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Guideline for Specialist Doctors in Private Hospitals


On March 16, 2022, the Inland Revenue Board (IRB) issued a definitive guideline to clarify the tax treatment for Specialist Doctors providing services in private hospitals. This guide resolves the long-standing question of whether income should be assessed under the doctor’s individual name or through a company (Sdn Bhd).

This article breaks down the key principles of the guideline to help practitioners ensure compliance.

 

The Core Principle: Individual Income, Not Company Income

The IRB’s stance is clear: Consultation fees and other payments received by a Specialist Doctor from a private hospital are considered income arising from carrying on his / her profession as a doctor. Such income is to be taxed as a personal business income of the Specialist Doctor.

Crucially, the IRB states that this tax treatment applies regardless of the contractual arrangement. Even if a doctor establishes a Sdn Bhd to enter into an agreement with the hospital, and the hospital pays the Sdn Bhd, the income is still deemed to be the individual doctor’s income, as it is paid in return for the doctor’s personal expertise.

 

Scenarios Assessed as Individual Income (Form B)

The following are the scenarios where consultation fees and other payments received by a Specialist Doctor who own a Sdn Bhd clinic within the premises of a private hospital.

  1. Patient Referrals: A patient is referred by the hospital to the doctor’s clinic located within the hospital premises. The patient will then be given medication from the hospital pharmacy and make payment at the hospital payment counter after the treatment.
  2. Direct Patients Using Hospital Facilities: A patient comes directly to the doctor’s clinic (within the hospital) but then uses hospital facilities, such as an operating theatre, for surgery or treatment.
  3. Group Practice: Several doctors form a single company to enter an agreement with the hospital. The income is still assessed as individual income for each respective doctor.
  4. External Clinic, Hospital Service: A doctor (e.g., a radiologist) has a clinic outside the hospital but signs an agreement to provide specific services to the private hospital.

 

The Exceptions: When is it Company Income (Form C)?

The guideline provides specific examples of income that can be assessed as company income (Form C):  

  1. Fully Independent Clinic (Inside Hospital): The doctor owns a Specialist Clinic (Sdn Bhd) inside the hospital, but patients come directly (no hospital referrals) AND the doctor does not use any private hospital facilities for treatment.
  2. Fully Independent Clinic (Outside Hospital): The doctor’s clinic is outside the hospital premises, and the services provided to patients do not involve any private hospital.
  3. Separate Business: If a doctor also runs a separate business (e.g., a company selling medical equipment), that income is a separate business source, assessed under the company and reported on Form C. The clinical income remains individual income reported on Form B.

 

Other Income Types: Employment vs. Separate Business

  • Employment Income (Form BE): If a doctor is hired as a direct employee of the hospital under a “contract of service” and paid a salary, this is treated as employment income under paragraph 4(b) ITA 1967. Similarly, any Director’s Fees received from the hospital or a Specialist Clinic are considered employment income.

 

Allowable Deductions for Doctors

For income assessed as individual business income (Form B), doctors can claim “wholly and exclusively” incurred expenses. Key allowable deductions include:

  • Professional Indemnity Insurance (PII) premiums.
  • CPD Activities: Fees for seminars, workshops, and conferences approved by CPD Review Committees for renewing the annual practicing certificate.
  • Rent: Rental paid for the doctor’s room, equipment, or operating room at the hospital.
  • Other Charges: Medical practitioner license fees, administrative charges by the hospital, staff salaries, stationery, telephone, internet and facsimile charges.

Key Point on EPF: A crucial distinction is made for EPF contributions. If a doctor operates as a director of a Sdn Bhd, the company’s contribution to the director’s EPF is a deductible expense for the company. However, if the doctor operates as a sole proprietor, any “employer’s” contribution made for the proprietor himself is not tax-deductible.

 

Taxpayer Responsibilities

All doctors must maintain complete records and supporting documents for all income and expenses for seven (7) years from the end of the year the tax return was submitted.

 

Considerations for Setting Up a Company

If you wish to maintain a company for commercial reasons—such as limited liability protection, separation of business risk from personal assets, having a separate Tax Identification Number for e-invoicing, better privacy, or the flexibility to conduct other non-clinical business in the future—you may proceed with incorporation. However, for clinical services provided in private hospitals, the IRB will generally still assess income under the individual doctor, not the company.

Setting up a company is therefore mainly beneficial for commercial, legal, and administrative purposes rather than for reducing tax on hospital clinical income. If your primary goal is tax optimization for hospital work, the benefit is limited. Nevertheless, if you value liability protection, structured business operations, privacy, or plan to run other non-clinical ventures, incorporation can still be worthwhile—provided you maintain proper records and clearly segregate clinical income from company income for accurate tax reporting and compliance.