reimbursed company allowance? What is that?

Recently I was filing my own income tax for 2018, and I begin to realise the negative effects the progressive income tax has on myself.
As my gross income increased over the years, I got taxed much more that I am basically taking home about the same amount between and after an increase in my salary. It appears that the current tax regime demotivates Malaysians to earn more for a better living. It doesn't help when the costs of living is getting higher day by day.

I understand that there are people who, after an increase in their income, continue drawing a similar amount of salary from the company, and by a separate agreement invoice their employer using a company registered under the employee's name, so the additional income would go into the company. In this way the employee's personal income will remain at a lower bracket, while the company, as the income is low, will get taxed less. Understandably with a registered Sdn Bhd, you ought to pay a certain amount to maintain the company's registration, accounts, returns, etc.

So here my question is:
1. At what gross income range it is sensible to create such a vehicle company, and
2. How much the costs (per year) are we looking at compliance costs, to maintain such a company legally, like secretary, accountant, returns, etc.?
3. What are the typical daily expenses we can take advantage of by using the company, like buying a car under company name, eating out, etc etc to maximise the use of the company for tax optimisation purpose?

I am asking on the basis that one is being employed full time and all income are derived from the employment only.

Since the personal income tax for taxable income ranging RM70k+ above will get 21%-28%, while company tax starts at 18% for first RM500k, it seems going Sdn Bhd for tax accounting purposes is sensible when we make more than say ~RM100k or so per year?

Company allowance can be two kinds:perquisite or benefits in kind (BIK)

BIK is normally tax exempted and will be listed under Section G of your EA form and subject to the annual limit per category as enlisted in the tables at Page 3 & 4 of the Note Penerangan BE.



For those listed under Section G no action required.

If your company listed them under Section B, it is treated as taxable perquisite.
If you have ambiguity, please clarify with your company HR or accounts payable who prepared your EA form.



As far as I know, reimbursable expenses such as business travel expenses are not taxable nor deductible; you pay first, claim per receipt and employer pays back later.

This post has been edited by David83: Mar 29 2019, 05:53 AM

Paying you full RM5000, the company will have RM5000 as expenses
vs
Paying you RM2000 for employment and RM3000 for "services offered" to you company, the company will still have RM 5000 expenses

unless you are a family members of that company,....i doubt that the company would do that to "help" you....
for it may affect their existing direct and indirect costing calculation for product pricing if any.
and having the possiblity of being "blackmailed" by you in future

i may be wrong, though.

Just to correct or precise, just in case some misunderstood.

BIK is not normally tax exempted.
In fact BIK is stated as taxable across except those BIK that listed under Paragraph 9 on the Public Ruling No 3/2013.

If one is receiving BIK that not under the tax exemption list and fulling the tax exempted condition, then those BIK is taxable.

So, it depends on the nature of the BIK, type of BIK, and situation of the BIK.

It is advisable to refer the ruling guidelines.

To understand more about BIK and perquisite, go read the Public Ruling:

No.3/2013 Benefits In Kind
No.2/2013 Perquisites From Employment

URL: http://www.hasil.gov.my/bt_goindex.php?bt_...sequ=1&bt_lgv=2

This post has been edited by David83: Mar 29 2019, 10:04 AM

One needs to realise that personal tax is progressive or step up, while company tax rate is flat across.

Eg.
Personal
Income 100K, max tax needs to pay max is 10,900, 10,900/100k = 10.9% (not yet deducted for personal relief, so should be lesser)
Income 250k, max tax needs to pay is 46,900, 18.76% (as above if deduct for personal relief, should be lesser)

Company
100K income straight away 18% = 18K needs to be paid.


While as company you have many compliance things to do, range from SSM, accounting/auditing, potential extra tax form submission, EPF, Socso etc.
Also, if the company is not running business, then those expenses like car purchase/petrol etc are not eligible for tax deduction.
Even for those company with business, those expenses may be tax deductible, but it is still adding back into personal taxable income in the form of BIK, so still the same.

Hi, I have some questions.

Scenario:

I am working with government as a full time pharmacist. For this employment income, i have no issue as I know the transportation cannot be claimed because we have elaun sara hidup etc.

I am also working as locum in retail pharmacy. I have to spend Rm300 to get license to practice in the pharmacy. I took grab to and from work. Sometimes driving. Is the expenses (travelling and license) can be deducted from the locum gross income?

I called to LHDN care line. I was informed that locum is penggajian and we cannot deduct expenses compared to those doing grab business.

May I know any sifu here have any comment on this? Thanks in advance

If based on this nota penerangan, it sounds like yes, i can deduct for my expenses?


This post has been edited by :XO: Mar 29 2019, 12:19 PM

that nota penerangan is same as posted in the top page...thus there are some comment about it...

not an expert in this...but I think travelling expenses to work cannot be deducted from gross income for personal tax...i think YES for business tax

but about the license fees...... i know some other professioal fees can be claimed....
Q 17, page 4
http://lampiran1.hasil.gov.my/pdf/pdfam/FA..._01042011_1.pdf

just that I am not sure about yours.....

Only if you register a business and receive those income through the business entity.

Personal employment income whether full time or part time, it is the same.
If full time job cannot claim those expenses, then it is same for part time.

Those deductibles stated eg.
Your employer pay your an amount of travel allowances because you are need to travel to perform your job. Then specific amount of travel allowance is tax deductible.


Doing grab is a business, not employment.

I have FOUND the answer!

http://lampiran1.hasil.gov.my/pdf/pdfam/BE...Guidebook_2.pdf
HK-2 : COMPUTATION OF STATUTORY INCOME FROM EMPLOYMENT
Below F. TOTAL GROSS EMPLOYMENT INCOME (A to E)
LESS:
G. Subscriptions to professional bodies
H. Entertainment expenditure
(restricted—section 38A)
J. Travelling expenditure

Just to update everyone here, I finally got the excess amount in my e lejar. I called on the 15th and the amount was credited to my account on 29th. I didnt fill in any forms, just called LHDN and instructed them to credit the excess to my account.

A quick check on my e lejar still shows the excess amount though. I guess its not updated yet.

Yes, using a Sdn Bhd to receive income in excess of RM250k pa, would save you about at least RM30k+/- tax a year
If you have enough people as directors in your own created Sdn Bhd to "distribute income" in directors fees , tax saving can be even more.

is like you have income eg RM300k, you only want to pay tax on 120k, remainder 180k you distribute to others to pay tax individually at lower brackets.
And quite alot of things can claim with Sdn Bhd.

Start a Sdn Bhd is easy, cost around RM2-3k, can buy from the shelf also.
Maintain it may cost RM3-5k, depending on how active is the accounts

But to close a Sdn Bhd is not easy, can cost you upto RM5k or more.

Locum income is "employment" category but you can convert it to "business" category if you ask the pharmacy to sign an agreement
taking you as independent Pharmacist being paid professional fees each time you work for them and include all those fees payable by you
as a requirement to be employed.

However looks like the amount you can deduct is only RM300, probably not worth the hassle.

What do u mean can buy from the shelf also?

This post has been edited by drbone: Mar 31 2019, 12:07 PM

while waiting for his clarification response.....

I think, think only ....some company secretaries has on hand registered ready companies which would make the need to have registered company quickly but those who needed them in a hurry...they just transfer the ownership.

Thanks for that info.

Thanks for your reply which answers what I asked!

Hi, may i know what can be put under "Skim persaraan swasta dan anuiti tertangguh" tax relief ?

thanks