Short answer. A company can deduct expenses that are incurred wholly and exclusively in producing its income, unless a specific rule in the Income Tax Act 1967 restricts or denies the deduction. Capital expenditure is generally not deductible but may qualify for capital allowances. Keep proper records, because LHDN can ask you to support every claim.
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In this article
The general test
The Income Tax Act 1967 allows a deduction for expenses wholly and exclusively incurred in the production of gross income. Two parts of that wording matter:
- Wholly and exclusively: an expense with a private or non-business element is not fully deductible.
- In the production of income: the spending must connect to earning the income of the business.
Beyond the general test, the Act lists specific deductions and also specific prohibitions. LHDN public rulings explain how it applies the rules.
Commonly deductible expense types
Depending on the facts and the rules, these are often deductible:
- Salaries, wages and employer contributions for staff.
- Rent and utilities for business premises.
- Professional fees, such as accounting, audit and company secretarial fees (subject to the type of fee).
- Marketing and advertising.
- Repairs and maintenance (as distinct from improvements).
- Interest on borrowings used for the business, subject to rules.
- Bad debts that meet the conditions.
Expenses with restrictions or special rules
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- Entertainment and gifts. Special rules limit what can be claimed.
- Motor vehicles. Limits and rules apply to expenses and allowances.
- Provisions and accruals. Must meet conditions before deduction.
- Interest and related-party transactions. Rules can restrict deduction.
- Pre-commencement expenses. Rules depend on timing.
- Double deductions or special incentives. Available for particular spending, with conditions.
Check the current rule for each. Do not assume that because a cost was in the accounts it is deductible for tax.
Expenses that are not deductible
- Private or domestic expenses, including personal costs of owners.
- Capital expenditure, which may qualify for capital allowances instead.
- Fines and penalties for breaking the law.
- Amounts the Act specifically disallows.
- Expenses not incurred in the production of income.
Records you need to keep
For each claim, keep:
- The invoice or receipt in the company’s name.
- Proof of payment.
- A note of the business purpose where it is not obvious.
- Contracts or approvals for larger items.
LHDN can request support during a review. Missing documents turn a valid expense into an unsupported claim. See what documents to send your accountant every month.
Director and related-party items
Payments to directors and related companies attract attention. Make sure they are documented, at fair value, recorded in the right account, and that director loans and fees are correctly handled. Personal spending paid by the company must be treated as a director’s loan or benefit, not as a company expense.
When to take advice
Get advice before large or unusual spending, when claiming incentives, when an expense has a personal element, or when a transaction involves overseas parties. Axecta’s tax team reviews expense claims, adjusts the tax computation and supports you in case of an LHDN query.
The statutory framework
The general deduction rule is in section 33(1) of the Income Tax Act 1967, which allows a deduction for outgoings and expenses wholly and exclusively incurred in the production of gross income. Section 39 lists expenses that cannot be deducted. Capital expenditure is dealt with through capital allowances under the Act’s schedules, not as a direct deduction. LHDN’s public rulings and guidelines explain how it applies these provisions; look for the relevant ruling on hasil.gov.my before you claim an unusual item.
A claim-review table
| Item | Typical treatment | What to check |
|---|---|---|
| Staff salaries and employer contributions | Usually deductible | Payroll records, statutory payments |
| Rent and utilities | Usually deductible | Business use, invoices in the company name |
| Professional fees | Depends on nature | Revenue vs capital, for example fees for acquiring an asset |
| Entertainment | Restricted by rules | Check section 39 and LHDN’s guidance |
| Motor vehicles | Special rules | Allowances and restrictions |
| Fines and penalties | Not deductible | Remove from the expense lines |
| Private expenses | Not deductible | Reclassify as director loan or benefit |
Documentation habit
Add a one-line purpose note to any expense that is not obviously for the business. Auditors and LHDN reviewers read purpose notes. Keep payment proof, not only the invoice. See what documents to send your accountant.
Frequently asked questions
What expenses can a company claim?
Those wholly and exclusively incurred in producing income that are not restricted by the Act. Typical examples are salaries, rent, utilities and professional fees.
Are entertainment expenses deductible?
Entertainment is subject to specific rules that limit or deny deductions in some cases. Check the current rule and conditions.
Can I deduct director salaries?
Remuneration for services to the company is generally deductible if it is properly documented and reasonable. Other payments to directors need separate analysis.
What receipts do I need to keep?
Invoices or receipts, proof of payment and notes on business purpose. Axecta can set up a simple document routine.
Where is the general deduction rule?
Section 33(1) of the Income Tax Act 1967 (wholly and exclusively incurred in the production of gross income).
Where are non-deductible expenses listed?
Section 39 of the Act.
Are fines deductible?
No. Remove them in the tax computation.
Want a second pair of eyes on your claims?
Axecta Management Services is a full-suite accounting, company secretarial and consulting firm in Kuala Lumpur, serving companies from SMEs to MNCs.
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Keep reading
- Accounting Mistakes That Create Tax Problems
- Malaysia Corporate Tax Rate for Sdn Bhd
- What Documents Should You Send Your Accountant Every Month?
- Sole Proprietor Tax in Malaysia: Filing Form B
- Tax Record-Keeping Requirements in Malaysia
- Form C Filing Deadline and Common Mistakes
- CP204 Estimated Tax: How It Works
- Cost of Setting Up a Sdn Bhd in Malaysia
- Corporate Income Tax: the full guide
Official sources to check
- Income Tax Act 1967 (deduction provisions)
- LHDN public rulings
- LHDN guidance on specific deductions
This article is general information and not legal, tax or accounting advice for your company. Rates, thresholds, deadlines and procedures change, so confirm current requirements with the sources above or with Axecta.