(Tax Update) Tax Treatment on Company Trip

In this blog, we discuss the tax treatment for both local and overseas trips provided by a company to its employees. Here's a key takeaway for your understanding.

Company-Sponsored Employee Trips: Understanding Tax Implications

When a company offers its employees the opportunity to embark on trips, whether within their home country or abroad, it's important to consider the tax implications for both the employer and the employee. In this article, we'll delve into the tax treatment of these trips in detail.

1. Tax Treatment for Employer and Employee for Local and Overseas Trips

Let's break down the tax treatment for both local and overseas company-sponsored trips from the perspective of the employer and the employee:

Local Trips:

For Employers: The costs incurred for airfares, meals, and accommodation related to local trips are eligible for a full deduction when calculating the company's taxable income. This is classified as an entertainment expense according to the Addendum to Public Ruling No.1/2003 Tax Treatment on Leave Passage.

For Employees: Local trips do not impact the employee's taxable income, as there is no leave passage cost associated with these journeys.

Overseas Trips:

For Employers: In the case of overseas trips, the cost of airfares (treated as leave passage cost) is not deductible for the employer. However, the costs related to food and accommodation are deductible as entertainment expenses, with the condition that they are restricted to the amount spent on the employee.

For Employees: For the first overseas trip in a calendar year, employees are eligible for an exemption on the leave passage cost (airfares), limited to a maximum value of RM3,000.00. However, for second overseas trips onwards, the cost of airfares (leave passage cost) becomes assessable as employment income.

2. Key Facts

Local Trip: According to the Addendum to Public Ruling No.1/2003 Tax Treatment on Leave Passage, expenses incurred by an employer to facilitate a yearly event within Malaysia involving the employer, employee, and immediate family members fall under the category of entertainment expenses. As such, local company trips are fully deductible in the company's tax computation. From the employee's perspective, these trips do not affect their taxable income, as no leave passage cost is involved.

Overseas Trip: Paragraph 10 of Public Ruling No.1/2003 states that expenditures related to leave passages, whether within or outside Malaysia, are not deductible in the company's tax computation. However, the ruling further elaborates:

Only the cost of airfares is treated as leave passage cost and is not allowed for deduction.
Other costs, such as food and accommodation, are deductible as entertainment expenses but are limited to the amount spent on the employee.

For employees, paragraph 8(ii) of this public ruling outlines that an exemption, limited to a maximum value of RM3,000, is granted on the leave passage cost (airfares) for one overseas trip outside Malaysia in a calendar year. Subsequently, for the second overseas trip onwards, the cost of airfares becomes assessable as employment income.

Source :

Reference Public Ruling No.1/2003 – Tax Treatment of Leave Passage https://phl.hasil.gov.my/pdf/pdfam/PR1_2003.pdf
Addendum to Public Ruling No.1/2003 – Tax Treatment of Leave Passage https://phl.hasil.gov.my/pdf/pdfam/PR1_2003_Add1.pdf
Income Tax Act 1967 https://phl.hasil.gov.my/pdf/pdfam/Act_53_20190101.pdf
Public Ruling No.4/2015 – Entertainment Expense https://phl.hasil.gov.my/pdf/pdfam/PR_4_2015.pdf

PS : Authored by Bryan Kam Shi Zhen and Gan Yong Chun, our audit associates with KTP, in their personal LinkedIn post.

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