Operating expense (opex)
Learn what operating expenses are, what they include and exclude, and how to calculate them for your Malaysian business.
Published Wednesday 30 September 2026
Table of contents
Key takeaways
- Operating expenses are the day-to-day costs of running your business, such as rent, salaries, utilities and marketing
- Cost of goods sold, interest, income tax and loan principal repayments sit outside operating expenses
- Gross profit minus operating expenses equals operating profit, and opex divided by revenue is your operating expense ratio
- In Malaysia, you deduct expenses wholly and exclusively incurred in producing income, and claim capital allowances instead of depreciation
What is an operating expense?
An operating expense (opex) is a day-to-day cost of running your business, such as rent or salaries. It excludes the cost of goods sold (COGS), which is what you spend making or buying the products you sell.
Picture a bakery. Flour and butter are COGS, while shop rent, the cashier’s wages, electricity and social media ads are operating expenses.
What’s included in operating expenses
Operating expenses cover the costs of keeping your doors open, whether or not you make a sale this month. Common examples include:
- salaries and wages for your office and sales staff
- rent for your shop or office
- utilities, such as electricity and internet
- marketing and advertising
- insurance and professional fees, such as accounting services
- office supplies and software subscriptions
- depreciation and amortisation on business assets
Depreciation commonly appears within operating expenses, spreading an asset’s cost across the years you use it.
What isn’t an operating expense
Several costs sit outside operating expenses, though many still appear on your profit and loss statement. AccountingTools explains that operating expenses don’t include cost of goods sold, and it classes interest and income tax as non-operating. These costs include:
- cost of goods sold, such as stock and raw materials
- interest on loans and overdrafts
- income tax
- loan principal repayments, which reduce what you owe on the balance sheet
- capital purchases, such as equipment or vehicles
- Sales and Service Tax (SST) you collect from customers
If you’re registered for SST, the tax you collect goes to the Royal Malaysian Customs Department, so it isn’t your own expense. According to the department’s service tax FAQs, the standard service tax rate is 8%, with 6% for food and beverage, logistics, telecommunications and parking.
Rental and leasing services have also been taxed at 6% since 1 January 2026, and sales tax is charged at 5% or 10%. SST you pay to suppliers on your own purchases is different: it forms part of what that purchase costs you.
Operating expenses on the profit and loss statement
Operating expenses sit between gross profit and operating profit on your profit and loss statement. The Corporate Finance Institute calculates operating profit by subtracting COGS and operating expenses from sales revenue. A typical statement works down in this order:
- revenue from sales
- minus COGS, giving gross profit
- minus operating expenses, giving operating profit
- minus interest and income tax, giving net profit
Keeping these lines apart shows how your core business performs before financing and tax.
How to calculate operating expenses
To calculate operating expenses, add up your day-to-day running costs for a set period. Follow these steps:
- Choose a period, such as a quarter or a financial year
- List every running cost for that period from your accounts
- Remove COGS, interest, income tax and capital purchases
- Add up the costs that remain
If you know your gross profit and operating profit, the formula is: operating expenses = gross profit − operating profit.
Example: calculating opex in RM
Say you run a printing shop with RM600,000 in revenue and RM240,000 in COGS for the year, giving RM360,000 in gross profit. Over the same year, you spend:
- RM150,000 on salaries for office and sales staff
- RM48,000 on rent
- RM12,000 on utilities
- RM18,000 on marketing
- RM14,000 on software and accounting fees
- RM8,000 on depreciation
Your operating expenses total RM250,000, leaving an operating profit of RM110,000. Any loan interest, say RM6,000, comes off after operating profit.
Operating expense ratio
The operating expense ratio shows how much of each ringgit of revenue goes on running costs. The Corporate Finance Institute describes an operating ratio that compares opex to net sales, where a lower result is the goal.
The formula is operating expense ratio = operating expenses ÷ revenue × 100. For the printing shop, RM250,000 ÷ RM600,000 × 100 = 41.7%, so about 42 sen of every ringgit goes on running the business.
Fixed and variable operating expenses
Fixed operating expenses stay the same however busy you are, while variable ones rise and fall with your activity. Rent and insurance are typical fixed costs, and sales commissions are a typical variable cost.
The same category can land on either side. A salaried office manager is a fixed cost, while hourly casual staff are variable. Your fixed costs show the minimum you need to earn each month.
Operating expenses vs capital expenditure
Operating expenses are costs you use up in the current period, while capital expenditure (capex) buys assets that last for years. The Corporate Finance Institute notes that capex is capitalised as a fixed asset and depreciated over time, while opex is expensed straight away.
Buying a RM90,000 delivery van is capex. The fuel and servicing are operating expenses, and so is each year’s depreciation on the van.
Why operating expenses matter
Operating expenses decide how much of your gross profit you keep, and they shape your tax bill.
Operating expenses shape your profit
Every ringgit you save on running costs adds to operating profit, as long as sales hold steady. Checking opex monthly helps you spot a supplier’s price rise early.
How opex affects your tax in Malaysia
Many operating expenses reduce your taxable income. Under subsection 33(1) of the Income Tax Act 1967, an expense wholly and exclusively incurred in producing gross income is allowed as a deduction.
This rule is read together with subsection 39(1), which lists expenses that aren’t allowed. Depreciation in your accounts isn’t deductible either. Instead, you can claim capital allowances on qualifying plant, machinery and industrial buildings.
Keep your receipts and invoices safe, as the customs department asks SST-registered businesses to keep proper records for seven years. Check the current record-keeping rules for income tax with LHDN or your tax agent.
How to reduce operating expenses
You reduce operating expenses by reviewing each cost regularly and keeping the ones that help you earn. Practical ways to start:
- review software subscriptions and cancel the ones you no longer use
- ask suppliers for fresh quotes each year
- negotiate a longer lease in exchange for lower rent
- automate bookkeeping tasks such as bank reconciliation
- track your operating expense ratio each month to catch rising costs early
Start with costs that don’t bring in sales, and protect spending that does, such as marketing.
Operating expenses vs overheads
“Operating expenses” is a clearer term than “overheads”, so name the specific cost type when you can. Some people use overheads to mean fixed costs, while others mean indirect costs that aren’t tied to making a product.
Saying “fixed operating expenses rose by RM2,000” tells your accountant exactly what changed.
Track your operating expenses with Xero
Knowing your operating expenses helps you protect your profit and claim the right deductions. Xero pulls in transactions through automated bank feeds and turns them into easy-to-read reports, so your running costs stay up to date.
Try Xero today and get one month free.
FAQs on operating expenses
Here are quick answers to common questions about operating expenses.
Is depreciation an operating expense?
Depreciation usually appears within operating expenses on the profit and loss statement. It’s a non-cash expense, so no money leaves your bank account when you record it.
Are salaries operating expenses?
Salaries for office and sales staff are operating expenses. Wages for staff who directly make your products are often counted in COGS instead.
Are operating expenses tax deductible in Malaysia?
Most are, but an expense in your accounts can still be disallowed under subsection 39(1). In that case, you add it back when working out your adjusted income for tax.
Is rent an operating expense?
Rent on your business premises is a fixed operating expense. If you buy the premises instead, the purchase is capital expenditure recorded on your balance sheet.
What is a good operating expense ratio?
It depends on your industry, since a service business and a retailer have different cost structures. Compare it with your own past periods: a steady or falling ratio while revenue grows is a healthy sign.
Are interest payments operating expenses?
Interest is usually a non-operating expense. The exception is a business whose core activity is financing, such as a lender, where interest is part of normal operations.
Related terms
Learn more about operating expenses
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Disclaimer
This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.