Corporate Tax

CORPORATE TAX

Allowable and Non-Allowable Expenses

1) Allowable Expenses
i) Sec.33: General deduction
“ All outgoings and expenses wholly and exclusively incurred during that period by that person
in the production of gross business income”
E.g: - Salaries paid to employees
- Electricity bills of business premis

Ii) Sec. 34: Specific deduction

Section Item Restriction

S.34(2) Specific provision for trade bad debts No restriction – Fully deductible

S.34(4) Contribution to approved scheme Restricted to 19% of employee’s
(e.g. EPF, PRS) remuneration

S.34(6)(e) Provision of equipment and renovation of No restriction – Fully deductible
building for disabled person
S.34(6)(f) Translation/Publication of book No restriction – Fully deductible
S.34(6)(g) Provision of library facilities Deductible up to RM100,000 per year
S.34(6)(h),(ha) Social responsibility payment No restriction – Fully deductible
S.34(6)(i) Provision and maintenance of child care No restriction – Fully deductible
centre for the benefits of employees
S.34(6)(j) Establishing/managing Musical or Cultural No restriction – Fully deductible
Group
S.34(6)(k) Sponsoring arts, cultural or heritage Deductible up to RM1 million per year (
activities but for foreign arts/cultural/heritage
S.34(6)(l) activities, up to RM300,000 only)
S.34(6)(m) Provision of scholarship to students No restriction – Fully deductible
Obtaining accreditation for a laboratory No restriction – Fully deductible
S.34(6)(n) or as a certification body, from
S.34(6)(o) Department of Standards Malaysia No restriction – Fully deductible
Practical training to non-employees No restriction – Fully deductible
International Standardization (ISO)
activities e.g. conference, workshop, etc
approved by Department of Standards
Malaysia

Double deduction

Section Item
S.34(6)(ma) Obtaining certification for recognised quality systems and standards; or halal
certification

Gazette Order/Case Law:

Item Restriction

a) Statutory audit fees No restriction – Fully deductible

b) Secretarial and tax filing fees (w.e.f YA2020) Deductible up to RM15,000 per year

c) Guarantee and commitment fees No restriction – Fully deductible

d) Compensation paid to employee for dismissal No restriction – Fully deductible

of employment

e) Cost of listing in Bursa Malaysia (for Deductible up to RM1.5 million

technology-based

companies and SMEs)

f) PTPTN loan repayment on behalf of employee No restriction – Fully deductible

(for repayment made from 1 January 2020 to

31 December 2021)

g) Cost of developing website Deductible at 20% per year (i.e. spread

throughout 5 years)

h) Cost of acquiring Proprietary rights* (Available Deductible at 20% per year (i.e. spread

to manufacturing company only) * patents, throughout 5 years)

industrial designs, or trademarks

Double deduction
a) Childcare centre:
- provision and maintenance of child care centre registered with the Department of Social Welfare;
- child care allowance to employees

b) Training cost for unemployed graduates

c) Vendor Development Programme
- Amount qualified for double deduction shall not exceed RM300,000 in each year of assessment (YA) for 3
consecutive YAs.

d) Expenditure on issuance of Sukuk (effective YA2019 -2020)

e) Remuneration paid to disabled employee

f) Structured Internship Programme (SIP) i.e. approved internship programme conducted for students.
(effective YA2017 – 2021)
- Limited to RM5,000 per student per year

g) Remuneration paid to an employee who is a senior citizen or ex-convict (effective YA2019 – 2020)

h) Promotion of Exports, such as:
- registration of patent, trademark and product licensing in overseas
- International trade fair held in Malaysia
- Advertising expenditure on Malaysian brand name goods
- Export credit insurance premium

i) Approved training provided
- to employees
- non-employees (disabled person)

j) Freight charges for shipping goods from Sabah/Sarawak to Peninsular Malaysia

k) Approved Research & Development (R&D) Expenditure

l) Cash contributions to approved research institute

m) Rental paid for Tun Razak Exchange (TRX) building (effective: YA2014 – 2020)
- Amount qualified for double deduction is 50% of the rental paid

2) Non-Allowable Expenses
Can be categorised into four groups:-
a) Expenses that are not incurred: e.g.
- depreciation
- general provision for bad debts
- provision for stock obsolescence
- unrealised exchange loss *

* Tax treatment for exchange gain/loss (PR 12/2019)

Exchange Gain - is an income

Type of transaction Nature of income Realised/Unrealised Tax treatment

Trade Revenue Realised Taxable as business income

Revenue Unrealised Not taxable

Capital Realised/Unrealised Not taxable

Non-Trade Revenue Realised Not taxable as business income
BUT is taxable as non-business
income if not exempted.

Revenue Unrealised Not Taxable

Capital Realised/Unrealised Not taxable

Exchange Loss – is an expense

Type of transaction Nature of expenditure Realised/Unrealised Tax treatment

Trade Revenue Realised Allowable expense

Revenue Unrealised Non-allowable expense

Capital Realised/Unrealised Non-allowable expense

Non-Trade Revenue Realised Non-allowable expense for
business income but is allowable
for the respective non-business
income

Revenue Unrealised Non-allowable expense

Capital Realised/Unrealised Non-allowable expense

b) Capital expenditure: e.g.
- cost of printing and distribution of annual reports
- stamp duty and secretarial fees for increased share capital
- legal and professional fees relating to violation of laws, capital structure of company, acquisition of loan or
assets.
- donations and zakat
- lump sum payment for early termination of leasing contract
- registration of trademark
- Compensation to competitor to restrict competition (restrictive covenant)
- loss on disposal of fixed assets

c) Expenses related to investment income (i.e. non-business income, e.g. dividend, interest) Prohibited
expenses (Sec.39) e.g.

- leave passage ( except for yearly leave passage for employees within Malaysia)
- payment made to non-resident which is subjected to withholding tax (WHT), where the company failed to
pay the WHT to the tax authority.
- lease rental exceeding RM50,000 (or RM100,000 in special circumstances) in aggregate on non-
commercial vehicle.
- Entertainment expenses for potential client
- Entertainment allowance for employees, only 50% allowable.

d) Expenses under S39 Prohibited Expenses