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4 Things Overseas Employers Should Know About Malaysia Payroll and Tax

When your company is entering Malaysia, there are a few things you need to know about Malaysia payroll and tax for your employees on assignment.  Primarily, you will need to comply with all of the Malaysian rules on running a local payroll, which includes having a registered and incorporated entity.  In other words, you cannot run a remote payroll from your home office for staff assigned long term in Malaysia.

For the full spectrum of Malaysian payroll, employment and tax regulations you can review this summary, which should help you consider alternatives to a DIY payroll in Malaysia, such as the Shield GEO local employer of record.

1.    Monthly Tax Deduction (MTD) in Malaysia 

The employer is responsible for making the MTD for the employee from the payslip based on annual income computation and minus deductions.  The MTD must be remitted to the government by the 15th of the following month.  In addition, the employer must give notice of 30 days to the tax authorities if the employee is being terminated or leaving Malaysia permanently.

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2.    Statutory Payroll Contributions in Malaysia

There are statutory employee contributions in Malaysia such as the Provident Fund and Social Security, however expats and foreign workers are generally exempt from mandatory payments.  Your employees can elect to make Provident Fund contributions if they wish, and the employer amount is quite minimal.

3.    Leave Entitlements in Malaysia 

There is a generous amount of paid statutory leave that all employees are entitled to in Malaysia, including expats.

Here is quick overview:

  • Maternity leave: 60 days
  • Annual paid vacation leave: 8 days
  • Sick leave: 14 days (up to 60 days if hospitalized)
  • 11 National holidays

4.    Tax Rates in Malaysia

The personal income tax rates in Malaysia range from 0-26%, based on overall compensation minus deductions.  Many of the available deductions may not have been included in the MTD, and so the employee might be entitled to a refund at year end.  Common and allowed tax deductions include medical expenses, self-education, purchase of a personal computer, alimony payments, life insurance and even purchase of sports equipment.

Naturally, it is difficult as employer to anticipate all of these deductible expenses for each employee, so it is important that the employee file a year end tax return to recoup any overpayment of taxes.  Otherwise, the deducted MTD amounts will be considered the final tax for the year.

When you consider the complexities of Malaysia payroll and tax rules, it becomes obvious why many companies elect to have Shield GEO run payroll through our local partner in Malaysia.  This saves the time and expense of setting up a local corporation, and relieves your HR department of the burden of computing tax and withholding each month.  The GEO service is comprehensive, and the local employer of record handles every aspect of immigration and employment for one or more of your staff on assignment.

Here’s everything you need to know about employing an overseas worker in Malaysia. 

Need help running payroll in Malaysia? Get in touch!

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