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.
Entertainment is one of the most examined items in a tax audit.
General treatment under the Act:
- Entertainment of existing business contacts: 50% of the expense is allowed, provided it is incurred for business purposes.
- Entertainment of potential customers: not deductible at all.
- Staff entertainment: allowed in full, such as a staff dinner or festive event, unless it is incidental to entertaining outsiders. If clients attend the same event, the expense may be restricted.
Practical points:
- Keep the receipt and a note of who attended, their company and the business purpose.
- Gifts are treated differently from entertainment; gifts carrying your logo may be deductible, but check the relevant ruling.
- The entertainment definition in the Act is wide and covers food, drink, recreation and hospitality.
Where the rules come from: s.39(1)(l) restricts the deduction to 50% of entertainment expense, with the exceptions in its provisos, and s.33(1) requires the cost to be wholly and exclusively incurred in producing income. LHDN's Public Ruling No. 3/2008 (Entertainment Expense) explains both steps and gives the potential-customer example. Check the ruling before relying on a borderline case such as a company retreat or a customer event with mixed guests.
Legal basis
- Income Tax Act 1967, s.18 (definition of entertainment)
- Income Tax Act 1967, s.33(1)
- Income Tax Act 1967, s.39(1)(l)
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.
- 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.