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.
When preparing the tax computation, start from accounting profit and add back items the Act does not allow.
Common add-backs:
- Domestic or private expenses (for example the owner's personal bills paid by the company)
- Capital expenditure, including start-up costs that are capital in nature
- Depreciation (replaced by capital allowances)
- Fines and penalties, and taxes on income
- Goodwill acquisition or amortisation
- Employer contributions to unapproved pension or savings schemes
- Unapproved donations, and approved ones above the cap
- Entertainment of potential customers (see the entertainment answer)
- Provisions that are general rather than specific, such as a general bad debt provision
- Interest on borrowings not used for the business
Why it matters: a director's personal expense booked through the company reduces accounting profit but is added back, so there is no tax saving. Repeated mixing of personal and business spending is a frequent audit finding and can produce penalties on understated income.
Record the nature and purpose of each unusual expense when it is incurred, because LHDN may ask for proof several years later. Treat borderline items as non-deductible unless you can show the business link.
Legal basis
- Income Tax Act 1967, s.39
- Income Tax Act 1967, s.33
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.
- 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.