquisition of Land and Building Rights (Bea Pengalihan Hak atas Tanah dan Bangunan/BPHTB).

More comprehensive lists of the assets included in each category are set out in certain Minister of Finance (MoF) regulations. Separate lists of assets and depreciation rates for the oil and gas sector are also specified in an MoF regulation. Special rules apply to assets used for certain industries (i.e., forestry, plantation and cattle breeding).

Amortisation

Intangible property or costs, including the cost of extending building use rights, rights for business use, rights for use and goodwill with a useful life of more than one year, should be amortised on the following bases, as appropriate:

a.By using the straight-line or the declining-balance method at the rates specified in categories 1, 2, 3, and 4 under Depreciation (above), based on the useful life of the property:

Category 1: 4 years

Category 2: 8 years
Category 3: 16 years
Category 4: 20 years

Classification into the appropriate category is determined on the basis of the nearest useful life (e.g., an intangible asset with a useful life of six years may fall under Category 1 or Category 2, while an intangible asset with a useful life of five years is under Category 1).

b.The costs of incorporation and expansion of the capital of an enterprise are claimed in full in the year in which the expenditure is incurred or are amortised using either the declining-balance or straight-line method at the following rates:

Category 1: 50% declining-balance; 25% straight-line Category 2: 25% declining-balance; 12.5% straight-line Category 3: 12.5% declining-balance; 6.25% straight-line

Category 4: 10% declining-balance; 5% straight-line

c. Costs incurred for acquiring the right to oil and natural gas concessions with a beneficial life of longer than one year are amortised using the production-unit method.

d. Costs incurred in the acquisition of mining rights,
forest concessions, and other rights to exploit natural resources and natural products with a beneficial life of longer than one year are amortised using the production-unit method but may not exceed 20% per annum.

e. Costs incurred before the commencement of commercial operations with a useful life of longer than one year are capitalised and amortised according to the rates set out in point b (above).

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