Under Section 7 of the Income Tax Act (ITA), a foreign worker become liable to pay income tax when he is deemed a resident after having been in Malaysia for 182 days or more. 

It is further noted that effective August 2017, employers are required to perform Monthly Tax Deductions (MTD) for employees with foreign nationalities (employment contract exceed 182 days beginning from its effective date) based on current publish rates of local workers. 

The 2017 MTD Schedule is applicable to all foreign workers and expatriates with monthly income above RM2,851. Employers should immediately apply the MTD Schedule for foreign workers that are liable.

Taxable employment income comprises of the following:

  1. Salary, wages, bonus, allowance, perquisite, remuneration, overtime, tips, compensation, tax borne by employer etc (whether paid in cash or convertible to cash)

  2. Benefits-In-Kind from employer

  3. Value of Living Accommodation provided by employer (VOLA)

  4. Employer’s contributions for employee made to an unapproved pension provident fund

  5. Compensation for loss of employment 

  6. Levy is considered income for the foreign workers under the following circumstances:

  • Levy paid by employer on behalf (by deducting from the salary) of a foreign worker is benefit-in-kind and classified as income to the foreign worker,

  • By 2018, levy payment will revert back to the employer. The levy paid by employer is still classified as benefit-in-kind and income to the foreign worker. 

Employers Responsibilities & Relevant Forms 

  1. To submit Form C22 and notify the Inland Revenue Board (IRB) in writing of all foreign workers, both existing and new recruits, liable (monthly income above RM2,851) or not liable (monthly income below RM2,851), and whether legal or illegal. 

  2. To carry out the monthly tax deduction (MTD) from his foreign workers’ remuneration based on the local workers schedule. 

  3. For foreign workers whose employment contract is expiring, employers are required to submit Form CP21 to IRB one month before the workers leave the country. The Income Tax Return Form must be submitted together with Form CP21 to enable IRB to assess the income tax rate before the Surat Penyelesaian Cukai (SPC) or Tax Clearance Letter is issued.  

  4. Employers are advised to withhold the last month salary of foreign workers. The IRB clarified that all types of remuneration due to the worker have to be withheld until the Tax Clearance is issued and taxes are deducted. Please mark on the Tax Return Form “LABOUR” so that the processing could be expedited.

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