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Guide to Tax Clearance In Malaysia for Expatriates and Locals

Updated on September 27, 2016
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Born & raised in Malaysia, Mazlan is proud of his Malaysian & Asian heritage & likes to share its mysteries, cultures & current issues

If you want your last month's salary to be credited to your account and not be withheld by the Inland Revenue Office, then read these guidelines on how to make tax clearance in Malaysia for expatriates and local Malaysians.

What is a Tax Clearance?

A tax clearance is a certificate or letter from Malaysian Inland Revenue (LHDN) that says that you either do or don't owe income tax.

Upon getting this letter, your employer will release the balance of any money withheld from you after you settle the outstanding taxes as shown in the tax clearance letter/certificate. This money is your salary, overtime payment, gratuity or compensation due to you.

The Tax Clearance Letter or Certificate (Surat Penyelesaian Cukai, SPC) applies to both Malaysians and expatriates or foreign Workers.

Who Needs to Apply for Tax Clearance?

You need to apply for a Tax Clearance if you are retiring, leaving employment at the end of a contract, resigning, terminated from your employment, or leaving Malaysia for a period exceeding three months. When a taxpayer dies, their next of kin needs to apply.

When to Apply for Tax Clearance?

For LHDN to expedite the issuance of the Tax Clearance Letter, you must apply 30 days BEFORE the expiration of your work contract, your date of resignation or termination of employment, or the date of your departure from Malaysia.

In the case of death, the next of kin must submit the application within 30 days after the date of death.

How to Apply for a Tax Clearance?

To apply for a Tax Clearance, get your employer (usually the HR department) to complete one of the following forms:

  • Form CP21 (if you are leaving the country)
  • Form CP22A (for retirement, resignation or termination of employment if you work in the private sector)
  • Form CP22B (for retirement, resignation or termination of employment if you work in the public sector).

In the case of death, the beneficiary of the deceased taxpayer must inform the taxpayer's employer; then make sure the employer informs LHDN immediately of the death.

The submission can be done online through e-SPC (by the employer only) or manually through the LDHN office that handles your income tax file.

To expedite the issuance of the Tax Clearance Letter, make sure you submit the latest income tax return form. This will update the current status of your tax assessment.

What to Do if You Leave, Resign or Retire Before the Income Tax Return Due Date

If you are eligible for the Monthly Tax Deduction (MTD), and you leave the country, retire or resign before 30th April (Income Tax Return Due Date), then you are not required to submit the income tax return.

For example, if you leave, retire or resign in November 2016, then you don't have to submit a 2016 income tax return (which would be due for submission end of April 2017).

But if the date of departure, resignation, or termination is in 2017, say on 31st March 2017, then you must submit your 2016 income tax return (to be submitted before 30th April 2017). This is to declare your income for the period 1st January 2017 up to 31st March 2017.

If You Are Not Eligible for MTD

If you are NOT eligible for the monthly tax deduction (MTD), then you have to submit your income tax returns for the prior years AND the current year of your departure, resignation or retirement.

What If Your Application for Tax Clearance is Delayed?

Delay in submitting the application for tax clearance may be subject to penalty. Even though LDHN will take the employer to task, it is also your responsibility to ensure this does not happen. And by doing so, you get monies due to you as soon as possible.

So, what is the penalty?

The penalty will be in the form of fines between MYR 200 and MYR 20,000 and imprisonment for up to six months.

LHDN might take legal action against an employer who fails to pay the outstanding tax as per the Tax Clearance Letter. So this is no laughing matter.

How Soon will LHDN Process My Application?

If you submit all the required documents and there are no further queries, LHDN will process and issue the Tax Clearance Letter within ten working days.

Do You Need to Close Your Tax File?

If you are leaving the country for good or are retiring and will not be receiving any future taxable income then you should close your tax file.

Apply in writing to the LDHN office that handles your file (provided there are no outstanding monies due to LHDN) and ask for your tax file to be closed.

If You Are An Expatriate or Leaving the Country

Additional Income After Your Departure Date

If you are entitled to bonus payments or any additional salary after your departure date, you are required to declare this income, which may be taxable.

Cancellation of Employment Pass

Your employment pass or professional visit pass must be canceled before you leave the country.

Submit your application (done by your employer) to cancel the pass within one month of your departure date.

Do You Have Any Comment?

If you have any comment to make on this guide to tax clearance In Malaysia, or you want to share your experience on tax clearance, let me know in the comments below.

Cheers.

© 2016 Mazlan

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    • greatstuff profile image
      Author

      Mazlan 4 hours ago from Malaysia

      Hi, SL. I am not an expert in the foreign workers/immigration matter, so I am not able to answer your questions. But my gut feel is, no. I suggest you go and see the relevant immigration dept with regards to this matter.

    • greatstuff profile image
      Author

      Mazlan 4 hours ago from Malaysia

      You need to inform them that you will be leaving the country and it is best to also fill in CP21. You have to declare your yearly total rental in your yearly tax submission. This income must be after less your related expenses (property agent fee, yearly assessment and quit rent, repair, and maintenance etc.)

    • greatstuff profile image
      Author

      Mazlan 2 days ago from Malaysia

      Jo, not sure if I am able to answer this for you. Best thing to do is to go to your LHDN office that handles your tax file. Explain to them your situation and get their advice.Hope this helps.

    • SL 5 days ago

      Dear Mazlan,

      Found your article very helpful and useful. I have a few questions here. Hope you can enlighten me.

      a) I had an employee who left the country without doing tax clearance and work permit calcellation. And I had checked with the authority department, work permit cancellation can be done without the employee surrender the passport. We can proceed to make police report in order to protect the company from any wrong doing from the employee wrong doing. Then, submit the police report and relevant documents to the authority department.

      My question is, by doing so, will that affect our work permit application for expatriate for the future ?

      b) Can we just let the work permit expire automatically ?Any unforseen risk to the company ?

      Understand that I am not asking question relating with tax clearance. If you have the answers for the questions above, I would like to hear from you.

      b)

    • Johnny 5 days ago

      I am Malaysian and will be migrating overseas in Feb 2017. I am currently employed and my last day with the company is 10 days before I fly. My company does not do PCB. After I leave M'sia, I will continue to receive rental income. Apart from the CP22A, do I also have to do CP21?

    • Jo 7 days ago

      Hi Greatstuff,

      My case might a be a bit different, I hope you can advise me on this

      I have been working in Malaysia for 2 years and 9 months from the same company. I received a backdated redundancy letter, which force me to take action against the company. I was not given a month notice, neither a payment in lieu. At the moment, I am waiting to hear from a lawyer regarding this matter but I was wondering how will the process of my tax clearance be? Will I get a tax refund as well?

      I hope you can advise me on this. Thanks!

    • greatstuff profile image
      Author

      Mazlan 8 days ago from Malaysia

      GKW, go to the LHDN office that handles your tax file and get them to revise the MTD accordingly.

    • GKW 8 days ago

      If my malaysian income tax account has credit, can i offset from my account and not deducting from my monthly salary ? If can, what is the procedure ?

    • greatstuff profile image
      Author

      Mazlan 2 weeks ago from Malaysia

      Prakhar, how did you get the tax clearance without getting the letter? A TCL must be issued and it is probably with your employer. Check with them for a copy of this letter. What was the mailing address you registered with LHDN? A copy could have been posted to this address. Alternatively, write to LHDN that handles your tax file and write for a copy of TCL. Give as much detail as possible when you write to LHDN.

      have left Malaysia for more than 2 years. Is there a reason why you now need the tax clearance letter?

    • Prakhar Agarwal 3 weeks ago

      Hi,

      I got tax clearance but never got the tax clearance letter. I do not stay in Malaysia and it has been 2 years already since I left Malaysia. What shall I do to get it?

      Thanks

    • greatstuff profile image
      Author

      Mazlan 3 weeks ago from Malaysia

      Ayush, the yearly tax return must be submitted by end April of the following year. Any excess tax paid will be paid back in the following month i.e. May. Hence your income for 2016 (up to end Dec 2016) must be filed before end April 2017. Any refund will be done in May 2017.

    • Ayush 3 weeks ago

      When i can claim back my taxes paid due to non residential status? I started in August 2016 so by feb 2017 i will be resident. Please let me know when can i get my excess taxes back?

    • greatstuff profile image
      Author

      Mazlan 4 weeks ago from Malaysia

      AC, you might have a problem to get a new work permit and even encounter travel restrictions.

      You don't get tax clearance, you will not get your last money salary or any other monies due to you.

    • AC 4 weeks ago

      What is the consequence of leaving Malaysia without canceling your employment pass or going through tax clearance?

    • Rinie 5 weeks ago

      Hi Mazlan,

      Is there any email address to contact to with regard the TCL?

      Have explored the website of IRB and also called but couldn't find it.

    • greatstuff profile image
      Author

      Mazlan 5 weeks ago from Malaysia

      Rinie, as mentioned in my reply, pls attach a covering letter to explain why you had to leave earlier and forgot to file your tax return.

      On the form that was not signed, maybe because the form is still incomplete. Fill it up and send it back to your employer.

    • Rinie 5 weeks ago

      Thanks Mazlan for your prompt reply,

      The CP21 form they sent to me is already filled up by them include the number figures, but only few item is still empty such as, departure reason, address outside malaysia, and the form is not yet signed off by them. Is that valid?

      And anyway, is it Ok to apply the TCL now, since you mentioned in the article must be 30 days before the expiration of contract?

    • greatstuff profile image
      Author

      Mazlan 5 weeks ago from Malaysia

      Hi, Rinie. Yes, you need to fill in the attached forms as sent by your HR officer. Send it back to both LHDN and to your company's HR. Also, attach a letter to LHDN (copy to HR) to explain your situation (left the country for health reason etc)

    • Rinie 5 weeks ago

      Hi Mazlan (Greatstuff),

      Thanks for your article, it's very useful!

      My contract was ended on last November 2016 and not extended, but I have left the country due to an important health recovery.

      Then I got an email from HR just recently saying that I need to do the tax clearance before they could release the last salary. They attached the filled CP21 form (but not signed yet), EA And PCB.

      Please your further assistant as I'm in hometown already and not possible for me to go to LHDN for the tax clearance.

      My work permit is still valid however until next year and have not cancelled it.

      Thanks,

      Rinie

    • greatstuff profile image
      Author

      Mazlan 5 weeks ago from Malaysia

      Hi, yochen. The purpose of the tax clearance is to inform your company (A) of any outstanding tax payment before your company A can pay your last month salary. If you don't have this TCL, your last month salary might be delayed.

    • yochen 6 weeks ago

      Hi, A bit late to comment. But I hope you can help to answer some of my questions.

      - What if the case is change of employment, if I were resigning of company A and will be employed by company B in less than 1 month after my resignation date. Do I still need to do tax clearance?

    • greatstuff profile image
      Author

      Mazlan 2 months ago from Malaysia

      Jo, any excess tax payment will be paid back in May (all tax return to be submitted by end April)

    • Jo 2 months ago

      Hi, Good Day to all, just wondering, I worked in malaysia for 1 and 9 Months then I resigned and left the country on October 5th 2016, I've already submitted and got the tax clearance document

      question is if I have an excess tax payment, when or can I still receive it?

    • greatstuff profile image
      Author

      Mazlan 2 months ago from Malaysia

      Hi, Miss O

      You are required to submit your tax clearance 30 days before your departure date and if you have MTD, then you don't have to submit your tax return for 2016 since you will be leaving in Jan 2017. Any bonus paid in April 2017 for your services in 2016 will be declared on the 2017 tax return.

      Your notice period is three months and I don't see any reasons why your HR will not offset your AL. (Unless you have accumulated a lot of days). Some companies will pay you in cash for the annual leave that they don't allow to be offset.

      On your bonus payment, why don't you ask if they can pay them in your last month salary since you will be migrating? I am sure they will reconsider your case.

    • Miss O 2 months ago

      Hi Mazlan,

      This article is very informative and helpful. Thanks for sharing! I have questions need your advice please:

      I'm a Malaysian, migrating to US for good.

      I resigned on 3Oct 2016, my last working day is 3Jan2017. I have 18days of AL & 4days of RL. According to HR I can't use my AL to offset my notice period(3months) due to tax clearance concerns.

      If I use my leaves to offset notice period then my last physical day would be 28Nov and I won't be entitied for bonus because HR said I can't have income after 28 nov, I should declare tax before this date. I can't be a company employee (receive salary) after 28 nov.

      *my company policy: an employee entitled to bonus if he/she still an employee on 31 dec (included serving notice). My company giving bonus on April every year.

      HR advised me to serve full 3months notice I.e until 26Dec (offset 4RL) and I will be entitled bonus next year April 2017.

      They ask me to declare tax before 26 dec, and they will give me payroll on 26 dec.

      However, they will pay me my allowance on January 2017 and pay my bonus in April 2017.

      So do I need to declare tax for 2017 later?

      I wish to leave the country asap to reunite with my husband as we hv had enough of LDR. I wish I could offset my AL and get my bonus. Could you please advise me? Thanks a lot!

    • greatstuff profile image
      Author

      Mazlan 2 months ago from Malaysia

      Pankaj, no problem. Is there anything else I can help you with?

    • Pankaj 2 months ago

      Thanks Mazlan for your time and reply.

    • greatstuff profile image
      Author

      Mazlan 2 months ago from Malaysia

      Hi, Pankaj. Work visa and Visit Visa are two different type of visas. You cannot come in under visit visa and work in the country nor use that to add into your previous (expired?) work visa length of stay.

      2. I am not sure if you can do that. I suggest you go to the LHDN office that handles your file and explain to them in person of your reasons.

    • Pankaj 2 months ago

      Hi Mazlan,

      Thanks for informative article.

      I was staying in Malaysia till June 16 since last year. My 2016 tax status is non resident due to shorter stay from 182 days. My two questions are :

      1. Can I plan to visit Malaysia on visitor visa before December and complete number of days to claim tax residency.

      2. Can I file revised return for 2016 to get tax refund. I already submitted return as non resident to get tax clearance and my final settlements from Employer.

      Thanks

    • greatstuff profile image
      Author

      Mazlan 3 months ago from Malaysia

      Hi Andrew

      Appreciate if you check out my other article on Tax for Expat in Malaysia. The link is

      https://toughnickel.com/personal-finance/Quick-Gui...

      You will find your answers there. If you are still not clear, do let me know. TQ

    • greatstuff profile image
      Author

      Mazlan 3 months ago from Malaysia

      Jeff, answers to your questions as follows:

      Q1. Apply 30 days BEFORE the end of your contract, yes 15th Oct 2016. This is done by your employer but you have to tell them of your intention not to continue.

      Q2&3. The tax clearance letter (TCL) will tell your employer if there are any outstanding amount due or none, and your employer will then release your last month salary or other bonus etc. as per your contract if any. TCL will be issued within 10 working days if all documents are in order. If there are any surplus tax amount paid, it will be credited to your registered bank account (as per your tax submission form) within a month. But if you want them to credit to your bank account in YOUR HOME COUNTRY, you have to visit LHD office that handles your file. Give the bank particulars. The money will be TT to the foreign bank and cost of TT will be deducted from the money due to you.

    • Jeff 3 months ago

      Hi Author,

      I'm foreign worker in KL. I started working since November last year (2015). Since November 2015 to May 2016, my salary was deducted by 28%, after May, the deduction is lesser (maybe because my status is resident). My contract will end on November 15,2016. I don't want to extend or find another job in KL, just wanna go back to hometown.

      Question:

      1. According to your article, I shall start proceed tax clearance from October 15, 2016. Am I right?

      2. How to get back my 28% and monthly tax deduction? Is it from Tax Clearance? I imagined "Tax Clearance Letter" is like a document that stated, Jeff you will get back certain amount from your taxes. Can I say like that?

      3. How long does it take for LHDN to credit my Tax into my bank account? Since Im planning to go back hometown by the end of November. Can I say, few days after I received "Tax clearance Letter"?

      Appreciate you help, Author.

      Really appreciate your help

    • Anh Quan Chu 3 months ago

      Hello Greatstuff,

      It's great that I've found your article. Could you give some advice on my current case below: I'm currently working in Malaysia for a Malaysian company through a recruitment agency

      - My contract duration is one year, starts from end of August 2016, finishes in end of August 2017

      - My working visa will be completed in September 2016

      - My gross monthly salary is fixed and ranges Rm 3,000-4,000

      - Taxation paying is on my account as written in contract

      Could you clarify the specific taxation I would have to pay for the whole of my contractual period?

      I've known that due to MTD(?) I'll be charged a 28% tax rate per month used for non-residentals in Malay, for first 6 months of my working period. But from now its only 4 months left till end of Malaysia's fiscal year, the agency informed me that the this charge will not be due after 2016 and be refreshed to complete the 6 months, which means the 28% rate will continue till end of June 2017. 10-11 months of my contract.

      They also said that the overcharged was claimable but did not state clearly when, how to or how much to claim. I think I would do tax clearance and get the claim in April 2017.

      Could you give a quick analysis on this to see if all info is correct and suggest me possible way to mininise my losses from tax?

      Look forward to your comments at earliest!

      Kindly keep in touch and I will keep you posted for future queries.

      Regards,

      Andrew.

    • greatstuff profile image
      Author

      Mazlan 4 months ago from Malaysia

      Hi, teaches12345. Yes, and I hope they find the info useful.

    • teaches12345 4 months ago

      Good information on this topic. I'm not an expert on taxes but I'm sure there are those out there in Malaysia that will value this advice.

    • greatstuff profile image
      Author

      Mazlan 5 months ago from Malaysia

      Hi JK. Happy to hear that you had your issue sorted out. Thanks for letting me know this. All the best to you JK.

    • JK 5 months ago

      Hi greatstuff!

      Yes, I filed it online.

      Thank you very much for your response.

      Will settle the difference to the tax office.

      Regards,

      JK

    • greatstuff profile image
      Author

      Mazlan 5 months ago from Malaysia

      Hi JK.

      1. If you are under the MTD and combined with your withheld last month's salary, and there are enough cash to pay for any tax due, then it should be OK.

      But since you were informed to remit additional RM for 2014, then there are tax amount owing from you.

      2. When you filed in your 2014, it should state the amount either overpaid by you (from your MTD) or insufficient and you need to pay the difference. It will not show in your 2015 filing for the amount still outstanding from your 2014 filing. Pls check your 2014 submission. I presumed you did this online?

    • JK 5 months ago

      Hi!

      1. What if I already left the country before my Income Tax gets cleared. Will I be subjected to any penalties?

      I submitted all necessary documents for my Income Tax Clearance before leaving Malaysia however few weeks after leaving the country, I was told that I had to remit several ringgits for the year 2014.

      2. If that's the case, when I filed my Income Tax Return last year, March 2015, howcome this "debt" didn't came up?

      Hope to hear from you soon.

      JK

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