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Tax Clearance in Malaysia: A Comprehensive Guide in 2024

Updated on: Dec 24th, 2024

9 min read

Malaysian tax clearance is a process to be followed by every person in case they are planning to leave Malaysia for more than three months or leave their job. The tax clearance letter is an evidence that any tax due to the Malaysian Government is paid by the person to the tax authorities within the timeline.

What is Tax Clearance Letter (TCL) in Malaysia?

The tax clearance letter, or Surat Penyelesaian Cukai (SPC) in Malaysia, is a formal document issued by the Inland Revenue Board (IRBM) to employers. Its purpose is to inform employers about the tax status of departing or deceased employees, ensuring that all outstanding tax liabilities are settled before final payments are made.

This letter is essential for Malaysian citizens and expatriates, facilitating the accurate calculation and release of any remaining funds owed to the employee after-tax settlements have been made.

Issued under the Income Tax Act 1967 provisions, the tax clearance letter signifies approval from the IRBM regarding the employee's tax liability. It serves as confirmation that all necessary tax obligations have been fulfilled, allowing for the smooth transition of employment status and the proper release of salary, compensation, or gratuity to the departing or deceased employee.

When is Tax Clearance Required?

As per the tax laws of Malaysia, tax clearance is required in the following cases:

Resident of Malaysia leaving country: If a resident of Malaysia is planning to leave the country for more than three months, then such a person is required to get the tax clearance.

Change of job: If an individual is changing jobs within Malaysia, then such a person is required to obtain a tax clearance letter. This ensures that any tax due with the previous employer is paid before the start of the new job.

Foreign workers leaving Malaysia: A Foreign worker working in Malaysia is also required to get tax clearance when they leave the country upon employment termination.

When should you apply for tax clearance?

The employer must inform the IRBM or LHDN a minimum of 30 days before the expiry of the employment contract, or the date of resignation termination, or departure date from Malaysia.

In case of death of an individual, the next-of-kin is the person responsible for applying to the LHDN within 30 days from the date of death.

How to Apply for Tax Clearance?

The process of applying for tax clearance involves several steps:

Inform the employer: The individual must inform the employer about leaving Malaysia or a job change. The employer will then notify the IRBM within 30 days from the date of employment termination.

Submission of forms: The individual or their employer must submit Form CP21 (if the individual is leaving the country), Form CP22A (in case of retirement, resignation, or employment termination of individual working in a private sector), Form CP22B (for retirement, resignation, or employment termination of individual working in the public sector) to the IRBM. Other forms such as EA Form, EC Form, and Form E might also be required. The form can be submitted online or manually through the IRBM office. The individual may be asked to provide other documents, such as an employment contract, previous tax returns filed by the individual, and/or a passport copy.

Payment of outstanding taxes: If there are any outstanding tax dues, the individual must pay such tax amount before the tax clearance letter can be issued by IRBM. The IRBM will inform the individual about any tax dues before it processes the form and issue the letter.

Obtaining the letter: Once all taxes have been paid and the form is found to be complete, the IRBM will issue the tax clearance letter. The letter confirms that all tax liabilities of the individual have been settled.

Can I apply for the tax clearance letter online?

The tax clearance letter can be applied online via e-SPC or ezHASiL. This online service is provided by the LHDN. The person must register and log on to the e-SPC or ezHASiL portal to access this service.

What is the time limit for receiving the tax clearance letter?

If IRBM does not have any questions, they will process the form and issue the letter within 14 working days from the date of submission of the form. The tax clearance letter will be issued by the IRBM only after the completion of the audit.

After receiving the tax clearance letter, the individual can settle the outstanding tax dues with the employer. Further, if the employer has held any amount, then such amount can be cleared by the employer upon receipt of the tax clearance letter.

What happens if Tax Clearance is delayed?

If an individual leaves Malaysia without paying all tax dues payable to the tax authorities, the IRBM may levy a fine anywhere between Malaysian Ringgit 200 to 20,000 or imprisonment of up to 6 months.

LHDN may also take legal action against the employer in case the individual fails to pay the tax dues as per the tax clearance letter.

Thus, it is important to understand the process of tax clearance, the document required for the clearance, and the impact of failure to follow the requirement. This letter is important for anyone planning to leave Malaysia or change jobs within the country.

Conclusion

The Tax Clearance Letter serves as a formal notification to employers about the tax liabilities of departing or deceased employees, allowing for the accurate calculation and settlement of any outstanding taxes. By providing clarity on tax obligations, the letter enables employers to finalize payments to employees after withholding any taxes payable to the government.