Malaysia has the fourth-largest economy in Southeast Asia, along with the cultural diversity and natural beauty that may attract international contractors. If you are looking for Malaysian clients and want to understand what it takes to work inside of Malaysia, this guide will outline all that you need to know.
The areas to pay attention to are how to set up your contracts and get paid, tax rates and filing, social security contributions and immigration rules. English is widely spoken and used unlike some Asian countries and so language won’t be a barrier for foreign contractors.
Do I need a visa to be a contractor in Malaysia?
How do I get paid as a contractor in Malaysia?
Work as a self-employed freelancer
Unfortunately, because of visa requirements, you cant just show up and work as a freelancer in Malaysia, so you would need to become an employee of your client who could then sponsor your visa.
Work with an umbrella company in Malaysia
Another alternative is to use an umbrella company in Malaysia, which can sponsor your visa. The umbrella company is just an intermediary between you and your client, and won’t be involved in the actual work. They will withhold taxes and social contributions, and you can also work with more than one client.
Set up your own limited company
You can set up your own limited company but you have to be a resident. The best solution is to use an umbrella company to begin working as they can sponsor your work permit. If you have a long term commitment, you can start your company when you have proof of residency.
How do taxes work for contractors in Malaysia?
Just because you are a foreign national does not mean that you can forget about Malaysian taxes. Any income earned inside the country is subject to taxation and filing requirements.
Tax residency rule in Malaysia
Malaysia uses a 182-day rule where stays beyond that will result in tax residency.
Tax rates
Tax rates in Malaysia for residents range from 1% to 30% depending on income level, and non-residents will pay a flat 30% rate on total income. This difference makes tax residency a better outcome if you don’t have any other income outside the country. There is no tax or filing requirement if you stay less than 60 days in Malaysia.
How to file taxes in Malaysia
The process of filing taxes in Malaysia involves:
- Sign up as a taxpayer with LHDN (Lembaga Hasil Dalam Negeri).
- Register for online filing through ezHASil.
- Select the appropriate tax form – This could be BE form (resident individuals without income from a business source), B form (resident individuals with income from a business source) or M form (non-resident individuals with/without income from a business source)
- Collect the appropriate documentation to complete the tax return – These include documents which relate to tax reliefs for medical expenses, education fees, disabled individual, mortgage and insurance, evaluate tax rebates and look on tax exemptions.
- Electronically sign the form.
- Submit. Within 30 days, tax refunds will be credited to the taxpayer. Any taxpayers who do not receive a refund within 30 working days will be compensated.
What are the social security contributions in Malaysia?
Can I work remotely for a company in Malaysia from my home country?
If the visa requirements seem too daunting or you just prefer not to travel abroad, it is possible to work for your Malaysian clients from home. Remote working is gaining rapid acceptance, with even local workers choosing not to go into an office. If your clients agree to this type of arrangement it is far simpler than establishing yourself as a compliant worker in Malaysia.
You would just complete assigned projects and milestones, invoice your client and they would remit payment directly to you through an agreed method. You can also use an umbrella company in your home country to facilitate the contract and payments, which may give both you and your client some peace of mind.
How do I stay compliant while contracting in Malaysia?
- Meeting tax and social contribution requirements
- Business registration and residency for limited companies
- Work visa validity and sponsorship
That is a lot to overcome, especially for new contractors, and you might need the help of an umbrella company to take over many of these tasks. Contractor Taxation has licensed, verified umbrella companies in Malaysia who are ready to assist you with setting up your contract and making sure that your payments are secure. Here are some of the benefits of using an umbrella company:
- Handles all client payments, tax withholding and any social contributions
- Issues you a payslip each month, to a Malaysian or foreign account
- Can sponsor work permits
- Helps set up the Malaysian contract with the client
- Moderates any disputes with your client
- Advises on access to totalization and double taxation treaties
