If you are thinking about launching your business in Malaysia or starting a project, our specialist payroll team are sharing some helpful tips to get you started with the payroll and tax process in Malaysia.
This guide will cover work permits, tax in Malaysia, registering employees with a tax number and the benefits of using an international payroll partner.
If you would like to download a PDF version of this guide, simply click the link below.
Introduction To Malaysia
Kuala Lumpur has long been one of South East Asia’s main hubs for business and investors looking to take advantage of the region’s rapid growth. In recent times there has also been a pronounced effort by the Malaysian Authorities to encourage companies to employ local staff.
Within the local market there are a number of specialists available both expats and nationals. However, many of our clients who operate in the region have found it difficult to implement recruitment strategies to attract the right talent. In turn, they have also struggled to be able to employ people compliantly and secure the relevant work permits.
If you are one of these businesses who is thinking about operating or starting a project in Malaysia, our specialist payroll team are sharing some helpful tips to get you started with the tax process in Malaysia.
Work Permits For Malaysia
Before you launch a business in Malaysia, it is important to know about the different employee work permits legally needed to operate.
For all foreign workers, you will need to sponsor them through your local entity or get a company with a local entity to sponsor your workers.
Once your workers have been sponsored, they will be able to apply for a work permit, also known as an employment pass. Work permits generally last between six months and five years, depending on the duration of the work contract and the type of visa. Application forms are mostly in Bahasa Malaysia.
Types of Work Permits for Malaysia
The Malaysian Government issues three different types of work permits:
Malayisan Professional Visit Pass
The Professional Visit Pass is issued to foreigners employed by an overseas company but working with a company in Malaysia. This pass is normally appropriate for technical experts and trainees. The Professional Pass is normally valid for short periods of around six months to a year.
Malayisan Temporary Employment Pass
A Temporary Employment Pass is for unskilled or semi-skilled workers in the manufacturing, agriculture, construction and services fields. The length of this pass is dependent on length of contract and can vary from 3 months to 2 years. Before the work permit can be issued, quota approval needs to be granted from the Local Centre of Approval, Ministry of Foreign Affairs.
Malayisan Employment Pass
An Employment Pass applies to those wanting to work in Malaysia and who have specific skills, generally in technical or managerial positions. It is issued for a minimum period of two years. Before the Employment Pass can be issued, the employment of the foreign worker must be approved by the Expatriate Committee or the relevant regulatory agency.
To complicate this further there are a myriad of different types of work permit needed for the different regions of Malaysia (West Malaysia, Kemamman, Sarawak, Sabah and Labuan). Even if they are a Malaysian national, these additional regional permits may still be required.
Documents Required for Work Permit Application
Generally, the following documents are required when applying for a work permit for Malaysia:
- Employment Contract / Letter of Appointment
- Original receipts of payment of application
- Copy of employee’s passport (all pages, including cover)
- Passport photos on blue background Employee’s CV
- Copy of Education Certificates and Qualifications
- Medical report from the employee’s country of origin approved by the Malaysian Ministry of Health (dependent on industry)
If supporting documents are not in English or Malay, they may need to be attested.
Taking into account the collecting of relevant documents, the application process and liaising with the relevant government agencies in Malaysia, the process of application to approval can take between 1 and 2 months.
Furthermore, if your business requires workers to travel within Malaysia you may need to apply for more than one work permit. There are four main work permit regions in Malaysia, these are Peninsular / West Malaysia (i.e. Kuala Lumpur), Labuan, Sabah and Sarawak. The four different regions have different processing times and different documentation may be required.
For more information about Visa requirements in the different regions of Malaysia, visit our blog: How long does it take to get a visa in Malaysia?
Tax in Malaysia for Expats
The tax year in Malaysia runs from 1st January to 31st of December. Tax for Non-Residents is currently a flat 30%, whereas tax for residents is on a sliding scale from 0% to 30% dependent on which income grouping you fall into. Typically, for an average paid worker residence tax is at 14%.
Some businesses will pay the tax on behalf of their staff, whereas others ask their workers to submit the payment themselves. There is also a fixed monthly SOSCO fee for non residents of 49.4 RM per month, which is similar to a national insurance fee.
Registering Employees with a Tax Number
When beginning work in Malaysia you will need to register your employees with a tax number. To do this you will need the following information from your employees:
- Copy of the latest salary statement (EA/EC) or latest salary slip
- Copy of identification documents
- Copy of marriage certification (if applicable)
Tax in Malaysia for Residents
If you have workers rotating in and out of Malaysia, they may still qualify for a residency tax rate providing they fit into one of the following criteria:
- If they have been in Malaysia for 182 days per calendar year.
- If they have been in Malaysia for less than 182 days in a calendar year but have still been in the country for 182 consecutive days, linked to days from the year immediately preceding that calendar year.
- If they have been in Malaysia for at least 90 days in a calendar year for three of the four
preceding years.
Once they are classed as a resident, if they are employed in Malaysia for fewer than 60 days per year, they are not liable to pay income tax. People who would be exempt from income tax include retired people over the age of 55, those receiving a pension from their employment in Malaysia, and those who are living off bank interest.
A common myth many contractors believe is that they can benefit from this by qualifying as a resident from day one. However, they will automatically be classed as non-resident for their first 6 months in Malaysia and be liable to pay 30% tax from their first day of work.
Tax Return Form
All workers in Malaysia are also required to file an Income Tax Return each year reporting the income they have received. Tax returns must be filed before 30th April of the following year. The government agency that is responsible for tax in Malaysia is the Inland Revenue Board of Malaysia (IRBM). If this form is not completed by the employer or worker, the Malaysian government may issue a fine.
This tax returns form can be completed online, or you can appoint a payroll partner to complete it on your behalf. To do this, you will need:
- Their Income Tax Number
- Copy of their latest salary statement (EA/EC) or latest salary slip.
- PIN for online system (if this is your first-time paying taxes in Malaysia, you will need to register with the IRB and obtain Pin Number)
All staff employees have to complete tax clearance and tax filing at year end. Financial year is from 1st January – 31st December. Tax filing must be completed by April.
International Payroll Partner
The Malaysian Tax and Payroll process can often be complex for foreign businesses, so it is common for businesses to partner with Payroll Service companies like ourselves to manage the process on their behalf. Here at Leap29 we provide support with:
- Payroll and Taxation Reporting Services
- VISA and Work Permit application services
- Medical Insurance Coverage
- Contract Management Services
Simply drop us an email at [email protected] or call us on +60 3 9212 2271 and one of our specialists from our Malaysian Payroll team will get in contact.