Opex vs capex

Published Wednesday 30 September 2026

Table of contents

• What is opex?
• What is capex?
• Key differences between opex and capex
• How to categorise expenses as opex or capex
• Tax treatment of opex and capex in Malaysia
• Budgeting for opex and capex
• Track your opex and capex with Xero
• FAQs on opex vs capex
• Related terms
• Learn more about opex vs capex

Key takeaways

• Opex is the day-to-day cost of running your business, such as rent and salaries. Capex buys assets that benefit your business for more than one year.
• You expense opex in the period you incur it, while capex goes on your balance sheet and is spread over the asset’s useful life.
• In Malaysia, you claim tax relief on capex through capital allowances. Assets costing RM2,000 or less can qualify for a 100% allowance.
• Classifying each purchase correctly makes budgeting easier and gives you an accurate view of profit and cash flow.

What is opex?

Opex (operating expenditure) is the money you spend to keep your business running day to day. It covers recurring costs you pay every month or quarter.

Picture a café: if the owner stopped paying rent and staff wages, the doors would soon close. Those running costs are opex. Opex excludes the cost of goods sold (COGS), which is the direct cost of making or buying what you sell.

Common opex examples

Most of your regular business costs are opex. Common examples include:

• Salaries and wages
• Rent for your shop or office
• Electricity and internet bills
• Insurance premiums
• Marketing and advertising
• Software subscriptions

Salaries are opex even when they’re your biggest cost, because you use up the benefit in the period you pay. Opex appears on your profit and loss statement, so every ringgit of it reduces that period’s profit.

What is capex?

Capex (capital expenditure) is money you spend on assets that will benefit your business for more than one year. Think of a delivery van or a commercial oven.

Capex is an asset, so you record it on your balance sheet instead of expensing it straight away. You then spread its cost over the asset’s useful life through depreciation.

Types and examples of capex

Maintenance capex keeps current operations running, such as replacing a bakery’s broken oven. Growth capex expands your business, such as fitting out a second outlet. Common capex purchases include:

• Vehicles for deliveries or client visits
• Machinery and production equipment
• Computers and servers
• Office furniture and renovations
• Software you buy outright

Key differences between opex and capex

The main difference is time: you use up opex within the year, while capex buys an asset you’ll use for years. That changes how each one affects your profit and your reports.

Time horizon and flexibility

If you overspend on marketing this month, you can adjust next month. A poor capex decision, such as buying equipment you rarely use, ties up cash for years.

Rent and wages fall due whether sales are strong or slow, though wages are predictable enough to plan quarter by quarter. Capex usually gives you more control over timing, unless a critical machine breaks down and needs replacing immediately.

Impact on profit

You subtract opex from revenue in full, so higher running costs mean you need more sales to break even. Capex reduces profit gradually, because only each year’s depreciation charge hits your profit and loss statement.

How they appear on financial statements

Opex and capex sit in different places across your financial statements. The Corporate Finance Institute’s capex guide confirms capex is capitalised and reported under investing activities:

• Opex appears as an expense on the profit and loss statement
• Opex payments sit under operating activities in the cash flow statement
• Capex appears as an asset on the balance sheet
• Capex payments sit under investing activities in the cash flow statement

How to categorise expenses as opex or capex

An expense is generally capex if it buys or improves something you’ll use for more than one year. Work through these steps for each purchase:

1. Check how long you’ll use it. A benefit lasting more than one year points to capex.
2. Check whether it creates or improves an asset. Routine upkeep points to opex.
3. Check the cost per asset. In Malaysia, items costing RM2,000 or less each can qualify for a 100% small value asset allowance.
4. Record it in the right account. Post opex to an expense account and capex to a fixed asset account.

Example: categorising a laptop

A RM1,800 laptop lasts several years, so it’s a capital asset, but it can qualify for the 100% small value asset allowance. A RM4,500 laptop is above the RM2,000 limit, so you’d claim capital allowances at the information and communications technology (ICT) rates over a few years.

A RM90 laptop bag is opex, and you simply expense it.

Repairs vs improvements

Repairs that restore an asset to its original condition are usually opex, in line with LHDN Public Ruling No. 6/2019 on repairs and renewals. Improvements that extend its life or add capacity are usually capex, so fixing a cracked shop window is opex while building an extension is capex.

Tax treatment of opex and capex in Malaysia

In Malaysia, you generally deduct opex in the year you incur it, while capex gets relief through capital allowances. The rules sit in the Income Tax Act 1967, administered by the Inland Revenue Board of Malaysia (LHDN).

Deducting opex

Section 33(1) of the Act lets you deduct expenses incurred wholly and exclusively in producing your gross income. Section 39 lists costs you can’t deduct, including capital expenditure.

So if you pay RM36,000 in shop rent, you can usually claim it all as a tax deduction for that year of assessment.

Capital allowances instead of depreciation

Accounting depreciation isn’t tax deductible, so you claim capital allowances instead. You get an initial allowance in the year of purchase, plus an annual allowance each year until the full cost is claimed.

The PwC Malaysia tax summary lists these example rates:

• 20% initial and 14% annual for general plant and machinery
• 20% initial and 10% annual for office equipment and furniture
• 40% initial and 20% annual for ICT equipment and software
• 20% initial and 20% annual for heavy machinery and motor vehicles, with limits on qualifying vehicle cost

Your books still record depreciation under Malaysian Financial Reporting Standards (MFRS) 116 or the Malaysian Private Entities Reporting Standard (MPERS), both issued by the Malaysian Accounting Standards Board. That’s why your accumulated depreciation usually differs from the allowances in your tax computation.

Small value assets

Under LHDN Public Ruling No. 3/2021, assets costing RM2,000 or less each get a 100% allowance in the year you buy them. Companies outside the small and medium enterprise (SME) definition can claim up to RM20,000 of these per year of assessment, while qualifying SMEs have no cap.

Rules can change in each annual Budget, and Budget 2027 is due to be tabled on 9 October 2026, so check LHDN for updates. For borderline items, such as a large repair, ask your accountant or tax agent before you file.

Budgeting for opex and capex

Budget opex monthly from your past spending, and plan capex separately as a dated list of priority purchases. Keeping them apart shows what it costs to run your business and what you can afford to invest.

Budgeting for opex

Start with your last 12 months of spending, adjusted for changes such as a rent increase or new hire. If one line keeps rising, these ways to cut costs can free up cash for growth.

Budgeting for capex

List the assets you plan to buy this year with estimated costs and dates. Then add them to your cash flow projection to see when each purchase hits your bank balance.

Free cash flow shows how much capex you can comfortably fund. It’s operating cash flow minus capex: the cash left after running the business and investing in assets.

Buying vs leasing or subscribing

Leasing equipment or subscribing to software turns a large capex purchase into smaller opex payments. That protects your working capital, while buying usually costs less over the asset’s full life.

Total cost of ownership

The purchase price is only part of what an asset costs. When you compare buying with leasing, include these ongoing costs:

• Maintenance and servicing
• Storage or floor space
• IT support and security updates
• Obsolescence, when an asset needs replacing early

Track your opex and capex with Xero

Xero helps you keep opex and capex in the right accounts from day one. Bank feeds bring in your transactions automatically, ready to code to an expense or fixed asset account.

Real-time financial reports then show how running costs and asset purchases affect your profit and cash flow. To see how it works for your business, get one month free and plan your next purchase with confidence.

FAQs on opex vs capex

These answers cover common questions Malaysian business owners ask about opex vs capex.

Is depreciation opex or capex?

Depreciation is a non-cash expense that spreads a capex asset’s cost over its life. Because no cash leaves your business, you add it back when you work out operating cash flow.

Is software opex or capex?

Subscriptions, such as cloud accounting software, are opex. Software you buy outright or have custom built is usually capex and can qualify for ICT capital allowances.

Are salaries opex or capex?

Salaries are almost always opex. The exception is staff time spent directly building or installing an asset, which IAS 16 (mirrored in MFRS 116) lets you include in the asset’s cost when it’s directly attributable.

Is capex an asset or a liability?

Capex is an asset, recorded on your balance sheet at cost less depreciation. If you fund it with a loan or hire purchase, the amount you still owe is a separate liability.

Can you convert capex to opex?

Yes, leasing or subscribing turns a one-off purchase into regular operating payments. Some longer leases still go on the balance sheet under reporting standards, so check the terms with your accountant.

What’s the difference between a repair and capex?

A repair that replaces or upgrades a whole asset, such as swapping an old air-conditioner for a bigger system, is usually capex. Keep invoices describing the work to support how you classified it.

Related terms

• Cash flow
• Assets
• Gross profit
• Net profit
• Operating profit

Learn more about opex vs capex

• Overhead costs explained
• How to manage petty cash
• How to increase profits
• Profitability ratios