Fringe Benefits Tax (FBT) Explained

Fringe benefits are a common part of employee compensation, but they come with tax implications that employers can’t afford to overlook. While some countries apply a standalone fringe benefits tax (FBT), in Malaysia these benefits are taxed as benefits-in-kind (BIK), with their value treated as part of an employee’s taxable income.

Understanding how BIK affects employee tax is essential for attracting the best talent for your business, and for keeping your financial reporting accurate. From company cars to medical benefits, these non-cash perks must be correctly calculated and reported in line with Lembaga Hasil Dalam Negeri (LHDN) requirements.

This guide explains how benefits-in-kind are taxed, how it works in practice, and how you can stay compliant while managing employee benefits.

Key takeaways

• Malaysia doesn’t have a separate fringe benefits tax. Instead, non-cash perks are taxed as benefits-in-kind (BIK) and treated as employment income.
• Employers are responsible for working out the value of these benefits and reporting them correctly.
• LHDN provides clear guidance, including formulas and prescribed values, to help calculate taxable benefits.
• Common benefits-in-kind include company cars, housing, medical cover, and work-provided technology.
• Keeping your BIK records accurate and using Intuit QuickBooks reporting tools makes it much easier to stay compliant and be ready if you’re ever audited.

What is fringe benefits tax?

While Malaysia doesn’t have a separate tax officially called fringe benefits tax (FBT), the term is often used to explain how non-cash employee benefits are taxed. In practice, these benefits are known as benefits-in-kind (BIK) and are taxed as part of an employee’s income under the Income Tax Act 1967.

Benefits-in-kind are non-cash perks provided by an employer as part of a compensation package. Unlike salary or bonuses, they can’t be converted into cash—but they still have monetary value. Common examples include company cars, housing, medical benefits, and paid services. These benefits are often used to attract and retain employees by improving work-life balance and overall job appeal, and should be included in your business financial planning.

How does FBT work in Malaysia?

In Malaysia, there isn’t a separate fringe benefits tax paid by employers. Instead, the value of any non-cash benefit an employee receives is added to their taxable income. This is done under the Income Tax Act 1967, based on guidance issued by LHDN.

For employees, this means their taxable income increases, even though they haven’t received extra cash.

As an employer, your responsibility is to work out how much each benefit is worth. LHDN provides two approved ways to do this—the formula method and the prescribed value method. Once calculated, the value of these benefits must be included in the employee’s EA Form and reflected in their annual tax filing. Because employee benefits can change from year to year, keeping accurate records is important. Having clear visibility over these costs also makes it easier to plan ahead, especially when managing cash flow forecasts and overall business finances.

What are fringe benefits or benefits-in-kind (BIK)?

What are fringe benefits exactly? Fringe benefits—also known as benefits-in-kind (BIKs) in Malaysia—are non-cash perks provided by an employer in addition to the employee’s base salary or wages. We’ve outlined some examples below.

Unlike bonuses or allowances paid in cash, BIKs are taxed based on their assessed value, not on their cost to the employer. This is important because many employees don’t realise these benefits are taxed under the benefits-in-kind rules rather than a separate fringe benefits tax, meaning their taxable income may be higher than expected.

From an employer perspective, understanding BIK helps you structure your benefits correctly, report accurately, and stay aligned with your broader financial management practices.

Types of fringe benefits and BIKs

Benefits-in-kind cover a wide range of non-cash perks provided by employers. These benefits are generally taxable unless a specific exemption applies, and must be valued according to LHDN guidelines.

• Car and petrol: Company-provided vehicles and fuel that are available for personal use are taxable benefits. LHDN assigns prescribed annual values based on engine capacity, with fuel benefits valued separately and added to the car benefit.
• Housing benefits: Employer-provided accommodation, including rented or owned property, is BIK-taxable. The value is typically calculated based on a prescribed percentage of the employee’s remuneration or the rental value of the property.
• Technology: Devices such as laptops, mobile phones, and tablets provided for personal or mixed use are taxable benefits. Items used strictly for work purposes are generally excluded from taxation.
• Gardener: Gardening services provided at an employee’s private residence are considered a personal benefit and are fully taxable.
• Household staff: Employer-paid domestic workers, such as maids, drivers, or security personnel, are taxable benefits as they provide personal value to the employee.
• Recreational club membership: Memberships to social, recreational, or sports clubs are taxable unless they are used exclusively for business purposes.
• Medical benefits: Medical benefits provided to employees, their spouses, and children are generally exempt from tax, subject to conditions set by LHDN.
• Childcare: On-site childcare facilities provided by the employer may be exempt. Childcare subsidies or external childcare services may be taxable if exemption conditions are not met.
• Free transport: Transport provided between home and work may be exempt under specific LHDN conditions. Other transport benefits may be taxable depending on usage.
• Insurance premiums: Insurance premiums paid by the employer for personal policies, such as life or accident insurance, are generally taxable benefits.
• Leave passage: Employer-provided travel benefits for personal holidays may be partially exempt, depending on whether the travel is within Malaysia or overseas and how often it is provided.
• Duty-related benefits and amenities: Tools, equipment, or services provided strictly to enable an employee to perform their job are generally not taxable.
• Consumable goods and services provided by the employer: Free or discounted goods or services provided for personal use—such as products sold by the employer—are taxable based on their market value.

How to calculate the value of benefits-in-kind

To include benefits-in-kind in an employee’s taxable income, you first need to work out what they’re worth. LHDN allows two ways to do this—the formula method and the prescribed value method. Which one you use depends on the type of benefit and the details you have available.

Employers typically refer to LHDN’s published tables for asset lifespans and prescribed values to keep things consistent and compliant.

Under Malaysia’s e-Invoicing framework and broader invoicing regulations, LHDN expects consistent, traceable records across systems (income, expenses, payroll-related entries). Poorly recorded BIK values can create mismatches during audits or reconciliations, so getting these values right is important.

Formula method

The formula method is used when you know how much an asset costs and how long it’s expected to last. LHDN provides guidelines on the average lifespan of different assets, which helps spread the value of the benefit over time.

To work out the annual taxable value, you simply divide the cost of the asset by its average lifespan.

Cost of asset ÷ Average lifespan of asset = Annual value of the benefit

Prescribed value method

With the prescribed value method, LHDN sets fixed annual values for certain benefits, such as company cars and fuel. This makes things simpler, as you don’t need to calculate the cost or lifespan of the asset yourself.

If more than one benefit is provided—such as a car and fuel—the prescribed values are added together. The total is then treated as the employee’s taxable benefit for the year and must be included in their income records.

Prescribed value of asset + Prescribed value of benefit = Annual value of the benefit

BIK calculation example

Here’s how both methods work in practice.

Using the formula method, if an employer provides an asset that costs RM2,000 and has an average lifespan of 10 years, the annual taxable value comes to RM200. This amount is added to the employee’s taxable income for the year:

RM 2,000 / 10 years = RM 200 (Annually)

With the prescribed value method, LHDN assigns fixed annual values. For example, if a company car has a prescribed value of RM7,000 per year and the fuel benefit is valued at RM1,800, the total taxable benefit for the year is RM8,800:

RM 7,000 (Car Benefit) + RM 1,800 (Fuel Benefit) = RM 8,800 (Annually)

In most cases, the method you use depends on the type of benefit you’re providing.

If LHDN has already assigned a fixed annual value for a benefit—such as the example of the company car or fuel—it’s usually easiest to use the prescribed value method. It’s straightforward, consistent, and avoids extra calculations.

The formula method is more commonly used for assets where no prescribed value exists, or where you know the cost of the asset and can apply LHDN’s average lifespan guidelines.

Whichever method you use, the key is to apply it consistently and keep clear records. This makes it easier to report employee income accurately, manage tax obligations, and avoid issues later on.

Conclusion: Fringe benefits tax and benefits-in-kind

Employee perks can be a great way to attract and retain talent—but in Malaysia, they also come with tax responsibilities. From cars and housing to insurance and services, benefits-in-kind form part of an employee’s taxable income and need to be valued and reported correctly under LHDN guidelines.

Make managing fringe benefits or BIK and employee tax simpler with Intuit QuickBooks. From tracking expenses and employee costs to staying organised for reporting and compliance, our business tools keep everything in one place—so you can focus on running your business. Try QuickBooks today and take control of your business finances.