How are directors' fees and salaries taxed in Malaysia?
A director's salary and fees are employment income taxed in the director's hands at personal rates, and are deductible to the company if incurred for the business. Salary goes through payroll with PCB; fees are often paid once a year, so check which year each fee falls into.
The treatment differs between the company and the individual.
For the company:
- Salary, bonus and employer EPF/SOCSO for working directors are normally deductible.
- Directors' fees voted and approved by the company are deductible only if they pass the s.33(1) test (wholly and exclusively incurred in producing income) and are genuinely incurred, so they should be reasonable and supported by a resolution. Decide in which year of assessment each fee belongs when you close the accounts, and confirm the timing with your tax agent before accruing large fees.
For the director:
- Salary is employment income, with PCB deducted monthly.
- Directors' fees are also employment income: s.13(1)(a) lists a "fee", and a director of a Malaysian-resident company is treated as earning it in Malaysia (s.13(2)(d)). Because they are often paid once a year, the tax usually has to be settled through the director's annual return unless PCB is deducted.
- Benefits such as a company car or housing may be taxable as benefits-in-kind.
Withdrawals that are not salary: money taken from the company without being recorded as salary, fees or a dividend can be treated as a loan to the director and may attract audit queries and tax consequences.
Owner-managers: salary reduces company profit, saving tax at 15% to 24%, but is taxed at progressive personal rates up to 30%. Compare with dividends before deciding the mix.
Legal basis
- Income Tax Act 1967, s.13(1)(a) and s.13(2)(d)
- Income Tax Act 1967, s.33(1)
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 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.
- 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.