Deduction for Expenditure in Relation to Esg In Malaysia -- Offshore Company -- kaizen

Qualifying Entities

The deduction is available to the following qualifying entities:

Financial institutions which is licensed under Financial Service Act 2013, Islamic Financial Service Act 2013 and Development Financial Institution Act 2002;
Companies (including listed company on Bursa Malaysia);
Labuan companies;
Micro enterprises as determined by the National Small and Medium Enterprises Development Council; and
Small and medium enterprises as determined by the National Small and Medium Enterprises Development Council.

Overview of Qualifying Expenditure

Only qualifying ESG related expenses incurred by qualifying entities is tax deductible.

Financial Institutions and Listed Companies

The qualifying ESG related expenses incurred by the above-mentioned qualifying entities include:

Type of Expenditure	Examples
Validation, verification and certification on the use of ESG practices, calculation and tracking of the greenhouse gas emissions, and ESG exposure	- Independent ESG assurance reports - Verification of greenhouse gas emissions (e.g. Scope 1 & 2) - ESG ratings or risk certifications
Subscription of technology or software systems for data collection, tracking the use of ESG metrics, risk management, scenario analysis and calculation of greenhouse gas emissions.	- ESG or climate data platforms - Carbon accounting, ESG metrics tracking, or risk modelling software
Capacity building including training, education and skills development for employees	- ESG training modules for staff - Certification programmes (e.g. ISO 14001, GRI Standards)
Services of consultant expert or subject matter expert to perform activities as specified above.	- Engagement of experts for ESG integration, scenario analysis, and reporting

(Note: The example provided is for illustrative purposes only and may be subject to revision in accordance with future changes to applicable laws and guidelines.)

Companies and Labuan companies

The qualifying ESG related expenses incurred by the above-mentioned qualifying entities include:

Type of Expenditure	Example
Preparation of Tax Corporate Governance (“TCG? Report	Expenditure incurred on preparing of report as per TCG Framework (Note: Deduction allowed only if a certificate of compliance has been obtained.)
Appointment of independent reviewer
Preparation of Contemporaneous Transfer Pricing Documentation (“CTPD?	Expenditure incurred on preparation of transfer pricing document as per Income Tax (Transfer Pricing) Rules 2023 and Malaysia Transfer Pricing Guidelines 2024

(Note: The example provided is for illustrative purposes only and may be subject to revision in accordance with future changes to applicable laws and guidelines.)

Micro, Small and Medium Enterprises (MSMEs)

The qualifying ESG related expenses incurred by the above-mentioned qualifying entities include:

Type of Expenditure	Example
Customised e-Invoice software development	Expenditure incurred on software development for implementation of electronic invoice specifically tailored to the business’s operation
External e-Invoicing service providers fees	Expenditure incurred on hiring external service provider for matter dealing with implementation of electronic invoice
Exclusions (Non-Deductible)
- Preliminary planning or feasibility studies for the customised software - Fees relating to issuance of an electronic invoice through MyInvois Portal (free government platform for e-Invoice)

(Note: The example provided is for illustrative purposes only and may be subject to revision in accordance with future changes to applicable laws and guidelines.)

Deduction Limit and Exclusions

The total deduction is capped at RM50,000 per YA. However, no deduction is allowed under these Rules if the expenditure has:

Been claimed under section 33 of the Income Tax Act, 1967 (“ITA?;
Been exempted under paragraph 127(3)(b) or subsection 127(3A) of the ITA;
Been deducted under any other rules issued under section 154 of the ITA.

This prevents double deduction or exemption for the same expense incurred by the qualifying entities.