What Is Benefits-in-Kind: Guide for Employee and Employers

Benefits-in-Kind (BIK) in Malaysia means non-cash benefits given by an employer that are taxable as employment income.

Even without cash payment, perks such as company cars, housing, or employer-paid personal expenses must be valued and reported for tax.

This is where problems start. Because BIK does not feel like income, it is often missed in payroll, PCB calculations, and EA Forms. 

If your tax increased without a salary raise, or audits keep flagging company benefits, this guide explains how Benefits-in-Kind works in Malaysia, what is taxable, and how to get it right.

What Is Benefits-in-Kind (BIK)?

Benefits-in-Kind (BIK) are non-cash benefits provided by an employer to an employee, where the benefit has personal value and is therefore taxable as employment income.

Unlike salary or allowances, BIK does not involve direct cash payment. Instead, it covers items or privileges that reduce an employee’s personal expenses or provide personal convenience because of their employment.

In Malaysia, BIK is treated as gross employment income under paragraph 13(1)(b) of the Income Tax Act 1967, as explained in LHDN’s Public Ruling No. 11/2019 – Benefits in Kind (issued 12 December 2019).

If a benefit is:

• Provided due to employment
• Not purely for work purposes
• Enjoyed personally by the employee

It is likely considered BIK.

Common Examples of Benefits-in-Kind in Malaysia

The most frequent BIK items seen in Malaysian businesses include:

The distinction is personal benefit versus work necessity.

What Is Not Considered Benefits-in-Kind?

Not all non-cash items provided by an employer are taxable.

Items typically excluded from BIK include:

• Work tools and equipment used solely for job duties
• Uniforms and protective clothing
• Business travel expenses with supporting claims
• Staff welfare benefits such as pantry items
• Approved medical and dental benefits under group schemes
  • Outpatient treatment
  • Hospitalisation
  • Surgical coverage
  • Group accident insurance provided to employees generally

In other words, If an item exists mainly to help the employee perform their job, it is usually not BIK.

How Is Benefits-in-Kind Valued in Malaysia?

BIK is taxable based on value, not perceived importance. Malaysia allows two valuation approaches.

Prescribed Value Method

This method applies to common benefits where LHDN provides fixed annual values, such as:

• Company cars
• Drivers
• Household furnishings

Values are determined based on asset type, cost, and age, and they are published in official guidelines.

Formula Method

When LHDN has not set a prescribed value, the formula method is used. Under Public Ruling No. 11/2019, this is the default way to value BIK.

For most assets, the general principle is:

Annual BIK value = Cost of the asset ÷ Prescribed average life span

For motorcars, the formula gives an extra 20% abatement for assumed residual value:

Annual BIK value = (Cost of motorcar × 80%) ÷ Prescribed average life span

The resulting amount can then be reduced if:

• The benefit is provided for less than a full year,
• The asset is shared with another employee, and/or
• Part of the use is for the employer’s business (supported by records such as mileage logs).

Whichever method you choose (formula or prescribed value), it must be applied consistently for each unit of asset.

Prescribed BIK Values for Company Cars and Petrol (Malaysia)

Note: These prescribed values are published in LHDN guidance and are commonly used by employers when valuing motorcar and petrol Benefits-in-Kind.

Read more: Tax Borne by Employer: Accounting Guide for Businesses

What Must Businesses Do When Offering Benefits-in-Kind (BIK)?

At a minimum, employers must identify, value, record, report, and retain evidence for each BIK provided.

Below is a breakdown.

1. Identify Whether the Benefit Is Taxable

The first obligation is classification.

A benefit is likely BIK if it:

• Is provided because of employment
• Is not paid in cash
• Has personal value to the employee

Common examples include company cars, petrol cards for private use, housing, and personal insurance.

Misclassification is the most common BIK error and often triggers audit issues.

2. Apply the Correct Valuation Method

Employers must assign a monetary value to each BIK.

Malaysia allows:

• Prescribed value method for common items like cars and drivers
• Formula method when no prescribed value exists

The chosen method must be applied consistently and supported by records.

3. Include BIK in Payroll and PCB Calculations

Once valued, BIK must be:

• Added to the employee’s gross employment income
• Reflected in monthly PCB deductions

Even though no cash is paid, tax is still due, and under-deduction of PCB exposes the employer to penalties.

LHDN stresses that (MTD/PCB) must cover any taxable BIK. If an employee’s salary is not enough to absorb the additional PCB, employers should apply to LHDN to pay the extra PCB in installments.

4. Report BIK in EA Forms and Annual Filings

Employers must:

• Declare BIK values in employees’ EA Forms (under the relevant BIK / VOLA sections) and in the employer’s Form E
• Ensure those figures align with payroll records and PCB deductions

Employees then report the same annual BIK value in their Form BE or Form B, so consistency between payroll, EA, Form E and the individual return is critical.

5. Maintain Proper Documentation

Businesses must retain:

• Asset purchase invoices
• Usage policies and benefit agreements
• Mileage logs for company cars
• Valuation workings

These documents must be kept for at least 7 years and are critical during reviews by LHDN. 

6. Communicate BIK Clearly to Employees

Employees should understand:

• What benefits are taxable
• How BIK affects their take-home pay
• Why PCB may increase

Clear communication reduces disputes and builds payroll transparency.

How Benefits-in-Kind Affects Employees

Although no cash is received, BIK:

• Is added to gross employment income
• Affects monthly PCB deductions
• Appears in the EA Form
• Must be declared in Form BE or Form B

This is why employees are sometimes surprised by higher tax payable even when salary has not increased.

How Benefits-in-Kind Affects Employers

For employers, incorrect BIK handling creates several risks.

• Under-reported PCB exposes the company to penalties
• Incorrect EA Forms affect employee tax filings
• Missing documentation raises audit red flags
• Inconsistent treatment damages employee trust

Misreported BIK and related employment tax items regularly feature in Malaysian payroll and tax audits, especially where benefits, allowances, and EA figures do not match.

Benefits-in-Kind vs Perquisites vs Living Accommodation (VOLA)

Not all employee benefits are treated the same under Malaysian tax rules, and this is where many employers go wrong.

LHDN distinguishes between three categories of non-cash benefits, each with different tax treatment and valuation guidance.

The most common mistake is treating employer-provided housing as ordinary BIK, when in reality it falls under living accommodation rules with its own valuation approach.

Understanding this distinction reduces misreporting risk and prevents costly reclassification during audits by LHDN.

Are Any Benefits-in-Kind Exempt from Tax?

Some employee benefits may receive tax exemption or special treatment, but only when specific conditions are met.

Examples include:

• Dental and medical benefits provided to employees
• Childcare facilities provided by the employer, and childcare allowances within the statutory exemption cap
• Food and drink provided free of charge at the workplace
• Free transportation between pick-up points or home and the place of work (to and from)
• Certain group insurance premiums (for example, group personal accident, group term life) and leave passage

Separately, some related perquisites (which are not BIK) also enjoy exemptions, for instance, childcare allowance paid to employees is exempt up to the current limit set in the annual Budget.

However, exemptions are not automatic. Employers must:

• Meet eligibility conditions
• Apply the exemption correctly
• Retain documentation to support the treatment

Assuming a benefit is exempt simply because it is “common” or “small” is a frequent audit issue. When in doubt, the safer approach is to treat the benefit as taxable until verified otherwise.

Conclusion: Why Getting BIK Right Matters

Benefits-in-Kind is not about generosity or perks. It is about tax treatment and compliance.

When BIK is identified, valued, and reported correctly, it protects both employers and employees from unnecessary disputes, penalties, and stress.

If you are unsure whether a benefit qualifies as BIK, or how it should be valued and reported, the safest move is to ask the professionals.

At Accounting.my, we help businesses assess employee benefits, structure payroll correctly, and ensure BIK is treated in line with Malaysian tax requirements with our accounting services.

If you want to prevent any issue arising from the taxman, we can help organizations to save the time, cost and adhere to full compliance.

Disclaimer: This article provides general information on Benefits-in-Kind (BIK) under Malaysian income tax law and does not constitute tax, legal, or financial advice. BIK rules, exemptions, and thresholds may change, and the treatment can vary based on specific facts.

Source:

• Income Tax Act 1967 (Act 53), Malaysia
  – Section 13(1)(a): Employment income (including perquisites)
  – Section 13(1)(b): Benefits in kind (BIK)
  – Section 13(1)(c): Value of living accommodation (VOLA)
  – Section 82: Record-keeping (minimum 7 years)
  
  
• Inland Revenue Board of Malaysia (LHDN) – Public Ruling No. 11/2019: Benefits in Kind
• Inland Revenue Board of Malaysia (LHDN) – Public Ruling No. 5/2019: Perquisites from Employment
• Inland Revenue Board of Malaysia (LHDN) – Public Ruling No. 3/2005 and Addendum: Living Accommodation Benefit Provided for the Employee by the Employer
• LHDN – Nota Panduan Borang EA / EC (EA & EC Guide Notes, latest year)
  Official guidance on how employers must complete EA and EC forms
• LHDN – Explanatory Notes to Form BE and Form B (latest year of assessment)
  Explains how individual taxpayers should report employment income, BIK, VOLA and tax-exempt perquisites
• LHDN – “Manfaat Berupa Barangan” (BIK) slides / employer briefing materials
  Employer-facing slides outlining what counts as BIK, employer reporting obligations in EA / EC and Form E, and the need to retain supporting records for at least 7 years.
• Ministry of Finance Malaysia – Budget 2024 / Tax Measures
  Budget documents and professional summaries confirming that, from Year of Assessment 2024