Deductibility of Expenses PDF

Deductibility of Expenses No. Expenses Conditions Specific Expenses Maximum Threshold Tax Treatment Applicable To Pre-operational and pre-commencement expenses...

Deductibility of Expenses No. Expenses Conditions Specific Expenses Maximum Threshold Tax Treatment Applicable To Pre-operational and pre-commencement expenses Direct expenses to conduct feasibility studies (including cost of employing consultants) Direct expenses to carry out market N/A i. Deducted against Pre-operational i. Resident company research/survey/obtain market defined aggregate business expenditure - information (including cost of employing income incurred for approved ii. Related to a proposal to undertake investment consultants) 1 Company business venture in a business venture outside Malaysia A company's representative travel fares ii. Unabsorbed outside Malaysia outside Malaysia - for conducting feasibility Economy class expenses can be (Schedule 4B) iii. Business venture approved by MOF studies/market survey c/f until fully The company's representative actual utilised expenses - accommodation and sustenance RM400/day (from departure from and until return to Malaysia) Cost of preparing and printing the MOA, AOA and prospectus Cost of circulating and advertising prospectus i. Company incorporated in Malaysia - on or after Cost of registering the company - i.e 13.9.2003 statutory documents, fees, stamp duty Incorporation Cost of drawing up preliminary contracts + 2 N/A Single deduction Company expenses ii. Authorized share capital of NOT MORE than stamp duty RM2.5mil Cost of printing debentures + stamp duty Cost of printing share certificates + letters of allotment Cost of company's seal Underwriting commission  Deductibility of Expenses No. Expenses Conditions Specific Expenses Maximum Threshold Tax Treatment Applicable To i. Manufacturing company ii. Training approved by MIDA/MOF iii. Incurred during pre-commencement period iv. Supported by letter from approved training institution - certifying details, amount paid and Pre-commencement attendance All related expenses incurred and paid to business expenditure - 3 the training institution - supported by N/A Double deduction Company deductions for v. Training for acquisition of crafts/ supervisory/ letter approved training technical skills which directly contribute to future production vi. Employees = citizen vii. Company is NOT contributing to HRDF (because it would qualify for training grant from HRDF) i. Training to impart basic skills to enable the company to commence its business ii. Incurred within one year prior to the commencement of business Pre-commencement All related expenses incurred as per the 4 business training iii. Deductible under section 33 of the ITA 1967 N/A Single deduction Company conditions to qualify expenses iv. Company is not receiving training grants from the government v. Company is not claiming for double deduction for approved training expenses  Deductibility of Expenses No. Expenses Conditions Specific Expenses Maximum Threshold Tax Treatment Applicable To i. Expenses for the recruitment of employees to Participation in job fairs enable business commencement Any Pre-commencement chargeable of business expenses - Payment to employment agencies and 5 ii. Incurred within one year prior to the N/A Single deduction person with recruitment of head-hunters commencement of business business employees income Any other recruitment expenses which iii. Deductible under section 33 of the ITA 1967 meet the conditions i. Company incorporated in Malaysia Consultancy and legal fees ii. Company licensed under the Securities Industry Act 1983 iii. Resident company Cost of feasibility study Establishment expenses - Islamic iv. Incurred establishment expenditure 6 N/A Single deduction Company stock broking company v. Application for approval of the Islamic stock Cost of market research broking business is made to Bursa Malaysia from 2.9.2006 - 31.12.2009 vi. Commences Islamic stock broking business Cost of obtaining license and business within 2 years from the date of approval by approval Bursa Malaysia  Deductibility of Expenses No. Expenses Conditions Specific Expenses Maximum Threshold Tax Treatment Applicable To i. LOCAL franchise brand: - Registered under Trade Marks Act 1976; - Franchise business registered under Registrar of Franchise, MDTCC; and - Developed in and originated from Malaysia One-off payment to be paid by franchisee Any Expenditure on ii. Franchise fee is not refundable to franchisor for the right to use a mark, chargeable franchise fee trade secret, confidential information, 7 N/A Single deduction person with (incurred by iii. The franchisor MUST: intellectual property, or system owned by business franchisee) - Individual = must wholly own the local franchise the franchisor (EXCLUDES royalty or other income brand; or periodical payments) - Company incorporated in Malaysia = MINIMUM 70% of the share capital must be Malaysian owned iv. Franchisee = tax resident in Malaysia  Deductibility of Expenses No. Expenses Conditions Specific Expenses Maximum Threshold Tax Treatment Applicable To Section 33 - General deductions (business and non-business sources) i. Wholly and exclusively incurred in the production of gross income ii. Incurred (paid/payable) during the basis period for a YA Any Any qualifying expenses meeting the 1 General expenses N/A Single deduction chargeable iii. Revenue (NOT capital) in nature (expenditure - general conditions person capital vs. revenue test) iv. NOT for private/domestic purpose v. NOT incurred after the cessation of business i. Unrealised Any Unrealised FOREX loss N/A Not deductible chargeable ii. Both trade and non-trade person i. Realised Any Foreign exchange 2 Realised non-trade FOREX loss N/A Not deductible chargeable (FOREX) loss ii. Non-trade person i. Realised Any Realised trade FOREX loss N/A Single deduction chargeable ii. Trade person Any 3 General provisions General provisions N/A Not deductible chargeable person Any Relates to land/building incurred for producing 4 Rental expense Rental expense incurred N/A Single deduction chargeable gross business income person  Deductibility of Expenses No. Expenses Conditions Specific Expenses Maximum Threshold Tax Treatment Applicable To i. Employed in the production of gross income ii. Without improvement/addition/alteration element iii. Not involving the reconstruction/rebuilding of Any 5 Repairs of asset an entire/substantial part of asset Repairs and renewal expenses incurred N/A Single deduction chargeable person iv. Restores asset to existing condition v. NOT initial repair expenditure incurred after acquisition of a dilapidated (ruined/abandoned) asset (i.e. abandoned factory) i. If asset's life span > 2 years - Only for PART OF an entire asset ii. If asset's life span =< 2 years - Entire asset qualifies (i.e. glassware) Any Renewals/ 6 Renewals/replacement expenses incurred N/A Single deduction chargeable replacement of asset iii. Employed in the production of gross income person iv. Does NOT have a significant value and NOT required to be capitalized separately under accounting principle (i.e. aeroplane engine)  Deductibility of Expenses No. Expenses Conditions Specific Expenses Maximum Threshold Tax Treatment Applicable To Must be segregated and deducted against Interest on loan for business and non- respective source of income business purpose Incurred in respect of loan given to related Interest free loan given to related parties Single deduction parties @ interest-free under respective Any Interest expenses Deferred payment price - cash price = interest Interest on deferred payment credit income source chargeable 7 restriction - Section N/A person with 33(1)(a) Taken to refinance business and non-business business Interest on refinancing loan income loan Notify and submit revised tax computation to Single deduction DGIR not later than 12 months from the end of under respective Interest payable, but not due to be paid the BP for the YA in which the interest is due to income source in be paid - reduced assessment respective YA Step 1 When a loan is utilized for both business and Company RM10,000 or below non-business purposes: Interest expense = RM10,000 or below Step 1 Step 1 Amount incurred below threshold? - Yes; Individual and others RM6,000 or below Whole amount is deductible under business Interest expense = RM6,000 or below income No allocation required, the Step 2 Step 2 entire amount is not Any Total cost of investment and loan Interest expenses If step 1 = No; deductible against business Single deduction chargeable >= Borrowing 8 restriction - Section Total cost of investment and loan income under respective person with 33(2) > OR =< Borrowing? Step 2 income source business Total cost of investment and loan Use formula to allocate income Formula for interest restriction < Borrowing = Interest expense X (Total cost of investment and loan)/ (Borrowing at month/year end) Step 3 Use month-end balance Total cost of investment and loan formula to allocate Step 3 > RM500,000 Total cost of investment and loan Step 3 > OR =< RM500,000? Use year-end balance Total cost of investment and loan formula to allocate =< RM500,000  Deductibility of Expenses No. Expenses Conditions Specific Expenses Maximum Threshold Tax Treatment Applicable To Section 34, 35, 39 - Business, specific business deductions, deductions not allowed Any i. Not specific chargeable General provision for 1 General provision for trade debtors N/A Non deductible person with trade debtors ii. Trade or non-trade business income i. Provided for a specific amount for a specific debtor Any ii. Trade chargeable Specific provision for 2 Specific provision for trade debtors N/A Single deduction person with trade debtors iii. Included in previous year's gross income business income iv. Amount proven to the satisfaction of the IRB (reliable estimation evidence) Lower of: Any Contribution made to i. Actual contribution chargeable an approved scheme The remuneration for which it is contributed for Contribution made to an approved scheme made; OR 3 Single deduction person with (i.e. EPF, PRS) for an must be tax deductible (i.e. EPF, PRS) for an employee business employee ii. 19% of the employee's income remuneration Any Payroll tax expense chargeable Payroll tax expense paid on behalf of 4 paid on behalf of For any employee employed N/A Single deduction person with employee employee business income Any chargeable 5 Any turnover tax paid Any turnover tax paid N/A Single deduction person with business income  Deductibility of Expenses No. Expenses Conditions Specific Expenses Maximum Threshold Tax Treatment Applicable To i. Same crop (if different crop - qualifies for Any Replanting agriculture allowance) chargeable 6 expenditure of the Replanting expenditure of the SAME crop N/A Single deduction person with SAME crop ii. In relation to gross income from business plantation/farm business income Any chargeable Equipment to assist Expenditure on equipment to assist 7 For disabled employee's usage and assistance N/A Single deduction person with disabled employee disabled employee business income Any i. For cultural, literacy, professional, scientific, or Translation OR chargeable technical books Expenditure on translation OR publication 8 publication in Bahasa N/A Single deduction person with in Bahasa Malaysia Malaysia business ii. Approved by the Dewan Bahasa dan Pustaka income i. To public libraries, public libraries of schools and higher education institution Any chargeable Provision of library Expenditure incurred on provision of 9 ii. Once a claim has been made here, no longer Max RM100,000 Single deduction person with facilities library facilities can make any claim under approved donation business (in arriving at total income) - the claim here takes income precedence i. Pertaining to education, health, housing, conservation/preservation of environment, enhancement of income of poor, infrastructure, ICT; or Provision of services, Any Expenditure incurred for the provision of public amenities and ii. Pertaining to the maintenance of a building chargeable services, public amenities and 10 contributions to a designated as a heritage site by the N/A Single deduction person with contributions to a charity/community charity/community Commissioner of Heritage (approved by the business project project Minister) income iii. Once the expense has been claimed here, no longer qualifies to claim as approved donation (in arriving at total income)  Deductibility of Expenses No. Expenses Conditions Specific Expenses Maximum Threshold Tax Treatment Applicable To i. Revenue in nature only Any Provision and ii. On any land/ premises/ buildings/ alterations/ chargeable Expenses incurred for the provision and 11 maintenance of a extensions/ acquisition of any right over any N/A Single deduction person with maintenance of a childcare centre childcare centre property business income iii. For the benefit of EMPLOYEES Equipment Any Establishment and chargeable management of a 12 Approved by the Minister Instruments N/A Single deduction person with musical or cultural business group Any other related expenses income Max RM1million (in Any Approved local arts and cultural activities chargeable Sponsor of any arts or Approved by the Ministry of Information, aggregate with foreign art) 13 Single deduction person with cultural activity Communication and Culture Approved foreign arts and cultural business Max RM300,000 activities income - Deductible throughout 5 years Consultancy fees - Each year 20% of the cost is deductible i. Granted and registered under relevant written laws Legal fees - If patent/ industrial design/ trademark is Acquisition of ii. Used for the purpose of business transferred to the 14 patents/ industrial Single deduction Company company's subsidiary - design / trademarks iii. Manufacturing company subsidiary may only claim Stamp duties remaining unclaimed iv. At least 70% of the company's issue share deduction capital = Malaysian owned - If incurred prior to business commencement = Must NOT include royalty payment deemed incurred on commencement date  Deductibility of Expenses No. Expenses Conditions Specific Expenses Maximum Threshold Tax Treatment Applicable To Enhancement of Any productivity and Payments to consultants for the use of IT chargeable For manufacturing, agriculture and services 15 efficiency in N/A Single deduction person with sectors management and business production systems Any other related operating expenditure income incurred i. Any course of study at diploma or equivalent/ Payments required by the higher degree or equivalent / Master's degree / educational institution relating to the Doctoral degree at registered higher educational course of study institution in Malaysia Scholarship to 16 ii. Students = full time Education aids N/A Single deduction Company students iii. Students have no means of their own iv. Students' parents'/ guardian's monthly total Reasonable cost of living expenses during income = RM150k Max RM50,000 deductible Non-Commercial + Used Max RM50,000 Sum paid to anyone other than State Gov/ Sum paid to anyone other than State Gov/ Any 54 statutory authority for statutory authority for licence to extract N/A Not deductible chargeable licence to extract timber person timber  Deductibility of Expenses No. Expenses Conditions Specific Expenses Maximum Threshold Tax Treatment Applicable To (i) Entertainment given to employees (i.e. annual dinner) (ii) Business nature = entertainment (iii) Promotional samples of business products (iv) Promotional gifts given at trade fair/ industrial exhibition outside Malaysia for the promotion of exports (v) Cultural or sporting events open to public to promote the business General rule: (vi) Promotional gifts within Malaysia WITH LOGO i. In connection with trade/ business + deductible under section 33 + under section 39(1) (i)-(viii) (vii) Any entertainment expense related 100% Single deduction = 100% deductible wholly to sales arising from the business: - Food and drink for new product launch ii. In connection with trade/ business + deductible - Free gift/ redemption of gift/ redemption Any under section 33 + NOT under section 39(1) (i)- vouchers to customers chargeable Entertainment 55 (viii) - Lucky draw prizes given to customers person with expenditure = 50% deductible - Refreshment provided to customers business - Trips given as incentive to dealers for income iii. In connection with trade/ business + NOT achieving sales target deductible under section 33 (viii) Leave passage for yearly event in = Not deductible Malaysia involving - employer, employee and employee's immediate family iv. Not in connection with trade/ business members = Not deductible Entertainment for trade suppliers Promotional gifts within Malaysia WITHOUT LOGO 50% single Entertainment allowance given to 50% deduction, 50% employees not deductible Gift of flower for customer's new outlet Festive hampers for customers Wedding gift to customer N/A Not deductible Entertainment for related co's employees  Deductibility of Expenses No. Expenses Conditions Specific Expenses Maximum Threshold Tax Treatment Applicable To Any Leave passage within chargeable Leave passage within or outside Malaysia 56 or outside Malaysia N/A Not deductible person with given to employees given to employees business income Remuneration paid to LLP partner not Remuneration paid to LLP partner not Limited liability 57 N/A Not deductible specified in LLP specified in LLP agreement partnership agreement Payment for termination of Payment for termination of service/ 58 Capital in nature - unless justified otherwise N/A Not deductible service/ onerous onerous contracts contracts Any chargeable General meeting Not wholly and exclusively incurred in the 59 General meeting expenses N/A Not deductible person with expenses production of gross income business Payments for income 60 Capital in nature Payments for restrictive covenants N/A Not deductible restrictive covenants Not wholly and exclusively incurred in the 61 Fines and penalties Fines and penalties N/A Not deductible production of gross income Made by a company which only closed N/A Single deduction Retrenchment down a division/ section 62 Company payment Made by a company to be closed down/ N/A Not deductible closure of a business  Deductibility of Expenses No. Expenses Conditions Specific Expenses Maximum Threshold Tax Treatment Applicable To 63 Competition buy-off Capital in nature Cost to buy-off a competitor's business N/A Not deductible INITIAL contribution 64 Payment for an enduring benefit INITIAL contribution to a pension fund N/A Not deductible to a pension fund Compensation incurred due to Compensation incurred due to trader's/ trader's/ employee's Wholly and exclusively incurred in the production 65 employee's negligence in the ordinary N/A Single deduction negligence in the of gross income Any course of business ordinary course of chargeable business person with business Expenditure incurred income Provided that the business has not permanently Expenditure incurred during temporary 66 during temporary N/A Single deduction ceased cessation of business cessation of business Trade related revenue MUST be at arm's length (same value which Trade related revenue expenditure paid to 67 expenditure paid to N/A Single deduction would have been paid to unrelated parties) related parties related parties If there is an investment element i.e. whole life policy, endowment policy - premium is not Any deductible/compensation is not taxable (capital in nature) N/A Not deductible chargeable Key-man insurance 68 person with policy If there is no investment element i.e. term life, accident policy - premium is business N/A Single deduction deductible/compensation is taxable (revenue in nature) income i. For protection against COVID-19 Any ii. Incurred for business purpose chargeable Cost of personal Cost of personal protective equipment to 69 N/A Single deduction person with protective equipment iii. From 1 March 2020 onwards protect against COVID-19 business income iv. No CA has been claimed on such protective equipment  Deductibility of Expenses No. Expenses Conditions Specific Expenses Maximum Threshold Tax Treatment Applicable To i. Qualifying company = incorporated under the Companies Act 2016 and approved by MEDC Monthly training allowance paid to RM1,000/trainee/month ii. For training programme (TP) approved by the trainees for maximum 12 months Ministry of Entrepreneur Development and Cooperatives (MEDC) - evidenced by confirmation from MEDC Training costs under iii. Conducted for trainee for 8 to 12 continuous Training provided to trainees the Professional months Training and Education for Growing 70 iv. Trainee = Malaysian citizen graduate + Double deduction Company Entrepreneurs unemployed OR under employment which does (PROTÉGÉ-Ready to not commensurate with his qualification Food, travelling and accommodation Work (RTW) allowances for trainees RM5,000/trainee/each TP Programme) v. Given until 31 December 2025 vi. TP implementation commences within 12 months from the date of approval by MEDC Fees paid to a person appointed to conduct soft-skills training  Deductibility of Expenses No. Expenses Conditions Specific Expenses Maximum Threshold Tax Treatment Applicable To i. Anchor company: - Locally incorporated and resident - Signed a memorandum of understanding (MoU) Product quality development, product with the MEDC under VDP from 1 January 2021 - innovation or research and development 31 December 2025 ii. VDP = approved by MEDC to develop a new vendor company or strengthen the development Expenditure in of existing vendor company relation to Vendor (domestic/international) implemented by anchor Capability improvement - certification RM500,000/annum for 3 Development 71 company programme, assessment programme or consecutive years of Double deduction Company Programme (VDP) business process re-engineering assessment incurred by anchor iii. Vendor company: company - Locally incorporated and resident - Manufacturer/supplier of components OR service provider of the anchor company Human capital - hard skill training, lean iv. Revenue expenditure incurred on approved management, financial management activities by anchor company up to 31 December system or capacity building 2025 Allowance, benefits-in- Any kind and perquisites chargeable ALL deductible even if they are not stated in the Allowance, benefits-in-kind and perquisites 72 provided by N/A Single deduction person with service contract of the employee provided by employers to employees employers to business employees income Benefit given to Any employee by chargeable Expenses incurred to allow purchase 73 employer to acquire N/A Single deduction person with smartphone, tablet or personal computer smartphone, tablet or business personal computer income  Deductibility of Expenses No. Expenses Conditions Specific Expenses Maximum Threshold Tax Treatment Applicable To i. The sponsoring company is: - Incorporated in Malaysia Payments required by the relevant - Tax resident in Malaysia institution or higher educational institution - Executes scholarship agreement with the relating to the course of study student between 1 January 2022 - 31 December 2025 ii. The student is: - Pursuing full-time course of study at technical or vocational certificate level in an MQA or Skills The amount that is Sponsorship of Development Department recognised institution/ reasonably expected to be scholarship to 74 at diploma, bachelor's degree, master's degree Educational aid incurred in respect of such Double deduction Company Malaysian student by or doctor of philosophy level in local higher expenses (not company educational institution unnecessarily excessive) - Malaysian citizen - Tax resident in Malaysia - Has no means of his/her own - Parents or guardians have total monthly income not exceeding RM10,000 Reasonable cost of living expenses iii. Any amount repaid by the student (if any) to throughout period of study the sponsoring company = taxable in the year of receipt