TAX - Entertainment Expenses (PR NO. 4/2015)

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Entertainment ExpensesDefinition of Entertainment under Section 18


"Entertainment" includes:-

(a) the provision of food, drink, recreation or hospitality of any kind; or

(b) the provision of accommodation or travel in connection with or for the purpose of facilitating entertainment of the kind mentioned in paragraph (a) above,


by a person or an employee of his, with or without consideration paid whether in cash or in kind, in promoting or in connection with a trade or business carried on by that person.


Section 33(1) of Income Tax Act 1967 ("ITA")


Section 33(1) provides that for the purposes of determining tax, a person’s (or business’) gross income shall be adjusted by deducting from that source, all outgoings and expenses wholly and exclusively incurred in the production of gross income[1]. In short, when you spend money to earn money, you’re allowed to deduct that cost from the income.


Deduction for Entertainment Expense

Entertainment expense (section 18) under subsection 33(1) - allowed 50% deduction.


Unless


Within specified categories in provisos (i) to (viii) section 39(1)(l) - qualifiers 100% deduction.


Entertainment Expense which Qualifies for a One Hundred Percent (100%) Deduction


1. The provision of entertainment to employees.


Expenditure on food, drink and recreation provided to employees


Examples: free meals and refreshment, annual dinners, outings, family day or club membership for employees.


2. The provision of entertainment for payment 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.


Examples: Cultural shows by restaurants and meals provided by airlines


3. The provision of promotional gifts at trade fairs or trade exhibitions or industrial exhibitions outside Malaysia


Expenditure incurred on promotional gifts at trade fairs or trade exhibitions or industrial exhibitions held outside Malaysia for the purpose of promoting exports from Malaysia.


Examples: Samples of products, small souvenirs, bags and travel tickets.


4. The provision of promotional samples of products of the business


Expenditure incurred on promotional samples of products of the business for the purposes of advertising that product.


Examples: Free samples of products


5. The provision of entertainment for cultural or sporting events open to members of the public wholly to promote the business


Expenditure incurred on providing entertainment for cultural or sporting events which are open to members of the public for the purpose of promoting the business.


Examples: Promotion of arts, badminton tournaments and etc.


6. The provision of promotional gifts within Malaysia of articles incorporating the logo of the business


Expenditure on promotional gifts within Malaysia consisting of articles incorporating a conspicuous advertisement or logo of the business.


Expensive gifts given to selected persons or to persons who do not have business relationship with the giver is not considered as promotional gifts under this proviso.


7. The provision of entertainment related wholly to sales arising from the business


Expenditure incurred on entertainment which is related wholly to sales arising from the business.


Examples: expenses on food and drink for launching of a new product; redemption vouchers given for purchases made; cash vouchers, discount vouchers, shopping vouchers, meal vouchers, concert or movie tickets and etc.


* Vouchers, coupons, tickets, gifts and so on are only allowed as entertainment expenses when customers have redeemed them.


8. The provision of leave passage benefit provided by an employer to its employees


Expenditure on leave passage benefit provided by an employer to its employees to facilitate a yearly event within Malaysia



Entertainment Expense which Qualifies for a Fifty Percent (50%) Deduction


1. Entertainment expense (section 18) under subsection 33(1) - allowed 50% deduction. (Not fall within Section 39(1)(l)


Examples: Hampers to customers, dinner with suppliers and etc.


Information from:

LHDN website

Income Tax Act 1967
For more information, find us on:Facebook: KJS & Associates

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