Doubling Your Tax Benefits with Double Deductions in Malaysia

In promoting another CSR initiative and to address the shortage of labour in the market, the Malaysian government encourages the employment of physically or mentally disabled individuals. Remuneration paid to certified disabled employees with a Disabled Person’s Card (or Kad OKU) qualifies for double deduction. This incentive started way back in YA 1982.The disabled employee must be certified in writing by the Department of Social Welfare as a disabled person. Starting from YA 2019, the double deduction for employing disabled individuals has been expanded to include employees affected by accident or critical illness. To claim this deduction, the employer is required to obtain a certification from the Social Security Organisation (SOCSO) to certify that the employee is capable of working within his abilities.

It is noted that the remuneration given to the disabled employees only covers cash remuneration such as wages, salary, bonus, overtime payment, commission or monthly allowances. Therefore, any costs incurred by the company relating to non-cash benefits known as “benefits-in-kind” stipulated under Sections 13(1)(b) and (c) of the Income Tax Act, 1967 (“the Act”) do not qualify for double deduction. Examples of common benefits-in-kind include provision of a company car, living accommodation, mobile phone, medical benefits, etc.

Companies are incentivised to hire individuals from the following groups as their full-time employees:

• Senior citizens who are 60 years and above,
• Ex-convicts,
• Parolees,
• Supervised persons, and
• Ex-drug dependents.

A double deduction shall be given on the remuneration paid to the employees belonging to the above specific groups. The types of remuneration that qualify for double tax include wages, salary, remuneration, leave pay, fee, commission, bonus, gratuity, perquisite, or allowance (whether in money form or otherwise). The double deduction incentive which is subject to a cap of RM48,000 per employee (applies to employees with a monthly remuneration not exceeding RM4,000), is available to employers from YAs 2019 to 2025.

It is noted that employers should maintain the required documents from the relevant authorities in proving that the employees belong to the specific groups that are eligible for the tax incentive. For example, a written confirmation from the Malaysian Prison Department should be obtained for employment of ex-convicts. As for ex-drug dependents, a letter from the National Anti-Drugs Agency is advisable. These documents are required to be produced by the employer if required during a tax audit to be conducted by the Inland Revenue Board (IRB).

Additionally, as announced in the Revised Budget 2023 (which has yet to be gazetted), the scope of the double deduction is expanded to include remuneration paid to inmates and ex-inmates of the Henry Gurney School under the Malaysian Prison Department, as well as protection and rehabilitation institutions and non-government care centres registered with the Department of Social Welfare. This expanded scope will be applicable from YAs 2023 to 2025.

To support working parents especially women in the workforce, the Government encourages employers to provide childcare centres. The incentive comes in the form of double deduction on expenditures incurred by the employer related to the provision and maintenance of a childcare centre for the benefit of its employees, effective from YA 2013. A condition imposed to qualify for such incentive is that the childcare centre must be registered with the Department of Social Welfare under the Child Care Centre Act 1984. The maintenance costs that are eligible for double deduction exclude those relating to capital expenditure, such as renovation cost for the childcare centre, furniture and equipment used in the childcare centre, etc. In addition, if the capital expenditure meets the requirements of a qualifying capital expenditure under Schedule 3 of the Income Tax Act 1967, such costs may be eligible for capital allowances.

If the company does not provide childcare facilities but instead provides childcare allowances to employees, the childcare allowances given will also qualify for double deduction.

There are many benefits for companies to obtain quality certification for their products or services. Obtaining quality certification offers numerous benefits, including improved credibility, increased market opportunities, operational excellence, and enhanced customer satisfaction. It is a strategic investment that can drive long-term success and help organizations maintain a competitive advantage in their industry. These quality certifications include ISO certifications, Halal certifications, etc.

The costs associated with obtaining quality certifications can vary depending on several factors, including the size and complexity of the organization, the scope of certification, the chosen certification body, and the level of existing quality management system maturity. Examples of the associated costs include certification body fees, consulting fees, training fees and external audit fees. As such, companies need to ensure they provide sufficient budget for the expenses before embarking on such an exercise.

As an initiative to support Malaysian companies in obtaining quality certifications recognised internationally, the Malaysian government allows companies to claim double deduction on the costs incurred in obtaining quality certifications certified by accredited bodies. The claim can be made by the company in the year of assessment when the certificate is issued pursuant to Section 34(6)(ma) of the Act.

The certification must be obtained from an approved certification body recognized by the Malaysian government such as SIRIM QAS International Sdn Bhd, Moody International Certification, SGS (Malaysia), Jabatan Kemajuan Islam Malaysia (JAKIM), etc. The list of certification bodies may be revised from time to time and can be found from the IRB’s website.

Companies often participate in internship programs to train and prepare the future workforce in their industry as part of their corporate social responsibility (CSR) initiative. Training may be in the form of a structured internship program (SIP) that aims to provide a meaningful and valuable learning experience for interns, enabling them to bridge the gap between theory and practice, gain industry-specific skills, and make informed career decisions. According to TalentCorp Malaysia, “a Structured Internship Programme (SIP) is designed to equip undergraduates and Technical and Vocational Education and Training (TVET) youths with real working experience through quality internships.”

To incentivise more companies to offer SIP and enhance the employability of local graduates, a double deduction is granted for qualifying expenses. SIP refers to a program which is an organised and planned arrangement where students gain practical work experience in a specific field of their study. It is a formal program designed to provide participants with hands-on training, exposure to real-world work environments, and the opportunity to apply their theoretical knowledge in a practical setting.

There are several conditions for claiming this tax incentive. One of the requirements is that a SIP must receive approval from TalentCorp Malaysia. Secondly, the incentive is only available for employing Malaysian citizens pursuing a full-time diploma, Bachelor’s degree or Master’s degree; or a professional certificate program in higher educational institutions or full-time technical and vocational education and training programs (with a minimum Malaysian Skills Certificate Level 1) from YAs 2022 to 2025.

A company that offers SIP is eligible to claim double deduction on the following expenses:

• Monthly internship allowance paid to a student of Malaysian Skills Certificate Level 1 to 4 or diploma level or its equivalent, of not less than RM500 per student;
• Monthly internship allowance paid to a student of Malaysian Skills Certificate Level 5 or Bachelor’s Degree or Master’s Degree or its equivalent, or professional certificate level, of not less than RM600 per student;
• Expenditures incurred for providing training to the students, digital and communication costs, meals, travel and accommodation for the students during the internship program, subject to a maximum of RM5,000 per YA.