(Tax Update) Rewarding Long-Serving Employees: A Tax-Efficient Strategy for SME Owners

(Tax Update) Rewarding Long-Serving Employees: A Tax-Efficient Strategy for SME Owners

Sitting in a cozy kopi shop with a close friend, our usual teh tarik session quickly turned into a thoughtful conversation. “How do I reward a long-serving employee when my private limited company makes a profit from holding investment properties, without adding more tax burdens?” he asked, sounding a bit anxious.

I leaned back, smiling. “There are ways,” I said, “but let’s talk about a few tax-exempt employee benefits that could work in your favor. After all, why should you get taxed twice when the gain from the investment is already taxed at the company level, right?”

Tax-Free Benefits: Keep the Gains, Share the Reward

First things first, I explained to my friend that there are tax-friendly ways to reward loyal employees without further increasing the company’s tax liabilities. Simple things like housing loans, leave passage … can be provided tax-free, or with minimal tax implications, to the employee.

One of the most direct approaches? I suggested offering shares of the company. By issuing shares of your Sdn Bhd, the employee becomes a shareholder, giving them (don’t give them FREE) a vested interest in the company’s long-term growth.

It’s more than just a bonus—it’s a slice of the company pie that ties their success to the company’s prosperity.

But if you’re looking for something more flexible, then I had another option that got his wheels turning.

Why Consider an LLP? A Flexible Approach for Employee Incentives

I brought up the idea of using a Limited Liability Partnership (LLP) for employee incentives. It’s not the most common approach, but in some cases, it can be a great alternative for businesses looking for flexibility.

"Why an LLP?" he asked, intrigued.

“Well,” I started, “with an LLP, your employee gets protection from personal liability, just like with an Sdn Bhd, but with much more flexibility in how you manage profit-sharing.”

Here’s what I laid out for him:

  1. Limited Liability: Employees who become partners in an LLP are shielded from personal liability, which can give them peace of mind.

  2. Flexibility: You have more control over how profits are distributed, making it easier to customize rewards based on the employee’s contribution.

  3. Simplified Compliance: Unlike an Sdn Bhd, LLPs don’t require annual audits unless necessary, which cuts down on paperwork and compliance costs.

The Right Fit for Your Business

As our conversation continued and the coffee cups emptied, he seemed intrigued by the simplicity and flexibility that both options could offer. “It all depends on your business setup,”

I said, “but whether you go with shares in an Sdn Bhd or explore the LLP route, the goal is the same: reward your employees in a way that benefits both them and the company, without overburdening anyone with extra taxes.”

In the end, the takeaway was clear. SME bosses like my friend often find themselves in this situation—balancing tax efficiency with employee motivation. But with the right approach, it’s possible to achieve both, creating a win-win for everyone involved.

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