Tax Deduction for Registration of Patents and Trademarks

Under the Income Tax Act 1967 (as amended), expenses incurred on the registration of patents and trademarks in the country are deemed to be capital expenditure and not allowed as a deduction for tax purposes.

However, as the government's objective is to promote innovation and intellectual property developments among the small and medium industries (SMEs), it is now proposed that expenses incurred in the registration of patents and trademarks in Malaysia be allowed a tax deduction for the purposes of computing the chargeable income of the SME.

The registration expenses would include fees or payment made to the patent and trademark agents registered under the Patents Act of 1983 and the Trade Marks Act of 1976.

SMEs are defined as companies resident in Malaysia which has a paid up capital in respect of ordinary shares of RM2.5 million and less at the beginning of the basis period for a year of assessment (provided that fifty percent of the paid capital in respect of ordinary shares of the company is not directly or indirectly held by a holding or a subsidiary company or a related company that has a paid up capital of more than RM2.5 million).

SME in the manufacturing and manufacturing related service industries and agro based industries would include enterprise with full time employees not exceeding 150 persons or annual sales turnover not exceeding RM 25 million; and in the service industries, primary agriculture and information and communication TECHNOLOGY [] industries, enterprises with full time employees not exceeding 50 persons, or with annual sales turnover not exceeding RM 5 million.

However, the time frame for this deduction is limited to only 5 years i.e. from the year of assessment 2010 to the year of assessment 2014. - Seah Siew Yun, Thornton, The Edge