Singapore Company Incorporation with Paul Hype Page
Company Registration at Paul Hype Page Singapore

The Malaysian taxation structure is territorial-based. The only income that expatriates earn within Malaysia is subjected to income taxation. If the expatriate provides any professional service out of Malaysia, such income will not be taxed.He/she will not have to present clearance documents for these incomes too.

Tax clearance as defined in Malaysia

Tax clearance certificate is a certificate given by the Inland Revenue of Malaysia to indicate any outstanding income tax by the employee. It applies to everyone whether local, foreigner, or expatriate. When tax clearance is not done, the last salary or compensation of one upon resignation, termination of the contract, or retirement may be withheld by the Malaysian Inland Revenue Department (LHDN). Any expatriate leaving Malaysia for more than three months need to do their tax clearance.

When to do Tax Clearance

Tax clearance in Malaysia is usually completed within 10 working days. As an employer of an expatriate taxpayer, it is your responsibility to inform the Malaysian Inland Revenue Department of the intended termination of employee’s employment status 30 days before his/her resignation, termination of the contract, or retirement or date of departure.

In case of unforeseen eventualities like death before the end of an employment contract, you are to submit this information within 30 days from the date of death of this employee.

In case you are leaving before the due date for tax clearance and your income tax is deducted monthly(usually on the 30th of April), you don’t have to submit your income tax return.

However, if it is a month to 30th April, your previous years’ income tax returns need to be filed. Anyone whose income is not usually deducted monthly must submit their income tax for the past years and the particular year in which they are terminating their employment through resignation, end of the contract, or retirement.

Application Guide for Tax Clearance in Malaysia

When an employer receives the tax clearance certificate, he/she is to release your money which he/she withheld from you upon settling of your tax balance as shown in the tax clearance certificate. An employer usually withholds your money, salary, or compensation, because he/she is mandated to do so by the Malaysian tax law until you clear your outstanding taxes and get the tax clearance certificate. Otherwise, failure to do so, they will get the penalty charges. The submission of the duly filled clearance forms can be done manually by visiting the LDHN offices or online through the e-SPC. The employee is not to submit this online tax clearance by himself/herself but through the employer.

There are three different forms that the Human Resource will fill depending on the employee’s employment status. To hasten the tax clearance process, ensure you attach your latest tax clearance certificate.

  • If the employee is leaving the country, the employer need to fill up FORM CP21.
  • If the employee is resigning, terminating their contract, or retiring from employment is from the private sector, the Human Resources need to fill up FORM CP22A.
  • If the employee is resigning, terminating their contract, or retiring from employment is from the public sector, the Human Resources will fill FORM CP22B.

An expatriate who is retiring or leaving Malaysia will have their income tax file at the Malaysian Inland Revenue offices closed because they will no longer be receiving any taxable income. In case you have any extra taxable payments, which are due after your departure like bonuses, you are mandated to declare these payments. You can do so yourself or through an agent. The appointment of an agent also comes in handy when you must cease employment or leave the country at a short notice. If you have this notice from your employer, present it at the LHDN offices to have your tax cleared.

Thinking of incorporating in Malaysia? Let’s get started.

E A S I E R • F A S T E R • B E T T E R

Taxation rate for Malaysian expatriate

To be familiar with the taxation category you belong to as an expatriate when clearing your taxes, ensure you get sufficient information on how the tax structure of Malaysia works. You can find this information from the LHDN branch offices or their official website, from the human resource department of your company/organization, or from professional consultants.

Malaysian tax authorities use both the floating and flat rates for taxable income. This taxation rates on the type of work you do and the employment duration for the expatriate. Mostly it is the

floating rates that apply to expatriates in Malaysia and it is deducted from between 0% to 30% according to their income.

Tax appeal

Any taxpayer who is not satisfied with his/her tax assessment makes an appeal within 30 days from the day he/she received the notice. Should the time elapse before you file your tax assessment appeal, you are to send your application of appeal for a deadline extension to the office of the Director-General of the Inland Revenue (DGIR). As an expatriate in Malaysia, ensure your appeal day falls within your working visa period.

Penalty for late submission of tax clearance forms

It is a criminal offense in Malaysia to delay the submission of tax clearance forms. The penalty will be either a fine of between MYR 200 and MYR 20,000, imprisonment of up to six months, or both as deemed appropriate by the Malaysian Inland Revenue laws. This penalty does not only apply to the employer, but the expatriate should he/she be flagged as a tax evader and be prevented from leaving Malaysia.

In case of a departure stoppage, contact the relevant persons and clear your arrears immediately to avoid embarrassment. You can do so via the internet and present proof of payment which will accord you a revocation order and permit you to proceed with your journey. It is important to not take advantage of this provision because things might not work in time for your flight. As you plan to leave Malaysia check stoppage status by visiting the branch offices of LHDN. It is better to be sure than sorry.

Summary

As an expatriate in Malaysia, ensure you submit your tax clearance whether your visa has expired or not, as long as you are leaving Malaysia for more than three months or are ceasing employment in terms of resignation, termination of the contract, or retirement. Should there be any more owed you which will be due after you have left Malaysia, you are required to declare these payments. These payments may be your retirement compensation, bonuses, or contract payments which are to be paid on a later date. The LHDN will determine which one is taxable or not. Otherwise, you are liable for tax noncompliance penalties. Any expatriate who is on a professional visit, that is they have flown here on a visit Pass to do professional work, does not get their income taxed hence they don’t need tax clearance, the same is true for someone who has worked for less than a month. Do not be scared, in case of delay or short notice before departure, present this piece of information to LHDN.

Tax clearance for expatriates in Malaysia FAQs

What is the worst thing that can happen to an expatriate when they are flagged for tax non-compliance?2021-01-14T11:37:27+08:00
  • The first obvious thing is that it puts you in an awkward position as your salary will be withheld by your former employer. When this happens, you may miss out on important dates like your flight departure date, which in turn may inconvenience your next employment appointments, among other inconveniences.
  • Another thing is that you may cause your employer to face penalties and that will not be good on your resume for future employment considerations.
  • You may be prevented from leaving Malaysia.

To escape all these embarrassments, make sure you file your taxes and renew your visas on time so that you don’t have to do last minute things when your visa cannot be renewed.

What are the tax exemptions for expatriates?2021-01-14T11:36:51+08:00

An expatriate may qualify for tax exemptions if his/her employment period is less than 60 days (about 2 months) or if he/she is not a tax resident in Malaysia. As an expatriate, you are considered a tax resident if you are going to live or has lived in Malaysia for 182 days (about 6 months) or longer.

Which tax is this that expatriates to clear?2021-01-14T11:36:36+08:00

The income tax is the tax to be cleared. The Malaysian government mandates all who work in Malaysia whether local or expatriates to have their income taxed, even so, there are exemptions.

What should I do in regard to tax clearance if I am the beneficiary to a dead taxpayer who had not reached, retirement or the end of the contract?2021-01-14T11:32:37+08:00

As the beneficiary, you should inform the benefactor’s employer of this eventuality. The employer will then inform the Malaysian Inland Revenue Department which is the custodian of the taxpayer’s file.

2021-02-25T09:56:31+08:00January 14, 2021|0 Comments
forumforum

Leave A Comment