Bad Debt Tax Relief in Malaysia – What You Need to Know

Q1: As a Debt Recovery Lawyer, do you always recommend suing when pre-court recovery fails?

Not always. My priority is to help clients avoid throwing good money after bad. Litigation can be expensive, and sometimes the smarter option is to cut losses and capture value through bad debt tax relief in Malaysia.

Q2: What is “Bad Debt Tax Relief” under Malaysian law?

Under Section 34(2) of the Income Tax Act 1967, debts that are proven to be irrecoverable can be written off as Bad Debts. This allows you to deduct them from your taxable income.

Q3: How much can I save with bad debt tax relief?

Depending on your tax bracket, this relief can translate into 15–30% in corporate or personal income tax savings on those unpaid invoices. While it’s not a full recovery, it’s still money back in your pocket.

Q4: What are the requirements to qualify for bad debt tax deduction?

You must show that you’ve taken reasonable steps to recover the debt. Examples include:

• Issuing a Notice of Demand through a debt recovery lawyer

• Evidence that the debtor is bankrupt, liquidated, untraceable, or that the debt is time-barred

• Proof that litigation costs would outweigh recovery benefits

  
  

Q5: What kind of evidence will auditors accept?

Most auditors in Malaysia will accept a legal Notice of Demand as sufficient proof of recovery attempts. Some may also require a short explanation letter from your lawyer.

Q6: Why should I consult a Debt Recovery Lawyer before claiming tax relief?

My role isn’t just to chase debts. It’s to help you make strategic financial decisions:

• Sometimes that means fighting hard in court.

• Other times, it means recognising when to stop, write off the debt, and recover value through tax savings.

  
  

Final Takeaway

Litigation is not always the right answer. By considering options like bad debt tax relief in Malaysia, you can save time, money, and unnecessary stress. The right legal strategy helps you either recover your debt or legally reduce your tax liability — both of which put money back in your business.

AUTHOR PROFILE

Rudi Cheu is the principal of Rule & Co. Advocates & Solicitors; a Malaysian law firm focusing on practical and cost-effective solutions for debt recovery and commercial disputes. With nearly a decade of debt recovery experience under his belt; Rudi is passionate about helping businesses navigate debt recovery challenges and shares insights at www.rulecolaw.com/blog and recoverdebt.my

He can be reached via Whatsapp: +60102028095 or via email: rudi@rulecolaw.com