Which business expenses can a Malaysian company deduct for tax?
An expense is deductible if it is incurred in producing business income, and it is revenue rather than capital in nature. Typical examples are salaries, rent, utilities, interest on business loans, and professional fees. Capital items get capital allowances instead.
The Income Tax Act allows a deduction for outgoings that are wholly and exclusively incurred in producing the company's gross income, as long as they are not specifically barred.
Commonly deductible:
- Salaries, bonuses and employer EPF and SOCSO contributions
- Rent of business premises, utilities, office supplies
- Interest on money borrowed to produce income (apportioned if part is non-business)
- Specifically identified bad debts that are reasonably judged irrecoverable
- Professional fees such as accounting, audit, tax and legal fees
- Approved donations, capped at 10% of aggregate income
- Certain start-up costs such as incorporation and recruitment (conditions apply)
Tests that apply:
- Revenue, not capital: buildings, machinery and big refurbishments are capital and earn capital allowances, not an immediate deduction.
- Incurred in the year: the cost must relate to the basis period, not future or merely anticipated costs.
- Supported by records: keep invoices and contracts for seven years.
Payments to non-residents may require withholding tax to be paid for the deduction to stand, as described in the withholding tax answers.
This is a general guide; unusual items should be checked against LHDN rulings.
Legal basis
- Income Tax Act 1967, s.33(1)
- Income Tax Act 1967, s.34
Sources
Applies to YA 2026 · Last reviewed 29 October 2026
General information for business owners, not legal, tax or professional advice. Rules change, so check the sources or ask a licensed professional before you act.
Related questions
- What is PCB or MTD and what must I deduct from employees' salaries?PCB (also called MTD) is the monthly tax an employer deducts from an employee's pay and pays to LHDN. LHDN requires the amount to come from its MTD schedule or computerised method and to be remitted by the 15th of the following month.
- Which expenses are not deductible for tax in Malaysia?Private or domestic expenses, capital expenditure, fines and penalties, income taxes, and goodwill are not deductible. Entertainment of customers and unapproved donations are also restricted. Accounting profit must be adjusted by adding these back.
- Are entertainment expenses tax deductible in Malaysia?Only partly. Business entertainment, such as meals with customers or suppliers, is generally 50% deductible, while entertaining potential customers is not deductible. Entertainment provided purely to your own employees is generally deductible in full.
- How do capital allowances work for equipment and vehicles in Malaysia?Because accounting depreciation is not deductible, a company claims capital allowances on qualifying assets: an initial allowance plus annual allowances. General plant and machinery gets 20% initial and 14% annual, and assets under RM2,000 can be written off in full, up to a total of RM20,000.
- Are there double or extra tax deductions available to Malaysian SMEs?A few exist but they are narrow. Budget 2026 adds an extra 50% deduction for certified AI and cybersecurity training for SMEs, and there is a 200% automation capital allowance on up to RM10 million of qualifying spending until YA 2027.