Reimbursement in Malaysia: Rules, Compliance, and Tax Treatment Explained

In daily work activities, employees often spend their own money on company needs, such as client entertainment, travel, business trips, or office supplies. To get that money back, they usually file a reimbursement claim.

So, how does reimbursement work in Malaysia? What areas does it affect? Find out more in this article.

Definition of Reimbursement

Reimbursement, or bayaran balik, is when a company pays back an employee who has spent their own money for a business-related purpose. It often happens in situations like business travel, purchasing work tools or supplies, or even covering medical fees that are within the company’s coverage.

For example, if an employee uses their own money to buy a printer for their home office, they can later submit a receipt and claim that amount from the company. Once approved, the company will reimburse the employee in full.

Reimbursement vs Disbursement: What’s the Difference?

While reimbursement may seem straightforward, it’s often confused with another term: disbursement. The two may involve expense recovery, but they work very differently, especially when tax is concerned.

Reimbursement

In a reimbursement, the employee pays upfront for something on the company’s behalf. Once the expense is approved and supported by receipts, the company pays the employee back. The company is seen as the principal here, meaning the cost was incurred as part of its operations.

Under the Royal Malaysian Customs Department (RMCD)’s Service Tax Guide, reimbursement is not subject to service tax (SST) if:

The cost was incurred as part of business activity,
The amount reimbursed is exactly the same as the amount spent (i.e., no markup),
The original receipt or invoice is submitted as evidence.

Disbursement

Disbursement happens when a company pays a third party on behalf of another party, such as a client. In this case, the company is acting as an agent, not as the one benefiting from the expense.

If a business passes along disbursement costs to clients, it must separate those from any services it provides itself. The RMCD requires companies to follow clear conditions to keep such disbursements outside of SST’s scope, such as attaching the original third-party invoice and not changing the expense value.

When Employers Use Reimbursement

Reimbursements are common in many work settings. Some of the typical uses include:

Hotel stays, flights, mileage, and meals during business trips
Office supplies or equipment using personal funds
Medical treatment bills (if covered by company policy)
Electricity, internet, or tools for working from home
Educational or training expenses
Client meals or entertainment

In each case, the employee is expected to provide proof of payment, usually a receipt or invoice, before the company processes the reimbursement.

SST & Tax Compliance for Reimbursements

When it comes to tax compliance, employers must know how reimbursement interacts with Malaysia’s SST rules. According to Royal Malaysian Custom Department guidelines:

Reimbursements are not subject to SST if the company is recovering an actual cost incurred as a principal,
The amount reimbursed must match the actual expense with no changes or additional fees
The claim must be supported by proper documentation, such as original receipts or invoices
Any mark-up, handling fee, or profit margin will make the reimbursement taxable under SST.

Disbursements, on the other hand, are only exempt if the company acted as an agent, and all the right conditions are met. For e-invoicing, sellers must clearly separate these items on invoices and keep detailed records to remain compliant.

Best Practices for Employers

To handle reimbursements smoothly, every employer should establish a clear internal process. Here are some steps that can help:

Create a formal reimbursement policy that explains which expenses are allowed, how much can be claimed, and what deadlines must be followed.
Ask employees to use dedicated claim forms and provide original receipts or invoices.
Assign specific approvers for different departments. This could be a team lead, HR officer, or someone in finance.
Link reimbursement claims to payroll where possible to speed up payouts and make the process more transparent.
Store all records, both physical and digital, in case of audits by tax authorities or internal compliance checks.

Common Mistakes to Avoid

While most HR teams try to do things properly, mistakes can still happen. Some of the most common issues include:

Approve reimbursement claims without proper documentation
Payback employees for personal or non-work-related expenses
Accept late claims long after the expense was made
Forget to include reimbursements in the employee’s EA Form where required.

These mistakes can create problems during audits and even lead to penalties.

Examples of Reimbursement Scenarios

Check out a few examples that show how reimbursement works in practice:

A sales executive takes a Grab ride to visit a client. She pays the fare herself, submits the receipt, and gets reimbursed by HR.
An employee buys a monitor for working from home. He shares the invoice and the cost gets reimbursed through the next payroll cycle.
A team leader hosts a dinner with a potential client. He pays for it, then submits the bill along with a short explanation to finance for reimbursement.

In each of these cases, the expense is work-related, properly documented, and eligible for a bayaran balik.

FAQs

What makes a reimbursement non-taxable under SST rules in Malaysia?

A reimbursement is not subject to SST if the employee incurred the expense as part of the company’s business, there’s no markup, and the claim is backed by original receipts or invoices.

How can HR teams keep reimbursement claims compliant?

By having a written policy, requiring proper documentation, using digital records, and routing claims through payroll when appropriate, HR teams can stay aligned with payroll, tax, and audit standards.

Do all reimbursements have to go through payroll?

Not always. Some companies process reimbursements separately, but linking them to payroll can improve transparency and reduce administrative overhead, especially when taxable benefits are involved.

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