It’s a little trick called tax deduction.
General rule of thumb, entertainment expense that is wholly and exclusively incurred in the production of gross income will qualify for tax deduction under subsection 33(1). However, it MUST fall within Proviso (i) to
(viii) of paragraph 39(1)(I) in order to qualifies for 100% deduction OR ELSE only 50% of entertainment expenses are qualify for deduction.
ENTERTAINMENT EXPENSE which qualifies for a 100% tax deduction under paragraph 39(1)(l) of the ITA are as follows:-
If you’re a staff or employee under a company, money spent on you is tax-deductible.
To clarify, your employers can claim a 100% tax deduction for basically any meals spent on you. Under this proviso, this is considered as staff entertainment.
(ii) Provided in the ordinary course of business.
Expenditure on entertainment provided to customers in the ordinary course of business where the payment is imposed for providing that entertainment.
For examples:
(a) restaurants or hotels hosting cultural shows on their grounds to entertain their customers.
(b) meals offered to passengers by airlines or other modes of transportation.
(iii) Promotional gifts at a trade fair outside Malaysia
To put it simply, you are guaranteed a 100% deduction on any promotional gifts handed in at any trade fair outside Malaysia.
But that leaves the question, what about participating in a local fair?
Well, let’s refer to proviso no.6 for this.
(iv) Promotional samples of the company’s product
(v) For cultural/sporting events open to the public
To explain provisos 4 & 5, let’s counter a question back to you.
Ever participated in a sports event?
Chances are you’ve encountered a familiar green truck that hands out a famous beverage locally here in Malaysia.
What many people don’t know is that this is considered entertainment under proviso no.4.
In hindsight, sponsoring drinks in a sporting event is 100% deductible to the company because it is entertainment during a sporting event.
So, the takeaway here is promotional samples of company products in any given event are both considered freebies to the company and to the public. (vi) Promotional gifts with the business logo provided in
Malaysia
Now we’re skipping a few provisos here but hear us out.
(vi) If the gift has a business logo, it will be fully deductible.
To go around this dilemma, just adhere to this proviso to be eligible for that deduction.
Promotional gifts with logos MUST be printed, engraved, or embossed to satisfy this condition. So don’t take the shortcut and simply slap every gift with a sticker.
So, do your planning, or invest in an embosser.
(vii) Related wholly to sales
Now, what does that mean? Well, it’s easier to clarify in an example.
Picture yourself as an owner of an automobile repair shop.
Right now, your clients have sent their vehicles to you for servicing at your repair shop. While they are waiting for repairs; you kindly invite them to your office lounge. Drinks, snacks, and meals are served. You’ve even
whipped out your cable television to entertain them for the time being.
As you’ve guessed, this is considered entertainment provided in the ordinary course of business. While your clients are waiting, you’ve entertained them for that period. All of this is 100% deductible in
taxes.
(viii) Leave passage: Yearly event within Malaysia which involve employer, staff, and their immediate family.
We’re saving the last, but not the least – Proviso no.8.
Many are excited when they hear that a leave passage means a company paid holiday.
As an employer, organizing a trip for your staff is considered entertainment. Thus, leave passage is completely tax-deductible.
An important rule to this is that the company-sponsored trip must be locally based.
One foot outside overseas and you as an employer will miss this tax deduction.
SOURCE: Public Ruling No. 4/2015, Entertainment expenses
