Before we list the types of employee allowances in Malaysia, let’s understand what constitutes Employee Allowance.

What is an Employee Allowance?

Employee allowances are supplementary payments given to employees on top of their regular salary. These allowances are typically provided to cover specific job-related expenses, such as travel, housing, or meals. In Malaysia, employee allowances are categorized into several types, each serving a distinct purpose.

1. Meal Allowances

Meal allowances are financial provisions given to employees to cover the cost of meals consumed during work hours, ensuring they have access to nutritious food without incurring personal expenses. These allowances are designed to support employees, especially those who spend long hours at work or travel for business. To qualify for tax exemption, meal allowances must be reasonable in amount and consistently provided at the same rate. Additionally, allowances granted for meals during overtime or work-related travel are also typically exempt from tax.

2. Special Allowances

In addition to standard allowances, companies may offer special allowances for unique circumstances, such as relocation, overtime work, or parking. These allowances are tailored to the specific needs of the job and the employee.

• Overtime Allowance

Overtime allowance compensates employees for hours worked beyond their regular schedule. It serves as an appealing incentive that can motivate employees to work extra hours when necessary, such as covering for unexpected absences or being reassigned to different locations.

• Relocation Assistance

Relocation assistance supports employees who need to move for their job, covering the costs of moving and providing help with settling in to ensure a smooth transition.

• Parking Allowances

Parking allowances or subsidies help cover the costs of parking for employees who drive to work, easing the financial burden associated with parking fees.

3. Transportation Allowances

A transportation allowance is a financial benefit provided to employees to cover their commuting expenses. This allowance helps to offset the costs of traveling to and from work, whether by public transportation, personal vehicle, or other means. By providing a transportation allowance, employers can reduce the financial burden on their employees, making it easier and more affordable for them to commute.

 

Which Benefits-in-kind are tax exempt for Employees in Malaysia?

Benefits-in-kind are non-monetary perks provided by employers that cannot be converted into cash. Typically, these benefits are considered part of an employee’s taxable income, except for certain tax-exempt benefits. Benefits-in-kind include items such as cars, productivity tools, or personal drivers, which have a monetary value but cannot be sold or exchanged for cash due to contractual terms or the nature of the benefit. These perks are provided in addition to the basic salary.

Dental benefit – Tax exempt

Childcare benefit – Childcare provided by employers, e.g. a childcare center, is tax exempt

Food and drink provided free of charge – Tax exempt

Free transportation between pickup points or home and the place of work (to and from) – Tax exempt

Obligatory insurance premiums for foreign workers – Tax exempt

Group insurance premium to cover workers in the event of an accident – Tax exempt

Leave passage – Tax exempt for travel: in Malaysia (not more than three times a year); or overseas (not more than once a year) with tax exemption limit of RM3,000 provided to employee and immediate family only.

Benefits used by employer to perform his employment duties – Tax exempt

Discounts on goods and services provided by the employer – Tax exempt provided that they are: not convertible into money by the employee even though they have money’s worth; for the benefit of the employee and are used by the employee personally; and provided to employees as a whole and not provided specifically to a certain group of employees only.

Note: discounts on goods are only tax exempt up to a value of RM1,000.

Benefits and monthly bills for fixed line telephones, mobile phones, pagers, PDAs and broadband – The amount to be exempted includes registration cost and installation cost. The exemption given is limited to one unit for each class of assets.

Benefits for medical treatment – Tax exempt for modern medicine, traditional medicine and maternity. Treatment must be by certified medical doctors or medical practitioners registered with government-approved bodies.

Petrol benefits – Exemption up to RM6,000 for petrol used for official duty (this limit also applies to any petrol allowance/travel allowance/toll payment). Amounts above RM6,000 may be claimed if records are kept for 7 years.