A Complete View of the Ins and Outs of Tax Clearance in Malaysia 

Navigating tax clearance in Malaysia can be complex, especially when it comes to settling liabilities before leaving the country or closing a business.

In this article, we will break down the essential steps and requirements outlined by the Inland Revenue Board of Malaysia (IRBM). Whether you are an expatriate, a business owner, or an individual, this guide aims to provide a concise yet comprehensive overview to help you navigate the complexity of tax clearance in Malaysia seamlessly.

Understanding tax clearance in Malaysia

A tax clearance certificate from the Inland Revenue of Malaysia serves as confirmation of an individual’s outstanding income tax, irrespective of their nationality, be it local, foreign, or expatriate.

Failure to complete tax clearance can result in the Malaysian Inland Revenue Department (LHDN) withholding the final salary or compensation upon an individual’s resignation, contract termination, or retirement.

For expatriates departing Malaysia for a period exceeding three months, it is mandatory to undergo the tax clearance process.

The period for tax clearance in Malaysia

Tax clearance in Malaysia typically concludes within 10 working days, and both employers and expatriate taxpayers have distinct responsibilities in providing necessary information to the LHDN:

Resignation, termination, or retirement 

Required steps for employers:

Inform the LHDN 30 days before an employee’s resignation, termination of the contract, retirement, or date of departure.

Death or unforeseen events prior to the contract ending

Required steps for employers:

Submit information within 30 days from the date of the employee’s death.

Leaving Malaysia prior to the due date

If income tax is deducted monthly (typically on April 30), there is no need to submit the income tax return. However, for departures occurring before the end of the tax year, individuals with non-monthly deducted income tax must file returns for the previous years and the current year in which employment terminates (resignation, contract end, or retirement).

Filing guide for tax clearance in Malaysia

Upon receipt of the tax clearance certificate, the employer is required to release any withheld funds, such as money, salary, or compensation, after settling the employee’s tax balance as indicated in the certificate.  

This withholding practice is mandated by Malaysian tax law, and it persists until the employee clears outstanding taxes and obtains the tax clearance certificate. 

Failure to comply with this obligation exposes employers to penalties. Employers can submit the completed clearance forms through manual visits to LDHN offices or online via the e-SPC platform.  

Three distinct forms are available, tailored to the employee’s specific employment status. 

CP21

In the event of an employee’s departure from the country.

CP22A

In the private sector, when an employee retires, resigns, or faces termination of employment.

CP22B

In the public sector, when an employee retires, resigns, or experiences termination of employment.

Tax rates applicable to expatriates in Malaysia

The Malaysian tax authorities implement a progressive tax rate for residents. Expatriates working in Malaysia for more than 182 days in a year are eligible for tax deductions.

Expatriates staying less than 182 days within a calendar year are considered non-residents and face a flat tax rate of 28% on income derived from employment, business, trade, dividends, or rent.

Additionally, expatriates employed in Malaysia for less than 60 days are exempt from taxation.

Tax appeal process in Malaysia

Any taxpayer dissatisfied with their tax assessment can initiate an appeal within 30 days of receiving the notice by submitting Form Q.

If the deadline for filing the tax assessment appeal is approaching, a request for an extension can be submitted to the office of the Director-General of the Inland Revenue (DGIR).

Late filing penalties for tax clearance forms

In Malaysia, the delay in submitting tax clearance forms is considered a criminal offense, subject to penalties outlined by the Malaysian Inland Revenue laws. Employers who fail to comply may incur a fine ranging from MYR 200 to MYR 20,000, face imprisonment for up to six months, or both, depending on the circumstances.

Furthermore, expatriates with overdue tax clearance may be prohibited from leaving Malaysia and labeled as tax evaders.

In the event of being flagged, it is crucial for individuals to promptly address the situation by contacting relevant authorities and settling outstanding arrears. This can be done through online channels, and providing proof of payment may lead to the issuance of a revocation order, allowing the individual to proceed with their intended journey without further inconvenience.

Essential documents for applying for a Professional Visit Pass in Malaysia

Ensure possession of necessary documents before starting the application process.

Additional documentation for specific activities:

• Machinery or equipment installation: Invoice of purchase, Form K1, ZB4, or others, and Letter of Confirmation from Customs Department validating the company’s location in the Free Trade Zone (FTZ) 
• Secondment in mining activities: Approval letters from Minerals & Geoscience Department Malaysia for both mining activity and individuals, along with a mining license 
• Flight simulator testers: Supporting letter from Department of Civil Aviation Malaysia 
• Internships: Training schedule or job description 

Ensuring the thoroughness and accuracy of all required documents is of utmost importance as it plays a pivotal role in facilitating a smooth and ultimately successful application process.  

A comprehensive and meticulous approach to document preparation enhances the likelihood of a seamless and efficient application experience, ensuring that all necessary requirements are met and contributing to a positive outcome in the overall process. 

Our services for facilitating tax clearance in Malaysia 

Including tax clearance in Malaysia, we specialize in numerous Malaysian taxation services, leveraging our professional expertise to offer comprehensive assistance.

For corporate income tax, our services encompass tax file registration, CP204 tax estimation filing, preparation of tax computations (including account analysis and income tax schedules), and filing of tax returns.

In the realm of personal income tax, we provide services such as tax file registration, preparation of individual income tax computation, and the subsequent filing of tax returns.

For Sales and Services Tax (SST), our dedicated services include SST registration and deregistration, the preparation of SST reports, and the submission of SST returns every two months (bi-monthly).

Our primary objective is to offer clients in Malaysia a comprehensive and efficient taxation solution, ensuring a seamless experience. By providing a one-stop platform, we aim to simplify their tax-related processes and enhance overall satisfaction with our services.