TAX UPDATE: Personal Tax Clearance



What is a Tax Clearance?


Tax clearance is essentially, a letter of certification from Malaysia Inland Revenue Board (LDHN) stating whether your employee has any unpaid income taxes.

After receiving this letter and the employee has paid any outstanding taxes (if any), as indicated in the tax clearance letter/certificate, the employer will refund the remaining amount of any funds withheld from the employee.

Both Malaysians and expatriates or foreign employees are subject to the Tax Clearance letter or Surat Penyelesaian Cukai (SPC).


When to make the application?

Application for Tax Clearance Letter is required in these situations:

  • Employee resigns from employment.

  • Employment retires from employment.

  • Death of an employee.

  • Employee is leaving Malaysia for a period of exceeding 3 months.


How do you apply for Tax Clearance?

To do this, the HR needs to complete one of the following forms:

  • Form CP21 (If you are leaving the country)

  • CP22 (Notification of New Employer)

  • 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)

The submission can be done online through e-SPC (by the employer only) or manually through the LDHN office that handles you income tax file.

In the event of death, the beneficiary of the decedent taxpayer shall notify the employers, who shall then promptly notify LHDN of the death.




When to apply for Tax Clearance?


The employer must notify LHDN at least 30 days before the expiration of the employee’s work contract, the date of resignation or termination of employment, or the date of the employee’s departure from Malaysia.

For EPF/SOCSO, the employer does not need to submit any special forms to EPF or SOSCO in the case of an employee ceasing employment.



What happen if the Tax Clearance is Delayed?


Penalties may apply if the application for tax clearance is submitted late, The punishment will consist of up to six months in jail as well as fines ranging from RM 200 to RM 20,000. When an employer disregards the Tax Clearance Letter and does not make the required tax payment, LHDN may file a lawsuit.


Sources:

Talenox

https://help.talenox.com/en/articles/2882809-guide-to-tax-clearance-in-malaysia


Cheng & Co.

https://chengco.com.my/wp/2022/04/21/tax-clearance-form-cp21-cp22a-cp22b/



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