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Understand Tax Deduction for Business Vehicles in Malaysia

Introduction

In Malaysia, businesses can claim tax deductions for expenses incurred on vehicles used for business purposes. Understanding the regulations and allowances surrounding these deductions can help businesses optimize their tax liabilities and manage their finances more effectively.

 

 

Tax Deduction for Business Vehicles in MalaysiaTypes of Deductions

  1. Capital Allowances Capital allowances are available for the cost of acquiring business vehicles. They are provided to compensate for the depreciation of the vehicle over time. The main types of capital allowances are:
    • Initial Allowance: This is a one-time allowance of 20% of the cost of the vehicle, available in the first year of purchase.
    • Annual Allowance: After the initial allowance, businesses can claim an annual allowance of 20% of the remaining cost over the subsequent years.
  2. Expenses Deductions Businesses can also deduct certain expenses related to the operation and maintenance of business vehicles. These include:
    • Fuel and Maintenance Costs: Costs for fuel, repairs, servicing, and maintenance can be fully deducted.
    • Insurance and Road Tax: Premiums paid for vehicle insurance and road tax are deductible expenses.
    • Lease Payments: If the vehicle is leased, the lease payments are deductible, subject to certain conditions.

 

Conditions and Limitations

  1. Qualifying Expenditure (QE) – QE for a vehicle that is not licensed for transportation of goods or passengers on a commercial basis is restricted to RM100,000 subject to the conditions that (i) the vehicle is new: and (ii) the total cost of the vehicle does not exceed RM150,000. If the conditions are not met, the QE is restricted to RM50,000.
  2. Benefits In Kind (BIK) – When a vehicle is provided to employees for private use, the value of BIK is taxable as part of the employee’s gross income from employment and need to be reported in Form EA. Generally, the prescribed value method will be used to determine the value of the BIK.
  3. Restricted Deductions – In the case of sole proprietor or partner in the partnership, business portion (ratio) need to be first computed on the business usage of the vehicle as the vehicle is also used for private purpose. The capital allowance computed is deductible based on the ratio of business portion. Revenue expenses of repairs, insurance, road tax, fuel and car parking are deductible based on the ratio of business portion.

 

Documentation Requirements

To claim deductions, businesses must maintain proper documentation, including:

  • Purchase Invoices and Receipts: Proof of purchase and payment for the vehicle.
  • Expense Receipts: Receipts for fuel, maintenance, insurance, and other vehicle-related expenses.
  • Usage Log: In the case of sole proprietor or partner in the partnership, a logbook or record detailing the business use and private use of the vehicle.

 

Tax Planning Tips

  1. Choose the Right Vehicle: Consider the tax implications when purchasing a vehicle. Opt for vehicles that offer favorable capital allowances and deductions.
  2. Maintain Accurate Records: Keep detailed and accurate records of all vehicle-related expenses and usage.
  3. Plan Vehicle Replacements: Plan the replacement of business vehicles to maximize capital allowances and deductions.

Tax Deduction for Business Vehicles in Malaysia

Conclusion

Understanding the tax deductions available for business vehicles in Malaysia can lead to significant tax savings for businesses. By adhering to the regulations and maintaining proper documentation, businesses can ensure they maximize their allowable deductions, ultimately enhancing their financial efficiency. For specific advice tailored to individual circumstances, businesses should consult with a tax professional or the Inland Revenue Board of Malaysia (LHDN).