Now that we have covered important things in Payroll in Malaysia and the processing method, we will dive into the statutory requirements. These are the things that you must include in your employees' payroll.
In Malaysia, there are four (4) compulsory deductions and contributions included in payroll processing. They are Monthly Tax Deduction, Employee Provident Fund, Social Security Organization, and Employee Insurance System.
What is Monthly Tax Deduction?
Monthly Tax Deduction (MTD) or Potongan Cukai Bulanan (PCB) (also known as CP 39) is a series of monthly deductions that go towards payment of an individual's taxes.
What are Employer's Responsibilities?
As an employer, there are a few things that you are responsible for. If you are a new business, here are some of the key items and steps that you need to complete: -
Register an employer's number (E)
Register your employees
Make MTD from employee's remuneration based on the MTD Schedule or Computerized calculation
Submit the Employer Return Form (Form E), along with CP8D on or before the due date
Prepare and render the employee statement of remuneration (Form EA / EC) earned on or before the last day of February of the following year
Withhold any payables to employees for ninety (90) days or until a tax clearance letter is received in the case of employment cessation, or if the said employee is leaving Malaysia for more than 3 months
Prepare and submit the following Forms when necessary:
How do We Process it?
In short, MTD is calculated and retained by employers from an employee's salary and paid over to the Inland Revenue Board (IRB) or Lembaga Hasil Dalam Negeri (LHDN). There are different calculations based on the residential status of the employee and tiers of income.
Regardless of the tiers, here are some of the employers' responsibilities under MTD rules: -
Deduct the MTD from the employee remuneration each month or the relevant month by the Schedule of Monthly Tax Deductions or Computerized Calculation Method and pay to the Director-General.
Make additional deductions from employee remuneration by the direction given by the Director-General MTD Rules.
The employer shall pay to the Director-General, not later than the 15th of every following month, the total amount of tax deducted or should have been deducted by the employee from the remuneration of employees during the preceding calendar month.
Furnish a complete and accurate employee's information of the following in a return when submitting MTD payments/additional deductions:
Income tax number (if any);
Name as stated on the identity card or passport;
New and old identity card number/police number/army number or passport number (for foreign employee); and
MTD/additional deductions amount.
Getting a headache, yet? Hold up, IRB is not done with you. But if you are done with IRB, book a chat with us.
What if I do not Comply?
Now, here is the real deal: IRB does not play around. There are a few things that you can get wrong and IRB helps to cover all the grounds. We have summarised all of the common mishaps that employers do and their consequences.
What if my submission is late?
Listed on the IRB's page, the contribution / Payment deadline is the 15th of the following month. If an employer fails to remit payment on or before the due date, we are looking at a fine of not less than RM200 and not more than RM20,000 and/or imprisonment for 6 months.
What if there are incorrect details?
If an employer fails to furnish complete and accurate information, we are also looking at a fine of not less than RM200 and not more than RM20,000 and/or at imprisonment for 6 months.
What if I missed registering and paid my employees' MTD?
Employers are liable for all of their employee's MTD deductions and submissions. And according to the same source, if an employer fails to do so, the employer must pay the full amount of tax due from the employees. The amount due from the employer shall be a debt payable to the Government and may be recovered by way of civil proceedings.
Note that this is not an exhaustive list of offenses and punishments, but covers the common mistakes made by employers.