THIS is again another season where festive gifts will be given to those celebrating Deepavali. Similarly, since Malaysia is a multicultural society, it is customary for suppliers and customers to give gifts to people celebrating the various events during the respective festive seasons.
Normally businesses will be giving gifts to customers, and in some cases suppliers, and to their staff. There will also be instances where business owners may take out goods for their own use as gifts to themselves. There will be tax implications for both the gift giver and the gift recipient.
Gifts to customers and suppliers provided to them during the festive season to maintain the goodwill and relationship with them will be treated as entertainment expenditure which is eligible for a 50% deduction. However, if they are promotional gifts containing the conspicuous logo or advertisement of the company, and the gift is provided in Malaysia, the deduction eligible could be increased to 100%.
Gifts to employees such as hampers given out during festive season are also eligible for a 100% deduction on the basis that they can fall within the employee entertainment provisions, or will be deductible because it is an expense incurred to maintain the goodwill of the staff. On the reverse, from a staff perspective, such gifts which are given for personal appreciation or for specific personal reasons are not taxable as they are related to having or exercising the employment.
Examples would be wedding gifts and festive gifts, which should be reasonable and not excessive. It should not be abused where expensive items are given and the employer attempts to claim the deduction. The reason being if gifts are given purely for personal appreciation,they should not be excessive or abnormal. Family-controlled companies providing gifts to shareholders and directors should be mindful of avoiding any such abuse. Ang pow given to all staff of a reasonable amount as a gesture personal appreciation will also not attract tax in the hands of the recipient.
Where cash gifts are received during this festive season from the employer or from third parties connected to the company, being suppliers or service providers, such gifts will be brought to tax at the hands of the employees as there is a likely connection between the gifts and the employment with the company.
If the gifts are taxable in the hands of the employee, then the employer has the responsibility to declare this amount in its annual employer return and account for the monthly tax deductions.
For businesses which are receiving gifts from their suppliers, they will not be taxable since they are not connected to business dealings. The gift is purely a means to maintain good relationship just like a gift between friends without any expectation of any reciprocal benefit. However, the person giving the gift will still be entitled to the 50% deduction.
As a business owner, if you take out the stocks of tshe company for your personal or family use, then it will be treated as a withdrawal of stock, and your business will have to bring the market value of the stocks withdrawn to tax.
You should not forget the e-invoicing implications: If the gift is brought to tax as employment income of the staff, no e-invoice needs to be issued. Otherwise, a self-billed e-invoice needs to be issued. For businesses buying gifts for their customers, you should normally receive an e-invoice from the vendor unless the supplier is exempted from issuing e-invoice. The recipient of the gift does not need to issue any form of e-invoice for the gift received.
This article is contributed by Thannees Tax Consulting Services Sdn Bhd managing director SM Thanneermalai (www.thannees.com).
