In Malaysia, employers shoulder various tax responsibilities, including monthly tax deductions from employee salaries and contributions to social security programs.
Monthly Tax Deductions (MTD or PCB)
Employers must deduct income tax monthly from employee salaries (known as Potongan Cukai Bulanan or PCB) based on the Monthly Tax Deduction (MTD) system and remit it to the Inland Revenue Board of Malaysia (LHDN or IRBM) by the 15th of the following month. This deduction applies to all cash remuneration, benefits-in-kind, and the value of accommodation provided. Non-resident employees are typically taxed at a flat rate of 30%. However, certain exemptions and reduced rates apply, such as the 15% rate for those under the Returning Expert Programme (REP) for their first five years.
Employees Provident Fund (EPF)
Employers are generally required to contribute 12% of an employee's monthly wages to the EPF. For employees aged 60 and above, the employer contribution is 4%. Employees also contribute to EPF; the rates depend on their age. Currently, non-Malaysian citizens and non-permanent residents are not obligated to contribute but can choose to do so. Note that there are proposals to make EPF contributions mandatory for non-Malaysian citizen employees, but as of February 5, 2025, this has not been implemented.
Employment Insurance System (EIS)
Both employers and employees contribute 0.2% of the employee's remuneration, capped at MYR 4,000 per month, to the Employment Insurance System (EIS).
Tax Clearance
Employers must notify the LHDN at least 30 days before an employee's employment ends, whether through contract expiry, resignation, termination, or departure from Malaysia. In the event of an employee's death, the next-of-kin must inform the LHDN within 30 days. This process ensures the issuance of a Tax Clearance Letter (TCL), confirming settlement of all outstanding tax liabilities.
Other Considerations
- Benefits-in-kind (BIK): BIK provided to employees, such as company cars and accommodation, are considered taxable income and are included in the MTD calculations. Specific guidelines and formulas determine the taxable value of different BIK.
- Tax Reliefs and Exemptions: Various tax reliefs and exemptions are available for individuals, impacting the net tax payable. These can include reliefs for medical expenses, education, and lifestyle expenses. It's advisable to stay updated on the latest regulations as these provisions can change.
- Budget 2025: The 2025 Budget introduced a 2% tax on local dividend income exceeding MYR 100,000 for individual shareholders. Further proposed changes, like making EPF mandatory for non-Malaysian employees and updates in tax relief for employers providing extended leave for family reasons, need to be monitored.
- State Taxes: Remember that individual states within Malaysia also levy taxes like property taxes ("quit rent" and assessments), which vary in rates.
This information is current as of February 5, 2025, and might be subject to change due to evolving regulations. Consulting with a tax professional is recommended for the most up-to-date and specific guidance.
In Malaysia, employers are obligated to deduct monthly taxes from employees' salaries, covering various aspects of remuneration and benefits, and remit these to the Inland Revenue Board of Malaysia (LHDN) by the 15th of the following month. This system, known as Monthly Tax Deduction (MTD) or Potongan Cukai Bulanan (PCB), ensures consistent tax payments throughout the year.
Monthly Tax Deduction (MTD/PCB)
MTD is calculated based on an employee's total monthly remuneration, including cash payments like salary, bonuses, allowances, and benefits-in-kind (BIK) such as company cars or accommodation. Employers use tax tables provided by LHDN to determine the correct deduction amount, considering factors like marital status and dependents.
Taxable Remuneration and Benefits
- Cash Remuneration: Includes salary, wages, commissions, bonuses, allowances (some allowances are exempt, such as a portion of petrol allowances for official duties, up to RM6,000 annually, and childcare/elderly care allowances up to RM 3,000 from YA 2025).
- Benefits-in-Kind (BIK): Includes items like company cars, accommodation, drivers, and other non-cash benefits. The taxable value of these benefits is calculated based on prescribed formulas or methods.
- Value of Living Accommodation (VOLA): If the employer provides accommodation, its value is also factored into the MTD calculation.
Tax Deductions and Reliefs
Tax deductions reduce the taxable income amount, while tax reliefs directly reduce the tax payable.
- Compulsory Deductions: Automatically applied based on the employee's marital status and dependents:
- Individual: RM9,000
- Spouse (if no income): RM4,000
- Each Child: RM2,000 (Additional deductions available based on the child's age, disability, and education level).
- EPF Contributions: RM4,000
- Disabled Individual: RM6,000
- Disabled Spouse (if no income): RM5,000
- Optional Deductions: Claimed via Form TP1 and submitted to the employer. Examples include:
- Medical expenses for parents/grandparents: Up to RM8,000. Covers medical treatment, special needs care, dental treatment, and complete medical examinations.
- Lifestyle expenses: RM2,500 (covers books, computers and other related items).
Non-Resident Employees
Non-resident employees are subject to a flat 30% tax rate on their employment income, including BIK and VOLA. Specific exemptions on allowances and benefits might apply as per Malaysian tax regulations.
Employer Responsibilities
Employers are responsible for deducting the correct amount of MTD each month and remitting it to LHDN by the 15th of the following month. They also need to provide employees with annual statements summarizing their earnings and tax deductions (EA Form).
Employee Responsibilities
While employers handle the monthly deductions, employees remain responsible for filing their annual income tax returns. They should ensure that their employer has the correct information regarding their marital status, dependents, and other relevant details to calculate accurate MTD.
Women Returning to Work
To encourage women's re-entry into the workforce, a tax exemption is available on employment income for up to 12 consecutive months. Employers also benefit from a further 50% tax deduction on employment expenses for hiring women returning after a career break (application to TalentCorp Malaysia is required).
Key Dates and Deadlines
- MTD/PCB Remittance: 15th of the following month.
- Income Tax Return Filing: Varies based on income type but typically falls between March and April of the following year.
Note: This information is current as of February 5, 2025, and might be subject to change due to updates in tax regulations or government policies. It's advisable to consult the official LHDN website or a qualified tax advisor for the most up-to-date information.
Malaysia's Goods and Services Tax (GST) was abolished in 2018 and replaced with the Sales and Services Tax (SST). As of February 5, 2025, the SST remains in effect, with discussions ongoing about potentially reinstating GST.
Sales and Services Tax (SST) in Malaysia
SST comprises two separate taxes: sales tax and service tax. Specifics are detailed below:
Sales Tax
- Scope: Levied on taxable goods manufactured in Malaysia and imported taxable goods.
- Rates: Two primary rates exist – 10% (standard) for most goods, and 5% (reduced) for essential goods like certain foods and building materials. Several goods are exempt.
- Exemptions: Some examples of exempt goods include certain foods, printed materials, bicycles, and pharmaceuticals. Goods produced for export are also exempt.
Service Tax
- Scope: Applied to specific taxable services provided in Malaysia, including imported services and digital services.
- Rate: The standard service tax rate is 6%. Certain services, especially food and beverages may be exempt.
Registration and Filing for SST
- Threshold: Businesses with annual sales exceeding RM 500,000 must register for SST. Voluntary registration is available for businesses below the threshold but comes with a requirement to remain registered for at least two years.
- Taxable Period: The taxable period is two months.
- Filing: Businesses file SST returns every two months, even if no tax is due.
- Payment: Payments are due within 30 days from the end of the taxable period.
Potential Return of GST
Although GST was abolished, discussions and proposals for its reinstatement have occurred. The 2025 Budget, presented in October 2024, did not include a GST reintroduction. Instead, it focused on broadening the scope of the SST to include previously exempt luxury goods and business-to-business services.
Other Taxes
Apart from the SST, other taxes in Malaysia include income tax, real property gains tax, and stamp duty. Be sure to research these or consult a tax professional for complete tax obligations in Malaysia. Information provided is based on available knowledge as of February 5, 2025, and might be subject to change due to ongoing tax law revisions.
Malaysia offers various tax incentives for businesses and individuals. These incentives aim to stimulate investment, promote specific sectors, and encourage particular activities.
Tax Incentives for Businesses
- Pioneer Status (PS): Provides a tax exemption on statutory income for 5 or 10 years for companies engaging in promoted activities or producing promoted products. A company granted PS pays tax on 30% of its statutory income. Unabsorbed capital allowances and accumulated losses during the PS period can be carried forward.
- Investment Tax Allowance (ITA): An alternative to PS, ITA grants an allowance on qualifying capital expenditure for a specified period. It is often granted for projects with substantial capital investment and long gestation periods.
- New Investment Incentive Framework (NIIF): Expected to be introduced in Q3 2025. The NIIF aims to attract high-value investments in sectors like manufacturing, technology, and specific economic clusters based on regional specializations.
- Integrated Circuit (IC) Export Incentive: Offers a 70% income tax exemption on statutory income derived from increased exports of integrated circuits. This initiative supports the growth of Malaysia's electrical and electronics sector.
- Forest City Special Economic Zone (FCSFZ): Offers specific incentives, including a 0% tax rate for family offices, a 0-5% corporate income tax rate for businesses in fintech and global business services, a 15% income tax rate for skilled professionals, and deductions for relocation costs and other incentives for financial institutions.
- Incentives for Multinational Enterprises (MNEs): MNEs with manufacturing expenses exceeding MYR 2 million (approximately US$457,000 as of December 2024) and those investing in domestic suppliers may qualify for tax breaks under the new Investment Incentive Framework. These tax breaks apply for three consecutive years.
- Carbon Capture, Utilisation, and Storage (CCUS) Incentives: Tax incentives, including investment tax allowances and income tax exemptions, are available for CCUS activities promoting environmentally friendly practices.
Tax Incentives for Individuals
- Lifestyle Tax Relief: Provides an annual tax relief of RM 2,500 for expenses related to self-improvement courses, digital subscriptions, and purchase of books, computers, smartphones, or tablets.
- Tax Relief for Sports-Related Expenses: Individuals can claim tax relief of up to RM 1,000 for sports equipment, facility fees, and competition or training fees.
- Tax Relief for Medical Expenses: Covers serious illnesses, fertility treatment, vaccinations, COVID-19 tests, dental treatment, and mental health consultations. Specific limits apply to certain categories.
- Tax Relief for Education Fees: Individuals can claim relief for upskilling and self-enhancement courses (up to RM 2,000), as well as other educational expenses.
- Tax Relief for Disabled Individuals, Spouses, and Children: Offers relief for disabled individuals (RM 6,000), spouses (RM 5,000, increasing to RM 6,000 in 2025), and unmarried disabled children (RM 6,000, increasing to RM 8,000 in 2025).
- Returning Expert Programme: Offers a 15% income tax rate for five consecutive years and excise duty exemption on a vehicle purchase for eligible returning experts.
- Income Tax Exemption for Equity Crowdfunding: This exemption is continued for investments made through equity crowdfunding platforms.
It's important to note that the information provided is current as of February 5, 2025, and may be subject to change. Specific details and eligibility requirements for each incentive can be obtained from the relevant Malaysian authorities, such as the Malaysian Investment Development Authority (MIDA), Lembaga Hasil Dalam Negeri (LHDN), and the Ministry of Finance (MoF). Always consult with a tax professional for personalized advice.