Guide to Tax Clearance in Malaysia for Expatriates and Locals
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 you either do or don't owe any outstanding income tax.
Upon getting this letter, your employer will release the balance of any money withheld from you after you settle the outstanding taxes (if any) as shown in the tax clearance letter/certificate. This money is either be 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.
Tax Guide for the Expat
- Malaysian Tax Issues for Expatriates and Non-Residents
If you are an Expat or a Foreign Worker working in Malaysia, but still unsure of the Malaysian Income Tax requirement, then read this article that lists all the things you must know about the tax requirement in the country.
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.
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