Recent reforms in Malaysia Income tax, such as changes in tax rates and the introduction of capital gains tax, add another layer of complexity, emphasising the importance of staying informed. Even though Malaysia income tax filing season rolls around annually every April to May, preparations commence long before the official filing window opens, given that the tax year runs from January to December.
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Two crucial tax forms for businesses to take note of during Malaysia income tax filing season are Form E and Form EA – the latter is to be handed over to employees by the end of February each year. Understanding and preparing these forms are essential steps in navigating Malaysia’s tax landscape effectively, ensuring compliance, and achieving financial peace of mind.
Malaysia Income Tax – Form E
Form E, also known as Borang E, serves as a report by companies containing details such as:
- the employer’s name, identification number and reference number,
- the number of staff employed,
- number of new employees,
- their salaries and other amounts of compensation given to them,
- annual tax deductions,
- number of employees who have resigned,
This Form E is to be submitted online through Lembaga Hasil Dalam Negeri (LHDN)’s e-PCB system, as manual submissions are no longer accepted.
All companies registered under the Companies Commission on Malaysia (popularly known as Suruhanjaya Syarikat Malaysia or SSM) are required to submit this form, including dormant companies, sole proprietors, and partnerships with employees. Sole proprietors and partnerships without employees are not required to submit Form E but are still encouraged to do so for record-keeping purposes.
The deadline for Form E submissions is 31st March every year. Employers who fail to declare Form E may be penalised – they may be fined between RM 200 – RM20,000 imprisonment for a maximum of six months, or both.
Samples/copies of the Form may be downloaded on LHDN’s submission website, myTax.com.
Malaysia Income Tax – Form EA
Form EA, also known as Borang EA, serves as a concise summary of an employee’s annual earnings received from their employer. The primary aim of Form EA is to assist employees in accurately reporting their income to LHDN for tax purposes, which in turn determines their appropriate tax bracket. Employers have a mandatory responsibility to generate Form EA for all employees, irrespective of their employment status (full-time, part-time, or fixed term). This requirement applies as long as the employee has worked for more than seven days and received compensation for their services. As mentioned earlier, Form EA must be distributed to employees no later than 28th February each year.
Form EA should encompass various income categories related to employment, including:
- Gross salary,
- Overtime pay,
- Benefits-in-kind (such as health insurance or company vehicles),
- Value of living accommodations (VOLA),
- Statutory contributions,
- Total deductions (MTD) and,
- Employer contributions to private pensions.
Although it is the employee who submits the Form EA to LHDN, the form is to be prepared by the employer and given to employees by the end of February each year. Employers who fail to prepare this form for employees may be penalised: fines ranging between RM200 to RM20,000, imprisonment for a maximum of six months, or both.
Similar to Form E, samples and copies of Form EA can also be found on the myTax website.
Common challenges faced by companies during tax period:
- Time Constraints: As the financial year-end approaches, businesses are often inundated with a multitude of activities, including closing their financial books, conducting audits, and preparing financial statements. Amidst this frenzy, allocating sufficient time and resources to accurately complete tax forms like Form E and Form EA becomes a formidable task. The pressure to meet deadlines, especially given the strict timelines set by tax authorities, can be a significant source of stress for organisations. This time crunch not only increases the risk of errors but can also lead to last-minute rushes and oversight of critical details.
- Data Accuracy and Completeness: Ensuring that each piece of data is accurate and complete is a painstaking task, especially for larger companies with extensive workforces. Inaccurate or incomplete data can result in errors on the forms, potentially leading to incorrect tax assessments. Furthermore, keeping up with changes in employee circumstances, such as promotions, resignations, or changes in benefits, adds another layer of complexity to this challenge.
- Lack of Expertise: Tax laws are subject to frequent changes, and keeping up with these changes can be daunting. As a result, companies may find themselves grappling with complex tax provisions, potentially overlooking opportunities for tax deductions or credits.
To avoid any mistakes in payroll and reduce the risk of HR management, businesses often choose to outsource to HR professionals to navigate these challenges. If you’re in need of a payroll outsourcing service that is 100% in-country and is tailored to your specific business needs, contact us today and we’ll find the best solution for you!