Because freelancers are not Solar Staff's employees and we don't pay taxes on their payouts, they must declare any income received via Solar Staff by themselves.
To carry on tax accounting in Malaysia for your Solar Staff income, you need to:
Be a tax resident
Have a tax ID number
Choose your tax status
Tax residence in Malaysia
Malaysia taxes its residents on their worldwide income, while non-residents are taxed on Malaysian-sourced earnings only.
Resident status is determined based on the number of days an individual is present in Malaysia. Generally, an individual who is in Malaysia for a period or periods amounting to 182 days or more in a calendar year will be regarded as a tax resident.
Malaysia has double taxation agreements with a number of countries (full list), the provisions of which may override the applicable tax residence rules and other provisions of national legislation.
Tax identification number (TIN)
A tax identification number (TIN, Nombor Pengenalan Cukai) is a 12-digit code assigned to taxpayers in Malaysia. It's not the same as the National Registration Identity Card (NRIC) Number. TIN is issued to all Malaysian citizens who attain the age of 18 years old and above for the purpose of declaring and paying income taxes. To obtain this number, you need to go the nearest branch of the Inland Revenue Board of Malaysia (IRBM) – Lembaga Hasil Dalam Negeri (LHDN) in Malaysian – or apply online.
Taxes and contributions payable by freelancers
Tax obligations depend on the freelancer's status and/or fulfillment of certain conditions. Malaysia has two tax statuses for Solar Staff users to choose from:
IMPORTANT! Solar Staff does not have the option to choose a tax status for freelancers based in Malaysia, but you can fill in your tax ID in your account.
Individual
Individual serves as the default tax status of each resident in Malaysia. When it comes to income earned for independent activities, individuals are liable to pay the following taxes and contributions:
Personal income tax is payable based on income tax slabs for a calendar year. The tax is calculated in Malaysian ringgit (MYR) at progressive rates:
Taxable income, MYR | Tax on bottom threshold, MYR | Tax on excess, % |
Up to 20,000 | 0 | 1 |
20,000–35,000 | 150 | 3 |
35,000–50,000 | 600 | 8 |
50,000–70,000 | 1,500 | 13 |
70,000–100,000 | 3,700 | 21 |
100,000–400,000 | 9,400 | 24 |
400,000–600,000 | 84,400 | 25 |
600,000–2,000,000 | 136,400 | 26 |
2,000,000 and above | 528,400 | 30 |
Deductions: Charitable contributions, mortgage interest expenses, and other personal deductions/reliefs (medical expenses, pension funds, education fees, etc.).
Reporting: The tax return is submitted not later than April 30 (without business income) or June 30 (with business income) in the following calendar year. If you have not registered your freelance activities as a business, you can use Form BE. If you have set up a sole proprietorship, file your tax return using Form B.
Tax is due and payable on the following dates in the year following the year of tax assessment: April 30 for individuals deriving non-business income, and June 30 for those with business income.
The penalty for late tax payment is 10% of the outstanding tax amount.
Useful links: Reporting forms and guides; Step-by-step instructions for the 2022 year of assessment; How to file your taxes for the first time.
Sales & Service Tax (SST) replaces VAT (GST) and is levied at the following rates: sales tax at 10% (or 5% for certain goods), and service tax at 6%. FAQ on SST.
Taxpayers must register for SST if their taxable turnover for the past 12 months exceeds MYR 500,000.00. The SST registration due date is the last day of the month following the month in which the total sales of taxable goods or services exceed the threshold. For example, if the total sales exceed the threshold on May 31, the last day to apply for SST registration is June 30. To register for the sales tax and service tax, use the MySST website. Learn more about the registration process here.
Reporting: SST is declared using Form SST-02 every 2 months, not later than the last day of the following month after the taxable period ended. The SST payment must be made within 30 days from the end of the taxable period. The tax return can be submitted by mail or online, and the same applies to tax payment. See here for reporting forms and filling instructions.
Penalties for late payment are as follows:
First 30 days: 10% on the outstanding SST amount
Second 30 days: 15% on the outstanding SST amount
Third 30 days: Another 15% on the outstanding SST amount
After 90 days, 40% is charged on the outstanding SST amount.
Social security and pension contributions are not compulsory, so it is up to the taxpayer whether to pay them or not. The Malaysian government has in place the Self-Employment Social Security Scheme, or SESSS (Pertubuhan Keselamatan Sosial, PERKESO). The amount to be paid depends on the plan you choose and affords benefits covering education, medical, dependents, and more. The self-employed also have access to the voluntary retirement contribution initiative called i-Saraan. This scheme provides for contributions to a savings account (no more than MYR 60,000 per year), with the ability to withdraw the funds at any time.
Sole proprietorship
Sole proprietorship constitutes a business wholly owned by a single individual (a citizen or permanent resident of Malaysia who's at least 18 years old) using personal name as per his/her identity card, or trade name.
To carry on business as a sole proprietor, the taxpayer must register with the Companies Commission of Malaysia (Suruhanjaya Syarikat Malaysia, SSM) in person or online. It is also necessary to renew the business registration for a period of 1-5 years, which carries a MYR 30 or MYR 60 fee per year for sole proprietorships using a personal or a trade name, respectively. If the yearly fee is not paid, the sole proprietorship is automatically terminated. Registrants also need to provide a permit, license, or any other information as required. Once everything is done, SSM issues a business registration certificate.
Advantages:
A sole proprietor is not a legal entity, so their entire income is subject to personal income tax.
In Malaysia, a sole proprietorship is less costly compared to a legal entity.
Because most sole proprietors are owners of micro or small businesses, they are subject to fewer restrictions and regulations. For example, sole proprietors don't need to prepare and submit audit reports.
Sole proprietors pay the same taxes and contributions as individuals. The only difference is that sole proprietors are eligible for deductions in respect of business expenses, which include rental, utilities, professional fees, and other necessary expenses. Note that such deductions can only be claimed for documented expenses that are directly related to the business.
Additional information
Inland Revenue Board of Malaysia, IRBM (Lembaga Hasil Dalam Negeri, LHDN)
Comparison of business entities in Malaysia (Solar Staff only supports sole proprietors using their personal name or individuals)
Income received through Solar Staff is declared based on the Offer Agreement using data from certificates and invoices.
If you have any questions, get in touch via the chat in your Solar Staff account or email us at [email protected].