Malaysia Global Payroll and Tax Information Guide

November 29, 2021 | 5 Mins Yana Todorova

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Payroll in Malaysia – 2021 Updates

Due to covid-19, the following measures were taken by the Malaysian authorities for Budget 2021:

    • Tax Incentive for Global Trading Centre: 10% income tax rate for a period of 5 years and renewable for another 5 years.
    • Extension of Principal Hub Incentive: Extended for another 2 years to 31st December 2022.
    • Relocation Incentives for Selected Services Sector: Income tax rate of 1% to 10% for 10 years for a new company, and 10% for 10 years for existing company with new service segment.
    • Relocation Incentives for Manufacturing Sector: Extended for another 1 year to 31st December 2022. Income tax rate of 0% for 10 or 15 years for new companies, or 100% investment tax allowance for 5 years for existing companies.
    • Tax Incentive for Manufacturers of Industrialized Building System (IBS) Components: Extended for another 5 years to 31st December 2025. Investment tax allowance of 60% on qualifying capital expenditure incurred within 5 years to be set off against 70% of statutory income.
    • Tax Incentives for Bionexus status company, Economic corridor developments, MRO activities for aerospace, and Building and repair of ships: Extended for another 2 years.
    • Tax Incentives for Manufacturers of Pharmaceutical Products including Vaccines: 0% to 10% income tax rate for the first 10 years and 10% for the subsequent 10 years.

Read more about the COVID-19 measures in Malaysia here.

 

Malaysia Payroll – Basic Facts

Multinational companies starting business in Malaysia are required to register as an employer for tax, Employees’ Provident Funds (EPF), Social Security Funds and HRDF (Human Resources Development Fund), if applicable. Employers must register with the Social Security Organization (SOCSO or Perkeso) within 30-days when the new employee begins at the company. Employers must also make sure that they are compliant with all workplace compensation and benefits requirements.

Foreign workers in Malaysia are required to obtain government approval, visas, and employment passes to work legally there. Foreign workers are not covered by Malaysia’s social security system and nonresidents are charged income taxes at a flat rate. However, they are generally covered by all other labor provisions. The Employment Act 1955 is the main legislation on labour matters in Malaysia.

Payroll processing in Malaysia normally takes place on a monthly basis. There are currently no specific legal data protection requirements with regards to payroll data. For the time being, companies with a payroll function in Malaysia (in-house or outsourced) will have to rely on internal or external company policies to ensure data protection principles are upheld. Payroll calculations, payments and filings can all be outsourced to the payroll provider.

The Malaysian tax year is the same as the calendar year – January 1st through December 31st. Malaysia has a current year basis of assessment. A company is taxed on income arising in its financial year ending in the calendar year that coincides with that particular assessment year.

Tax and Social Security Considerations

Corporate Income Tax

The standard corporate tax rate is 24%, while the rate for resident company with a paid-up capital of RM 2.5 million or less, and gross income from business of not more than RM 50 million is 17% on the first RM 600,000.

Personal Income Tax

Individuals are taxed on income derived from Malaysia. Foreign-source income is exempt in Malaysia.

As a tax resident is considered an individual who present 182 days or more in a calendar year in Malaysia. Alternatively, residence may be established by physical presence in Malaysia for a mere day, if it can be linked to a period of residence of at least 182 consecutive days in the adjoining year.

Income tax rates for residents – 2021 and 2021:

Monthly tax deductions are governed by the STD mechanism, which reduces the need for employees to pay tax in a lump sum.

Withholding Tax
    • Dividends – No withholding tax applies to dividends.

    • Interest – A withholding tax of 15% applies to interest paid to nonresidents, which may be reduced under a tax treaty.

    • Royalties – A withholding tax of 10% applies to royalties and technical service fees, which may be reduced under a tax treaty.

    • Technical service fees – A 10% withholding tax applies to service fees paid to a nonresident for services rendered onshore, unless reduced under a tax treaty. Fees paid to a nonresident for services rendered offshore are not subject to withholding tax.

    • Rental or installation fee tax – A 10% withholding tax applies to income received by nonresidents from rental of movable property or installation fees from services rendered in Malaysia. These may be reduced under a tax treaty.
Social Tax

Both employers and employees make statutory social security contributions to the EPF retirement and SOCSO social security scheme. Employees may also be required to make PTPTN repayments (Malaysia’s student funding scheme) or Zakat donations (for Muslim employees only).

    • Employee Social Security– Total social security rate for employees: 9%

    • Employer Social Security- Total social security rate for companies: 12%.
Other Taxes
    • Capital gains tax – Generally, gains on capital assets are not subject to tax, except for gains arising from the disposal of real property situated in Malaysia, which is subject to RPGT (up to 30%).

    • Payroll tax – Tax on employment income is withheld by the employer under the pay-as-you-earn (PAYE) scheme. For employees who receive wages/salary of RM5,000 and below, the portion of employee’s contribution is 11% of their monthly salary while the employer contributes 13%. For employees who receive wages/salary exceeding RM5,000 the employee’s contribution of 11% remains, while the employer’s contribution is 12%.

    • Real estate tax – Varying rates apply to real property taxes depending on state.
      Announced during PENJANA 2020, under the Exemption Order, Malaysians will be exempted from paying the 5% (or higher) RPGT for the disposal of residential property from 1 June 2020 and 31 December 2021.

    • Stamp duty – Levied between 1% and 4% of the value of property transfers, plus 0.3% on share transaction documents.
    • Transfer tax – No, exempt for stamp duty

    • Customs and excise duties – Most dutiable goods have import duties from 5% to 30%.

Compensation and Benefits

Minimum Wage

The minimum wage for all employees in Malaysia is MYR 1,200 per month.

Wage payment

Wages must be paid monthly. Payments must be made by the 7th of each month to an individual’s bank account using cash, cheques or credit. Payslips should be available monthly on website, PDF or paper. It is only common practice in the manufacturing industry to pay salaries in 13 installments.

Hours of Work

The normal workday is 8 hours per day and 48 hours in a week.

Overtime

Overtime must be paid at 1.5 times normal wages on normal working days, 2 times normal wages on rest days and 3 times normal wages on holidays.

Holidays

There are 6 compulsory public holidays and 10 optional public holidays. Additional paid holidays are mandated by individual states.

Employee leaves

Employees are entitled to 25 working days, equivalent to five weeks of annual vacation. In Sweden, vacation pay is 12% of the employee's gross salary.

    • Paid annual leave: An employee is entitled to paid annual leave of:

          1. Employed less than 2 years: Not less than 8 days per year.

          2. Employed between 2-5 years: Not less than 12 days per year.

          3. Employed for more than 5 years: Not less than 16 days per year.

    • Medical/ sick leave: An employee is entitled to paid sick leave, where no hospitalization is necessary. Employers must provide paid sick leave as follows:

           1. Employed less than 2 years: 14 days per year.

           2. Employed between 2-5 years: 18 days per year.

           3. Employed for more than 5 years: 22 days per year.

If the employee needs a hospitalization, the law allows up to 60 days.

    • Maternity leave: Every female employee is entitled to not less than 60 consecutive days of paid maternity leave if she has worked at least 90 days for her current employer within the 4 months leading up to her confinement period. During this period, the expecting mother is entitled to maternity allowance (which is basically her ordinary monthly salary) that must be paid no later than 7th day of the month.
Bonuses and special benefits

In Malaysia, the mandatory payroll benefits include paid annual leave, statutory holidays, maternity or medical leave, and benefits for termination or unemployment. The optional payroll benefits may include payment for Long Service, allowances for housing and transport, medical insurance schemes, commission and bonuses, and any retirement or pension schemes.

Foreign Workers in Malaysia: 

Visas: The Malaysian Government issues the following types of visas to foreign nationals:

    • Single Entry Visa– This is issued to foreign nationals who require a visa to enter Malaysia mainly for a social visit. It is normally valid for a single entry and for a period of 3 months from the date of issue.
    • Multiple Entry Visa– This is issued to foreign nationals who require a visa to enter Malaysia mainly for business or government-to-government matters. It is normally valid for a period within 3 to 12 months from the date of issue. Citizens of India and the People’s Republic of China who wish to enter Malaysia for the purpose of a Social Visit are eligible to apply for the Multiple Entry Visa. The validity of the Multiple Entry Visa is 1 year. Each entry is for 30 days only and the extension of stay is not allowed.

Taxes: 

    • Foreign workers in Malaysia are treated as nonresidents are taxed at a flat rate of 28%. They are not eligible for any tax deductions, not eligible for SOCSO coverage and are exempt from SOCSO contributions. However, in all other tax matters, foreign workers are treated the same as the resident workers.
    • Malaysian citizens in the US: Malaysians must also meet general visa requirements and be certified to be employed in the US. For tax purposes, Malaysian citizens are subject to US employment-based taxation on income earned in the US, unless they work under specific visa types that exempt earnings from taxes. State and local taxation also can apply.

For more information about how our Global Payroll Control Platform integrates with local payroll providers in Malaysia, contact us today.

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