Quick answer: Under section 33 of the Income Tax Act 1967, an expense is generally deductible if it is wholly and exclusively incurred in the production of income. LHDN lists salaries, EPF and SOCSO, rent, utilities, advertising and repairs as examples of allowable expenses, and provisions, depreciation, capital expenditure, fines and private expenses as non-allowable. Entertainment of existing customers and suppliers is 50% allowable, and entertainment of potential customers is not allowable.
- The test: wholly and exclusively incurred in the production of income.
- Allowable examples: salaries, EPF, SOCSO, rent, utilities, advertising, repairs.
- Not allowable: provisions, depreciation, capital expenditure, fines, private expenses.
- Entertainment: 50% for existing customers and suppliers, nil for potential customers.
- Section 39 lists deductions that are not allowed.
Allowable and Non-Allowable Examples
| Allowable (examples) | Not allowable (examples) |
|---|---|
| Employee salary, allowances, EPF and SOCSO | Provisions and general bad debt provisions |
| Business insurance and rent for premises | Depreciation |
| Advertising to promote sales | Capital expenditure such as renovation or construction |
| Electricity, water, telephone and internet | Income tax, tax penalties and fines |
| Repair, maintenance and repainting of premises | Non-approved donations |
| Staff training and entertainment of employees | Domestic, private or capital expenditure |
| Commission to secure sales | Employee leave passages |
| Specific trade debts written off, subject to conditions | Unrealised foreign exchange losses |
Entertainment
| Guest | Allowable |
|---|---|
| Existing customers | 50% |
| Suppliers | 50% |
| Potential customers | Not allowable |
Other Conditions
Payments to non-residents that are subject to Malaysian withholding tax are not allowable if the withholding tax was not paid. Employer contributions to approved schemes are capped at 19% of employee remuneration. Passenger car lease rentals are capped at RM50,000 or RM100,000 per car, depending on the vehicle's cost and prior use. Legal fees for a bank loan or for acquiring premises are capital, though capital allowances may apply instead.
Check the Date of the Guidance
The LHDN guidance used here is dated 11 May 2022. The test and examples are drawn from the Income Tax Act, but specific caps and rules can change, so confirm against current LHDN rulings before you finalise a claim.
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Mistakes
Claiming private expenses through the company
Domestic and private expenditure is not allowable.
Deducting provisions
General provisions are not allowable. Specific trade debts written off may be, subject to conditions.
Forgetting withholding tax on overseas payments
The expense is not allowable until the tax is paid.
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Frequently Asked Questions
Quick answers.
What makes an expense tax deductible?
It must be wholly and exclusively incurred in the production of income, under section 33.
Are salaries deductible?
Yes, including allowances, EPF and SOCSO.
Is rent deductible?
Rent for business premises is allowable.
Are fines deductible?
No. Income tax, tax penalties, fines and penalties are not allowable.
Is depreciation deductible?
No. Capital allowances may apply to qualifying assets instead.
Is renovation deductible?
Capital expenditure such as renovation is not allowable.
How is entertainment treated?
50% for existing customers and suppliers. Not allowable for potential customers.
Are donations deductible?
Non-approved donations are not allowable.
Are bad debts deductible?
Specific trade debts written off may be, subject to conditions. General provisions are not.
Are leave passages deductible?
LHDN lists employee leave passages as non-allowable.
Is the guidance current?
The LHDN slide used is dated 11 May 2022. Confirm against current rulings.
Can you review our claims?
Yes. We review the expenses when preparing the tax computation.
Sources
Official sources
This page is general information, not legal advice. Agencies change their requirements, so confirm the current rules with LHDN, the Royal Malaysian Customs Department and SSM, or with us, before you act. Checked November 2026.
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