24/08/2026
Are foreign-owned companies eligible to claim expenses as tax deductions?
① Can a Foreign-Owned Sdn. Bhd. Deduct Normal Business Expenses? — Yes.
② Can Foreign Shareholding Affect the 15% / 17% SME Preferential Tax Rates? — Yes. A 20% foreign ownership threshold is an important condition to consider.
Under LHDN’s general principle, expenses that are “wholly and exclusively incurred in the production of gross income” may generally be considered for tax deduction.
However, private or domestic expenses, capital expenditure, and expenses specifically restricted under tax law are not automatically deductible.
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What Company Expenses Can a Sdn. Bhd. Deduct?
Are Companies with Foreign Shareholders Eligible?
1. Foreign-Owned Companies Can Still Deduct Normal Business Expenses
A Malaysian incorporated Sdn. Bhd. may still claim qualifying business expenses even if it is:
100% owned by foreign individuals
or
100% owned by a foreign company
Foreign ownership does not automatically prevent the company from claiming genuine business expenses.
The key question is generally not the nationality of the shareholders, but:
Was the expense genuinely incurred for the purpose of producing the company’s business income?
Therefore, foreign-owned and locally owned companies may both claim qualifying operating expenses according to the nature of their business and the applicable Malaysian income tax rules.
The basic principle is:
Genuine Expense + Incurred to Produce Business Income + Proper Supporting Documents + Not Specifically Disallowed by Tax Law
→ The expense may generally qualify for tax deduction.
Common Business Expenses and General Tax Treatment
Employees
Salary / Wages Generally 100%
Employer EPF / SOCSO / EIS Generally 100%*
Employee Meals / Staff /Entertainment Generally 100% if qualifying
Client Meals / Entertainment Generally 50%; certain categories may qualify for 100%
Premises
Office Rental Generally 100%
Warehouse Rental Generally 100%
Logistics
Freight Generally 100%
Courier Generally 100%
Transport Generally 100%
Forwarding / Clearing Generally 100%
Goods
Trading Stock Subject to inventory / COGS rules
Cost of Goods Sold Actual qualifying cost of goods sold
Marketing
Advertising Generally 100%
Digital Marketing Generally 100%
Professional Services
Accounting Generally 100%
Tax / Tax Agent Fees Depends on nature; operating compliance portion generally deductible
Legal Fees Depends on nature
Professional Fees Depends on nature
IT
Server Rental Generally 100%
Software Subscription Generally 100%
Cloud Services Generally 100%
Domain Annual Fee Generally 100%
Finance
Business Loan Interest- May qualify, subject to applicable restrictions
Business Bank Charges Generally 100%
Insurance
Business Insurance Generally 100%
Repairs
Business Premises Repairs Generally 100% if qualifying
Equipment Repairs Generally 100% if qualifying
Vehicles
Petrol / Fuel - Business-use portion generally deductible
Toll / Parking - Business-use portion generally deductible
Vehicle Repair / Maintenance - Business-use portion generally deductible
* Employer EPF contributions and similar items remain subject to specific statutory and tax limitations. It should not be assumed that every amount contributed by the employer is deductible without limit.
LHDN also commonly identifies expenses such as wages and salaries, employee EPF / SOCSO, business insurance, business premises rental, interest on business borrowings, domain annual fees, and server rental as examples of allowable business expenses, subject to the applicable conditions.
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Meals Require Special Attention
This is one of the areas most commonly handled incorrectly.
Staff Meals / Staff Entertainment
Qualifying employee entertainment may be 100% deductible.
Examples may include:
• Annual Dinner
• Staff Lunch
• Employee Gatherings
• Other qualifying staff entertainment
LHDN Public Ruling 4/2015 provides that qualifying entertainment provided to employees may fall within categories eligible for 100% deduction.
Client Meals / Business Entertainment
Where meals or entertainment are provided to:
Directors + Clients
or involve general client entertainment, the deduction is generally:
50%
unless the expenditure falls within a specific category qualifying for 100% deduction under the Income Tax Act.
For example:
Client business dinner: RM1,000
If treated as general qualifying entertainment:
Tax deduction: RM500
Remaining RM500: Added back in the Tax Computation
Therefore, businesses should not treat every restaurant receipt as 100% tax deductible.
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Trading Stock Is Not Simply “Whatever You Buy, You Deduct”
Assume the company purchases:
RM1,000,000 of goods from China in 2026
At year-end, it still has:
RM400,000 of unsold inventory
It would not be correct to simply conclude:
“The company paid RM1 million, so the entire RM1 million can be deducted this year.”
The accounting calculation generally follows:
Opening Inventory + Purchases + Direct Costs − Closing Inventory = Cost of Goods Sold
Unsold inventory generally remains on the Balance Sheet as Inventory until the related goods are sold and their cost is recognised as COGS.
Therefore:
The amount deductible generally depends on the cost of inventory actually sold.
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Repairs: The Difference Between Revenue Expense and Capital Expenditure
For example, if the warehouse air-conditioning system breaks down:
Repair of existing air-conditioning system: RM3,000
If it qualifies as an ordinary repair expense:
It may generally be deductible.
However, if the company:
Removes the old system and installs a completely new large central air-conditioning system costing RM100,000
the expense should not automatically be treated as 100% deductible merely because the invoice describes it as “repair works.”
If the expenditure creates a new asset, significantly improves an existing asset, or is otherwise capital in nature, it may need to be capitalised and considered for Capital Allowance instead.
LHDN’s treatment of repairs similarly distinguishes ordinary repairs used in producing income from capital expenditure.
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Computers, Machinery and Equipment: Do Not Describe Them as “100% Tax Deductible”
These are commonly treated as:
Capital Expenditure → Capital Allowance
For example, if the company purchases:
Computer: RM10,000
it is not necessarily correct to simply calculate:
Profit RM100,000 − Computer RM10,000 = Taxable Profit RM90,000
The computer may first be recognised as a fixed asset, after which the Tax Agent determines the applicable Capital Allowance based on the relevant asset category.
LHDN examples may include:
• 20% Initial Allowance
• Computer / ICT Equipment: examples of 40% Annual Allowance
• Vehicles / Heavy Machinery: examples of 20% Annual Allowance
The actual rate must still be determined according to the applicable asset classification and prevailing tax rules.
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Business Loan Interest Is Not Automatically 100% Deductible
For example:
Company borrows RM500,000 → Uses it to purchase trading stock → Interest RM25,000
If the borrowing satisfies the business-purpose requirements under Section 33, the interest may generally be considered for deduction.
However, if:
The company borrows money → Transfers it to a shareholder to purchase a private residence
the company cannot automatically claim the entire interest expense merely because the borrower is a Sdn. Bhd.
Larger companies, group financing arrangements, and certain cross-border or related-party financing may also need to consider Section 140C interest deductibility restrictions.
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A Practical Four-Question Test for Every Expense
For every company expense, ask:
① Was the expense genuinely incurred?
Is the Invoice / Receipt genuine?
② Is it related to earning business income?
Was it incurred for the purpose of producing the company’s business income?
③ Is there sufficient evidence?
Can the company reconcile:
Invoice + Payment + Agreement / Business Purpose?
④ Is it Revenue or Capital in nature?
Is it an ordinary operating expense, or does it relate to acquiring or improving a long-term asset?
Even if the first three conditions are satisfied, this does not automatically mean the expense is 100% deductible. The company must still consider any specific restrictions under the Income Tax Act.
A simple client-friendly summary would therefore be:
Normal operating expenses: Generally 100% deductible if qualifying.
Staff Meals: Generally 100% if qualifying.
General Client Entertainment: Usually 50%; certain categories may qualify for 100%.
Inventory: Deducted according to COGS / inventory principles.
Asset Purchases: Generally through Capital Allowance rather than immediate 100% deduction.
Loan Interest and Professional Fees: Require further review of purpose and nature.
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Salary / Wages
If an employee is genuinely employed by the company and performs work for the business:
Salary RM5,000 × 12 months = RM60,000
Subject to the applicable conditions:
Tax Deductible Expense: RM60,000
The company should retain:
Employment Contract + Payroll + Payslip + Bank Payment + EA / Statutory Records
Director remuneration should also be treated according to its actual nature and circumstances.
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EPF / SOCSO / EIS
Normal statutory employer contributions are generally part of employee-related business costs.
For example:
Salary + Employer EPF + SOCSO + EIS
qualifying portions may be deductible in the company’s tax computation.
However, especially for EPF, there are specific tax limitations applicable to employer contributions. Businesses should not tell clients:
“The company can contribute any amount and claim 100% deduction.”
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Office / Warehouse Rental
If an office or warehouse is genuinely used for the company’s business:
Office Rental: RM3,000 per month
Annual rental:
RM36,000
If qualifying:
Generally RM36,000 may be deductible.
The same principle applies to warehouse rental.
Recommended supporting records:
Tenancy Agreement + Stamp Duty Record + Rental Invoice / Receipt + Company Payment
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Freight / Courier / Transport / Forwarding
For companies involved in:
Trading / E-commerce / Import / Export
these are commonly normal business costs.
For example:
China Supplier
→ International Freight
→ Malaysia Port
→ Forwarding Agent
→ Warehouse
Qualifying costs such as:
Freight + Courier + Forwarding + Transportation
may generally be recognised in the company’s accounts.
However, certain costs directly attributable to acquiring inventory may need to be included in:
Inventory Cost / Cost of Goods Sold
rather than being immediately treated as an administrative expense.
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Advertising / Digital Marketing
Examples include:
• Google Ads
• Meta / Facebook Ads
• TikTok Ads
• Marketplace Advertising
• SEO
• Business Promotion
• Influencer Marketing
If genuinely incurred to promote the company’s business and supported by proper documentation:
Generally 100% deductible
However, if a shareholder uses company funds to promote a personal social media account unrelated to the company’s business, the expenditure does not automatically become tax deductible merely because the company paid for it.
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Accounting / Tax / Legal / Professional Fees
These should be considered separately according to their nature.
Accounting Fees
Normal:
Bookkeeping / Accounting / Financial Statement Preparation
generally relates to the company’s operations and compliance:
Generally deductible
Legal Fees
The purpose of the legal service must be examined.
For example:
Legal fees incurred to recover customer debts
may be revenue in nature and potentially deductible.
However:
Legal fees incurred to acquire an investment property
may be capital in nature.
Therefore, businesses should not state:
All Legal Fees = 100% Tax Deductible
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Server / Software / Cloud / Domain
Normal recurring business expenses may include:
• AWS
• Microsoft 365
• Google Workspace
• Accounting Software
• CRM
• Shopify
• Web Hosting
• Server Rental
• Domain Renewal
Where these are recurring operating expenses:
Generally 100% deductible
However, if the company purchases a major permanent IT system or hardware asset, the expenditure may be capital in nature and require consideration under Capital Allowance.
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Bank Charges
Normal business banking charges may include:
• TT Charges
• SWIFT Charges
• Merchant Fees
• Payment Gateway Fees
• Business Account Charges
If directly related to business activities:
Generally 100% deductible
However, the nature of the payment must still be distinguished. For example, repayment of loan principal is not an ordinary business expense.
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Business Insurance
Examples include:
• Warehouse Insurance
• Fire Insurance
• Cargo Insurance
• Public Liability Insurance
• Professional Indemnity Insurance
• Other insurance relating to business operations
If qualifying:
Generally 100% deductible
Private insurance does not automatically become a company tax deduction merely because the company pays the premium.
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Petrol / Fuel
This is an area where business owners should maintain proper records.
Situation A: Company Vehicle Used for Business
For example, a company van travels daily between:
Warehouse → Customer → Supplier → Port
Annual petrol expense:
RM12,000
If the company can demonstrate that the expense relates entirely to business use:
Business-use petrol may generally be considered deductible.
Recommended records:
Petrol Receipt + Company Payment + Vehicle Information + Business Usage Record
Situation B: Director’s Vehicle Is Used for Both Business and Private Purposes
For example:
70% Business Use
30% Private Use
The company should not simply submit all petrol receipts and claim 100% tax deduction.
A reasonable distinction should be made between:
Business Portion vs Private Portion
The private-use portion may require adjustment in the Tax Computation.
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Toll / Parking
The same Business Purpose principle applies.
For example:
Travelling to a customer’s office for a meeting
Visiting the warehouse to inspect inventory
Travelling to the port to handle company cargo
If the Toll + Parking expenses have a genuine business purpose and are supported by records:
The business-use portion may generally be considered deductible.
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Foreign Shareholding and SME Preferential Tax Rates
A foreign-owned Sdn. Bhd. may still claim qualifying normal business expenses.
However, this should be distinguished from eligibility for the 15% / 17% SME preferential corporate tax rates.
Foreign ownership may affect whether the company qualifies for those preferential rates. In particular, the applicable foreign ownership conditions and the relevant 20% direct or indirect foreign ownership threshold should be reviewed carefully.
Therefore:
Foreign Ownership Does Not Automatically Prevent Business Expense Deductions
but:
Foreign Ownership May Affect Eligibility for SME Preferential Corporate Tax Rates
These are two separate tax issues.
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Core Principle
Genuine business expenses incurred by the company may be claimed according to the applicable Malaysian income tax rules where they are connected with producing business income and supported by complete documentation.
Different expenses may be subject to different treatments, including:
100% Deduction
50% Deduction
Capital Allowance
COGS / Inventory Treatment
Specific Tax Restrictions
For every material expense, the company should maintain:
Invoice / Receipt
+ Company Payment
+ Business Purpose
+ Supporting Documents
= Accounting & Tax Evidence
