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01
The basic rule: company payment does not automatically mean tax deduction
For an expense to be deductible, it must generally relate to producing business income and be supported by proper documents. The LHDN slide refers to Section 33 of the Income Tax Act 1967: expenses are generally deductible when they are wholly and exclusively incurred in the production of income. Section 39 and other restrictions must also be considered.
If the company pays RM3,000 from its bank account, that does not automatically make RM3,000 deductible. A tax agent will ask: what income activity is it for, who was paid, is there an invoice, and is it private, capital or prohibited by tax law?
02
Common company expenses that are usually deductible
The following are common allowable expenses highlighted in the LHDN slide. Actual treatment still depends on industry practice, business purpose and documentation.
| Expense | Keyword | What to keep |
|---|---|---|
| Salary, allowance, EPF, SOCSO | Employment costs | Payroll records, payslips, EPF/SOCSO proof |
| Business insurance | Insurance | Policy, invoice, payment proof |
| Office or shop rental | Rental of premises | Tenancy agreement, stamping, rental receipt |
| Advertising and promotion | Advertisement to promote sales | Invoice, campaign proof, sales purpose |
| Utilities, telephone and internet | Electricity, water, telephone, internet | Bills, business address, payment proof |
| Licence renewal | Renewal of licence | Licence copy and renewal receipt |
| Repair and maintenance | Repair | Show it is repair, not improvement or new asset |
| Printing, stationery and staff training | Operating support | Invoice, training details, participant list |
03
Gift, samples and entertainment: not all are treated the same
Gifts and entertainment are often misunderstood. The LHDN slide lists promotional samples, gifts of trading products, gifts with company logo and entertainment to employees as common allowable items. Entertainment to existing customers and suppliers is generally 50% allowable, while entertainment to potential customers is higher risk.
| Scenario | Typical treatment | Example |
|---|---|---|
| Promotional samples | Usually allowable | Product samples given to potential buyers |
| Gift with company logo | Usually allowable | Notebook or calendar with company logo |
| Entertainment to employees | Usually allowable | Annual dinner or team lunch |
| Entertainment to existing customers | Usually 50% | Lunch to discuss renewal with an existing client |
| Entertainment to suppliers | Usually 50% | Meal during supplier business meeting |
| Entertainment to potential customers | Higher risk | Hospitality before any business relationship exists |
If the RM800 is a team lunch after staff training, it is easier to support as employee entertainment. If it is with an existing customer for contract renewal, the entertainment rule may limit the deduction to 50%. If it is for a potential customer with no meeting note or follow-up, the risk is much higher.
04
Section 34(6): specific policy-based deductions
The LHDN slide explains that certain expenses under Section 34(6) may be specifically allowed even where they do not fully satisfy the usual business expense criteria, because they serve national or social objectives.
Equipment provided for OKU employees.
Expenditure on publication in the National Language.
Subject to the relevant conditions.
Services, public amenities, charity or community project contribution.
Providing and maintaining childcare centre for employees.
Musical/cultural group or art/cultural event sponsorship.
05
Usually non-deductible: provisions, depreciation and unrealised losses
Some items may appear in the accounts but are generally not deductible as ordinary expenses. The LHDN slide lists provision of expenses, general provision for bad debts, depreciation, loss on disposal of capital assets and unrealised foreign exchange losses.
| Item | Why it matters | Typical treatment |
|---|---|---|
| Provision of expenses | It is only an estimate and may not have been incurred | Review when actually incurred and supported |
| General bad debt provision | Not the same as a specific trade debt written off | Need debtor-specific evidence and recovery records |
| Depreciation | Accounting depreciation is not the tax deduction | Consider capital allowance |
| Loss on disposal of capital assets | Capital asset loss is generally not ordinary expense | Tax adjustment required |
| Unrealised forex loss | Not yet realised | Review realisation and transaction nature |
06
Capital expenditure: many items look like expenses but are not
Capital expenditure is generally not an ordinary deduction in the year incurred. The LHDN slide lists pre-commencement expenses, costs of acquiring/improving/altering capital assets, defending title to capital assets, renovation or construction costs, first painting, licensing and registration expense, trademark registration, company logo design fee, and legal fees for bank loan or premises acquisition.
RM4,000 laptop
Used for business, but usually treated as a fixed asset and reviewed for capital allowance.
RM15,000 renovation
May be capital expenditure, not simple repair and maintenance.
RM8,000 logo design
The LHDN slide lists company logo design fee under capital expenditure, so it should be reviewed carefully.
Legal fee for bank loan
Legal fees for bank loan or premises acquisition are usually not ordinary operating expenses.
07
Prohibited or restricted expenses: private spending, penalties, withholding tax and car lease limits
Section 39 and related restrictions may make some expenses non-deductible or only partially deductible. The LHDN slide highlights domestic/private/capital expenditure, fines and penalties, tax penalties, non-approved donations, payments to non-residents where withholding tax was not paid, approved scheme employer contribution exceeding 19% of employee remuneration, and passenger car lease rental limits.
| Item | Status | Owner example |
|---|---|---|
| Director's private spending | Usually not deductible | Household items, personal trips, private phone plan |
| Fines and tax penalties | Usually not deductible | Traffic summons, late filing penalty, tax penalty |
| Non-resident payments without withholding tax | High risk | Royalty, technical fee or contract payment without WHT compliance |
| Employer contribution above limit | Restricted | Approved scheme contribution above 19% of employee remuneration |
| Passenger car lease rental | Restricted | Limits may apply at RM50,000 or RM100,000 depending on conditions |
08
Capital allowance: asset purchases are not ordinary expenses, but may still give tax deduction
Business asset purchases are generally deducted through capital allowance instead of depreciation. The LHDN slide mentions Initial Allowance generally at 20%, and Annual Allowance examples such as computer and ICT equipment 20%, motor vehicles/heavy machinery 20%, plant and machinery 14%, and office equipment/furniture/fittings and others 10%.
A laptop bought for an employee's work should not simply be treated as stationery or office expense. It may be recorded as a fixed asset and reviewed for capital allowance treatment.
09
Practical owner examples
Staff training
If related to the employee's work and supported by invoice, course details and participant list, it is easier to support.
Traffic summons
Even for a company vehicle, penalties are generally not normal deductible business expenses.
Specific trade debt written off
Requires debtor-specific evidence, recovery effort and write-off support.
Private expenses
Personal shopping or family costs should not be mixed into company expenses. If paid by the company, review director account treatment.
10
Document checklist: without support, even reasonable expenses are hard to defend
Payee, date, amount and description of goods or services.
Bank transfer, card statement or payment voucher.
Which customer, project, employee or income activity the expense relates to.
Customer list, employee list, meeting note or training attendance.
Tenancy, service agreement, loan agreement, claim schedule.
Ordinary expense, capital asset, entertainment, donation or director account.
This guide refers to LHDN's Allowable and Non-Allowable Expenses slide, updated 11/05/2022, and LHDN Company FAQ. Actual treatment still depends on the latest ITA 1967, public rulings, company industry, document quality and tax agent review.
11
Official sources and disclaimer
- LHDN: Allowable and Non-Allowable Expenses Slide
- LHDN: Frequently Asked Question (Company)
- LHDN: Corporate Tax
This guide is for general educational purposes only and is not tax advice. Tax rates, deductions, filing deadlines and incentive eligibility may change and depend on each company's facts. Please consult a tax professional or refer to the latest LHDN guidance before making decisions.