Tax clearance in Malaysia – A detailed overview of Malaysian Tax

Tax payers always will have one or other questions that will be with unclear answer for them. So here we will focus on our best to help you with Tax clearance in Malaysia . Hopefully this will give you a better idea.As we would discuss the important aspects you should know about the Malaysian Tax system and the procedures .

Malaysian Tax – What is tax clearance in Malaysia 

Tax clearance is nothing but a letter or certificate issued by the Malaysian Inland Revenue (LHDN – Lembaga Hasil Dalam Negeri Malaysia) which says that if have any dues with the income tax department of Malaysia. This letter is issued for local people as well as expatriates in Malaysia.

Tax clearance letter will also indicate if you have paid any taxes in extra or any pending amount is there. If you have paid in excess, you can contact your employer to get a borne letter from them. Once you give the borne letter to the LHDN office, you will receive the refund to your bank account in few weeks of time.

Tax clearance letter is needed to get any sort of final settlement from the company. Legally any company can hold up to 3 months of your salary till you get the tax clearance certificate.  So it is very difficult to think of changing jobs without a tax clearance letter.

Tax clearance is not needed if you are residing in Malaysia and working in a job. This is a brief of Malaysian Tax system.

Who has to pay tax in Malaysia?

Income tax is available in all countries throughout the world and Malaysia is not an exception. So according to Malaysian Tax system ,if you are an expatriate (An expatriate or expat is a person who is living temporarily or permanently in a country other than his home country) working in Malaysia for less than 2 months or 60 days, then you will not be taxable.

If your stay is more than 182 days, then you will be considered as a resident. Otherwise you will be considered as a resident. The tax percentage varies between residents and non-residents.

What an expatriate should do for getting tax clearance-certificate in Malaysia?

According to Malaysian Tax system , if you are an expatriate working in Malaysia, then you need to inform the Malaysian Inland Revenue (LHDN) within two months after your arrival and register with them for paying income tax. The financial year in Malaysia is from 1st January to 31st December and the income tax returns have to be submitted before 30th April every year.So being an expatriate in Malaysia your tax clearance happens in this way.

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When tax clearance is needed in Malaysia?

You need to apply for tax clearance certificate under any of the circumstances below.

  • Leaving Malaysia for a period of more than three months.
  • You have resigned from your job.
  • You are terminated from your job.
  • Your contract period has come to an end.
  • You have retired from your job.
  • Leaving Malaysia permanently.
  • If a person dies while he is working, his immediate blood relation or kin should apply for tax clearance within 30 days from the date of death.

If you satisfy any of the criteria above, you can get your last month salary only after getting the tax clearance letter. Also you will not get your settlement money like overtime pay, gratuity, leave salary, provident fund or any other compensation till you get the tax clearance letter from LHDN and your employer will retain the money.

For resignation, retirement, ending of contract or leaving Malaysia you have to apply for the tax clearance letter at least one month before your final day of work.

How to apply for a tax clearance in Malaysia?

For applying tax clearance letter, you have to contact your employer and they will give you appropriate forms depending on the criteria.

  • Form CP21 : This form also called ‘Leaver form’ is applicable for expatriates leaving the country for a period of more than three months. The form should be sent to LHDN at least a month prior to your departure date.
  • Form CP22A : This form is applicable for expatriates or locals working in the private sector and needed when they resigned, retired or terminated from their job.
  • Form CP23A : This form is applicable for expatriates or locals working in the public sector and needed when they resigned, retired or terminated from their job.
  • In case of death of the tax payer, then the employer should be immediately informed and they in turn should inform the LHDN.

After filling the appropriate form, you can submit it online or in person to the LHDN office where your income tax information is registered along with the necessary documents. Online facility can only be done through your employer by using e-SPC.

Late submission of tax clearance in Malaysia

The Malaysian law is very strict on tax clearances. So please make sure that the tax clearance form is submitted on time as there is penalty fee depending on the time of delay.  The fees may vary from 200 to 2,00,000 Malaysian ringgit (MYR). There is also a chance of imprisonment for the individual if the tax clearance form is not submitted on time and it may be from 1 month to 6 months. For companies who did not submit tax clearance on time, LHDN will take legal measures against them.

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Processing time of tax clearance in Malaysia

The processing time for your tax clearance letter is 10 working days from the date the application was received by LHDN. You may receive the letter within a week also.

Documents needed for tax clearance

To apply for the tax clearance certificate according to Malaysian Tax system, you need the following documents.

  • Original Passport ( This will be returned back immediately after the copy of the passport is verified)
  • Copy of all pages of your current passport
  • Form CP21/22A/23A: The form appropriate for your need with all the information completely filled and duly signed.
  • EA form – Company will give this form every year .Keep form for all the years you have worked in Malaysia.
  • BE form for current year
  • NR 51: List of stampings made in Malaysia in your passport.
  • Pay slip (Not mandatory)
  • PCB II Letter

Before submitting the documents you need to find out the LHDN office that is processing your income tax returns. You cannot submit the documents to any other LHDN office as they won’t process your application.

Make sure you follow all the above points and apply for the tax clearance on time without fail. So as you can get your tax clearance in Malaysia easily .

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