Many directors assume that as long as an entertainment expense is genuine and business-related, it will be deductible. What most do not realise is that even after an expense qualifies as a legitimate business cost, there is still one more question that decides whether your company recovers 50% or the full 100%. And unlike most tax matters, this one is entirely within your control.

The law lists specific categories of entertainment that qualify for a full 100% deduction. These include entertainment provided to your own employees, food and drinks served at a product launch, promotional gifts bearing your company logo distributed to the public, and incentive trips given to dealers who achieved their sales targets, among other qualifying categories. If your expense fits any of them, the full amount is deductible.

If it does not fit, you only get 50%. A hamper sent to a customer during the festive season, flowers given to a customer opening a new outlet, and a dinner hosted for your suppliers are all genuine business expenses. But none fall within the eight categories, so half the amount is added back to your taxable income every single year.

Here is what changes everything. The decision made before the money is spent determines the tax outcome. Printing your company logo on a gift before it is distributed moves that expense from 50% to 100% deductible. Structuring a staff activity correctly as an employee event protects the full deduction. Ensuring food and drinks at a product launch are properly documented ties them directly to a sales event and secures the full claim.

For a company spending RM100,000 a year on entertainment, poor planning could mean RM50,000 permanently added back to taxable income year after year. Most add-backs are not the result of wrong spending. They are the result of no planning at the right time.

A CFO advisor helps you make these decisions before the expense is approved, not after the accounts are closed. WhatsApp our CFO advisory team at 010-246 2151.