2024 Malaysia Tax Guide

Ensuring compliance with tax regulations in Malaysia is a crucial responsibility for both individuals and businesses. While tax filing can sometimes feel like a complex process, having a clear understanding of the relevant requirements can significantly reduce stress and expedite the completion of your tax return. We've prepared a guide that contains everything you need to know about filing Malaysia income tax. 

What is LHDN/IRBM?

The Inland Revenue Board of Malaysia (IRBM) also known as Lembaga Hasil Dalam Negeri (LHDN), is the government agency responsible for managing Malaysia tax. They are directly connected to filing Malaysia tax either from individuals or businesses, and their roles include collection of taxes and administration of tax laws. Various taxes such as income tax Malaysia, corporate tax, and property tax are collected by the IRBM. They also oversee the implementation of Malaysia tax laws such as the Income Tax Act 1967. 

What is Potongan Cukai Bulanan (PCB)/ Monthly Tax Deduction (MTD)?

Potongan Cukai Bulanan (PCB) refers to the monthly tax deduction for Malaysia tax. It comprises a series of monthly deductions that go towards your employment income. These monthly deductions are retained by your employer and paid over to the inland revenue board. 

What is the purpose of PCB?

When it comes to filing Malaysia tax, PCB simplifies the process for both taxpayers and the government in two ways:

1. Spreading out payments: Employees can choose to file annual tax returns on their income, but instead of having a larger tax bill at the end of the year, PCB allows for a pay-as-you-earn system. In other words, employers can deduct from employees’ monthly salary. This makes tax payments more manageable and avoids a big financial burden come Malaysia tax season. 

2. Ensures timely collection of taxes: By collecting Malaysia income taxes throughout the year, the IRBM receives a steady stream of income. This helps the government with budgeting and ensures they have the funds they need to operate. It reduces the risk of people neglecting or delaying Malaysia tax payments.  

What is subject to PCB?

PCB is mandatory for employees whose annual employment income exceeds RM 34,000 after EPF deductions. This means you have to register for an income tax file with IRBM first. In other words, the monthly tax deduction applies to those who have registered for a tax file and whose salary surpasses the monthly threshold, which leads to the next thing — the income threshold.

The income threshold for filing for income tax Malaysia is the minimum amount of income you must earn to be required to file a tax return. The specific income threshold depends on several factors, including your filing status (single, married, filing jointly, etc) and age. 

For Malaysia tax, it falls under these two categories:

Single individual: RM 2,851 and above

Married and Unemployed spouses: RM 3,851 and above. 

While some items are not subject to PCB, such as certain benefits or allowances received with your salary, they are typically referred to as Benefits-in-kind (BIK) and Variable allowance (VOLA). 

BIK includes benefits that cannot be converted to money such as dental benefits, childcare benefits, leave passage (subject to specific conditions, which you should consult your employer and HR department about), and free transportation. You can choose to include these benefits in your PCB deductions by informing your employer through a specific form. 

Relevant reading: Your Guide to Malaysia Payroll

What is the income tax rate for residents?

The Malaysia income tax rate for residents refers to the percentage of an individual’s income that they are required to pay in Malaysia tax based on their tax residency status.

Tax residency status

In Malaysia, you are considered a tax resident if you meet any of the following criteria:

• 182-Day Rule: This is the most common way to qualify as a tax resident. If you spend at least 182 days physically present in Malaysia during a calendar year, you're considered a resident for tax purposes. The days don't have to be consecutive.

• Less Than 182 Days with Ties: Even if you're in Malaysia for less than 182 days, you might still be a resident if you have strong ties to the country. This could include having a permanent home in Malaysia, your family residing there, or being employed in Malaysia for most of the year.
• 90-Day Rule with History: This is a temporary rule valid until December 31st, 2026. If you're present for at least 90 days in a year and have been resident/present for 90 days in any three of the past four years, you may be considered a resident.

Malaysia’s income tax rates for resident taxpayers are progressive. This means that higher-income earners pay proportionately higher taxes. 

To figure out how much tax you owe, you'll need to refer to the official tax tables published by the Inland Revenue Board of Malaysia (LHDN). 

However, If you're a non-resident individual, your income is taxed at a flat rate of 30% on the taxable income.

If you're filing for Malaysia tax, it is important to know the types of income that are taxable and they include:

• Employment income
• Gains or profits from a business
• Dividends, interests, or discounts
• Rent, royalties, or premiums
• Pensions or annuities
• Any benefits offered by the employer that can be converted to cash

Employer’s Responsibility for PCB

1. Register with IRBM

Employers need to register with the Inland Revenue Board of Malaysia (IRBM) to be authorized to deduct PCB from their employees' salaries. If your employee is newly taxable, he/she must register an income tax reference number. You can also register online via e-Daftar. 

2. Monthly tax deduction

Calculate and deduct based on the schedule of MTD

Employers in Malaysia must calculate each employee’s monthly PCB income tax Malaysia using a schedule provided by the IRBM. 

This schedule considers factors like the employee’s salary and eligible tax reliefs. Deducting income involves calculating the total monthly remuneration. Reimbursements (money paid back for spending), allowances (money paid by employers for specific purposes, not as income), and other statutory deductions (EPF, SOCSO, and EIS) must be deducted from the monthly pay first. 

To determine the amount applicable to an employee, refer to the MTD table published periodically by LHDN. 

Pay deducted MTD amount to IRBM

After the deduction is done, you may proceed with submitting the MTD statement to LHDN through e-Data PCB.

You may remit payment in any of the following channels:

• FPX on the IRBM website after filing e-CP39/e-Data PCB/e-PCB
• IBG at all bank counters by using PCB/CP39 account number
• IBG through Internet banking by using PCB/CP39 account number (CIMB only) or
• Cheque/cash/counter (CIMB only)

3. Annual tax reporting

Employers are required to submit various forms to the IRBM annually for Malaysia tax reporting purposes. These forms include:

Form E submission

Employers are required under the Income Tax Act to file an annual tax report with the authorities by March for income tax Malaysia. This report consists of Form E, which summarizes employee headcount, and Form CP8D, detailing employee earnings. 

Form E is a declaration report submitted yearly to the IRBM, listing each employee’s income and deductions. It is crucial for accurate and timely submission, as it plays a critical role in reporting employee income. 

Form E requires information on employees’ income, benefits, allowances received in the previous year, and deductions such as EPF contributions. The submission deadline for Form E for Malaysia income tax is usually at the end of February. Late or inaccurate filing can result in penalties for employers.

According to Section 120(1)(b) of the Malaysia Income Tax Act, employers who fail to submit Form E are liable to a fine of not less than RM200 and not more than RM20,000, or imprisonment for a term not exceeding 6 months, or both.

Statement of Remuneration (Form EA/EC)

EA Form for Malaysia tax details the salaries, wages, pensions, and other taxable benefits paid to each employee. The purpose of this form is to enable employees to file their own taxes properly and declare their earnings to LHDN. That way, it can be determined what Malaysia income tax bracket they fall under. 

Incentive Payment Statement (Form CP58)

This form reports any incentive payments made to employees during the year.

4. Record keeping

Employers must maintain proper records of all PCB income tax Malaysia deductions made for their employees. These records should be kept for a minimum period as specified by the IRBM and be available for inspection by the tax authorities if needed.

Read next: The Top 5 Payroll Software Malaysia Teams Are Using in 2024

Employee’s Responsibility for PCB

When it comes to Malaysia tax, an employee's responsibilities for PCB income tax Malaysia are different from an employer's. Employees don't directly handle filing the PCB, but they do have some key responsibilities to ensure a smooth tax filing process:

1. Filing income tax return

Filing deadline

Your filing deadline depends on the Malaysia income tax form you fill and this is determined by whether you're a salaried employee, someone who carries on a business, resident/non-resident, and several other categories. 

For example, those with Form BE (residents who do not carry on a business) have a deadline on the 30 April(manual filing). If you choose to e-file, you get a grace period of 15 days and the deadline for e-filing is 15 May. 

For resident individuals who opt for Form B (individuals who carry on a business), the deadline falls on 30 June for manual filing and 15 July for e-filing. 

Filing methods

Under Malaysia tax, tax returns can be filed either manually or electronically through the e-filing system provided by the IRBM.

For the e-filing method, you can file your Malaysia tax returns online through the ezHASiL portal. E-filing offers several advantages, including automatic calculations, faster processing, and easier tracking of your submission.

Manual filing involves a traditional method of filing out a physical income tax return form (ITRF) manually and submitting it to a branch of the IRBM. This method can be time-consuming and bound to errors. 

2. Maintaining records

Keep copies of your payslips and any other income tax documents you receive throughout the year. This will be helpful when you review your annual Malaysia tax assessment or if there are any inquiries. Additionally, you should have your forms ready before filing Malaysia tax. The EA form (or Borang EA) should be given to you by your employer by February. 

3. Understanding tax reliefs

Familiarize yourself with the various tax reliefs you might be eligible for when submitting income tax Malaysia. These can include reliefs for medical expenses, education, or dependents. You can find information about reliefs on the Inland Revenue Board of Malaysia (LHDN) website. 

4. Provide accurate information

You should ensure your employer has your correct tax identification number and other relevant details. This helps them withhold the appropriate amount of Malaysia tax from your salary.

5. Pay additional tax on time

While you don't file the PCB income tax Malaysia yourself, you may need to pay additional tax if your annual income exceeds a certain threshold and it must be paid on time to avoid a 10% penalty on the unpaid amount. 

6. Stay updated on regulations

Tax regulations can change from time to time. It's a good idea to stay updated on any Malaysia tax changes that might affect you. The LHDN website is a good resource for staying informed.

Learn more: Top 5 Challenges of Malaysia’s Tax Season and How HRIS Solutions Can Help

Make Malaysia Tax Easy with Omni

Understanding Malaysia tax regulations is crucial for businesses to fulfill their tax obligations accurately and timely. That’s why it’s important to have the right tools by your side to ease this complicated process.

Omni offers a comprehensive payroll solution tailored to Malaysia’s specific requirements. With features like support for MYR and automated tax calculations, Omni can help HR teams simplify the process for Malaysia income tax. 

With our automated payroll software, digitized and secure pay slip distribution, and dedicated support teams to guide your team and ensure compliance with Malaysia income tax, Omni’s payroll processing reduces the administrative burden of your HR team and frees up valuable time to dedicate to more impactful business processes.

Book a demo today and learn how Omni can help you streamline your Malaysia tax processes and expertly navigate PCB income tax Malaysia management to ensure compliance for your organization.