How can an Umbrella Company Help with Contracting in Malaysia?
Most freelance workers aren’t superheroes who successfully tackle these issues all on their own. There are companies who specialise in helping workers make the most out of their contracts.
They’re called Umbrella Companies (or, contractor management companies).
Basically, an Umbrella Company acts as your full-time employer, even though you maintain your independence as a contractor. They collect and filter payments from your clients, filtering out the necessary social security and fees. You send them your timesheets, and they send you payments.
Because they act as your “employer,’ they can sponsor you and provide a single work permit for multiple contracts in Malaysia. Even better, most are experts in Malaysia and expat tax law, meaning they’ll also help you optimise your earnings in Malaysia.
Although the Umbrella Company is technically your “employer,” you’re essentially freeing yourself to work even more independently. You still dictate your contracts, your hours, your schedule. The Umbrella Company simply filters out the time-consuming admin and immigration issues, allowing you to focus on your new contract.
Can I Organise My Taxes and Work Permit Myself?
Maybe you are tempted to go the DIY route on taxes and work permits. While possible, it may involve more than you think. Here are the quick facts on each compliance area:
Generally, you need to have an employer sponsor in order to secure the appropriate work permit and work visa for Malaysia.
If you’re working independently or part-time, it can be difficult to find clients willing to sponsor you. Moreover, even if your client can do this, you’ll need a new sponsor each time you decide to take on a new contract. Of course, every new sponsor will mean a new work permit application.
Are you familiar with the intricacies of the tax system in Malaysia, as well as your own country’s laws on overseas earnings?
However, if you’re like the rest of us, figuring out (much less reducing) your tax liability in Malaysia and your home country can seem like more than you want to take on. But, you can find information below.
A Contractor’s Guide to Taxes in Malaysia
One of the most consistently challenging aspects of contracting in Malaysia is complying with the country’s tax system. As well as paying tax in Malaysia, you might also still be eligible to pay some tax in your home country, and understanding the laws behind this can be a challenge.
How do I calculate my taxable income in Malaysia
If you’re working in Malaysia under a permanent contract, many employers will handle your tax under the PAYE (pay-as-you-earn) system.
This means that they calculate and process your taxes in Malaysia for you and then send you a net wage. Your income tax, public health insurance, social security and other deductions will all be covered by this payment.
This is the easiest way to handle your income tax in Malaysia, but contractors may not be offered this service because of their short stay with each employer.
Anybody who can’t pay their tax in Malaysia through PAYE is left with the prospect of doing everything themselves.
Do you know much about Malaysian Tax Law? Does Malaysia have a tax treaty with your home country? You will need to find out or find someone who can help! Income tax in Malaysia can range from 0 to 28 percent, and you need to be sure you are placed in the correct tax brackets.
Tax Filing as a Contractor in Malaysia
|When Do You Need to Lodge Your Tax Return?||From 1st of March after the taxable year (calendar year)|
|Tax Filing Deadline||30th of April for individuals without any income from a business source. 30th of June for individuals with income from a business source.|
|Can you file it online?||Yes, https://mytax.hasil.gov.my/|
How to File Taxes in Malaysia as a Contractor
The process of filing taxes in Malaysia involves:
Step 1: Register as a taxpayer with LHDN (Lembaga Hasil Dalam Negeri).
Step 2: Register for online filing through ezHASil.
Step 3: Select the appropriate tax form:
- BE form: resident individuals without income from a business source.
- B form: resident individuals with income from a business source.
- M form: non-resident individuals with/without income from a business source.
Step 4: Collect the appropriate documentation to complete the tax return.
- Documents relating to tax reliefs for medical expenses, education fees, disabled individual, mortgage and insurance.
- Documents regarding tax rebates.
- Documents regarding tax exemptions.
Step 5: Electronically sign the form.
Step 6: After submitting the tax return, any tax refund will be credited to the taxpayer’s accounting within 30 working days. Any taxpayers who do not receive a refund within 30 working days will be compensated.
Tax Figures in Malaysia
|Currency||Malaysian Ringgit (MYR)|
|Tax-free Threshold in Malaysia||5000 MYR|
|Income Tax Rates||
The above rates are applicable to resident taxpayers.
Tax Residency in Malaysia
When do you become a tax resident in Malaysia
You become a tax resident in Malaysia when:
You become a tax resident in Malaysia when:
- You are physically present in Malaysia for more than 182 days in a calendar year or for 182 consecutive days or
- You are present in Malaysia during the calendar year for at least 90 days and have been resident or present in Malaysia for at least 90 days in any 3 of the 4 preceding years.
Does the 183 day rule apply in Malaysia
Am I taxed on my global income in Malaysia
No, only Malaysian-sourced income.
Can you set up your own Limited Company in Malaysia?
|How long does it take to set up||18 days|
|How much does it cost||2060 MYR|
|Is it easy?||Starting a Business Rank: 111. Low ranking means that starting a business is difficult.|
Tax Calculator in Malaysia
If you are a contractor and want a calculation on your tax and net retention in Malaysia, we can supply it to you free of charge.
Using an Umbrella Company for Income Tax in Malaysia
Although there is e-filing for self-employed, you still have to calculate the right tax amount. If you don’t, there can be penalties and interest applied.
Contractors in Malaysia are faced with masses of paperwork and numerous wasted hours filing a tax return unless they find an alternative option. A Malaysian umbrella company can act as your employer during your stay in the country whilst still allowing you the freedom of a contractor.
The only difference is that you submit your timesheets to them directly, not your client. Then they will calculate and pay your taxes as you earn, and you receive a net wage (as well as documentation for your records).
The companies are experts in Malaysian taxation, and they’ll ensure that you keep the largest proportion of your earnings whilst complying with local laws. They can deal with any issues with the Malaysian tax office or tax department directly including processing your tax refund if you are eligible.
How We Can Help You with Tax in Malaysia
We work with numerous umbrella companies in Malaysia, many of whom are experts in tax and immigration laws. If you have any questions about tax in Malaysia, we’ll get the answers from them directly so you can rest assured you’ll be getting accurate information.
We have comprehensive knowledge of the different services they provide, and can help you find the right company to handle your income tax.
We help oil and gas workers, software developers, IT project managers, testers, business analysts and telecommunications contractors get tax efficient payments and sponsorship for their Malaysian work permit.
Our advice is 100 percent free, and comes with no obligations. You will be paying taxes in Malaysia but without the overhead of directly dealing with the Malaysian tax authorities. Get in touch with us today for some reliable advice on tax in Malaysia!
A Contractor’s Guide to Work Permits in Malaysia
Immigration is one of the primary concerns for any contractor hoping to start working in Malaysia. Permanent employees will find it easy to get their Malaysian work permit because they will receive “sponsorship” for their entire stay from their prospective employer.
The Malaysian work permit, known more commonly as the Malaysian Employment Pass, is dependent on this sponsorship because it confirms that you’ll be earning money during your stay in the country.
Contracting in Malaysia is more difficult because the work permit is tied to one employer, so you have to change it to suit each new contract. Thankfully, umbrella companies provide a convenient and effective solution to this issue.
How Does an Umbrella Company Work?
Most people want to do their work, earn their money and enjoy their spare time without taking on loads of admin in a new country. That is why an umbrella company can help.
When you’re working through an Umbrella Company, you’ll essentially be outsourcing the admin and tax issues to specialists.
While the umbrella company will charge a fee, you’ll likely end up saving more money in the long run: you’ll be able to focus on your work, expertly reduce your tax liability, and comply with all laws and regulations in Malaysia (which means avoiding fees, fines, or even worse penalties).
How Can We Help You?
There’s a huge variety of Umbrella Companies with different specialities and advantages in Malaysia. How do you find the best contractor company in Malaysia for your circumstances?
We work closely with umbrella companies all throughout Malaysia and match contractors with the right company for them. If you’ve already secured a contract in Malaysia, we can help you find your best match (for free). Or, we can simply give you feedback on your situation and possible solutions .
More Questions About Contracting In Malaysia
How to become a contractor in Malaysia?
The first step is to find one or more Malaysian clients that need your services. Once you have work lined up you will need to secure a work permit. This can be sponsored by your client or an umbrella company.
For various reasons, your client might want to hire you as an employee so be prepared for that. It does not really affect your role, except you wont have the same business deductions working as an employee.
What is the standard form of contract in Malaysia?
For your client contracts, most standard service agreements will suffice, spelling out the terms clearly. Unlike construction contracts, there is no one standard form, and an umbrella company can help you draft your contract. Otherwise, you may want to hire a Malaysian lawyer to make sure your contract covers all common terms.
How do I become an independent contractor in Malaysia?
You will have to register your business, and most contractors register as sole proprietors. You will also need client service contracts, a work permit, tax ID number and method of payment for your clients to use.
You must also invoice your clients and avoid any appearance of being in an employee relationship. Otherwise you could be found to be misclassified, causing your client problems.
What is the tax rate for contractors in Malaysia?
Most contractors are sole proprietors, so they will use the personal progressive income tax rates in Malaysia. Those rates range from 1-30% depending on income level. Non-resident contractors (less than 183 days) pay a flat 30% income tax, something to keep in mind when setting contract rates for short term projects.
What is the contract law in Malaysia?
Contract law in Malaysia is similar to most developed countries, and defines the rights and obligations of parties to a contract. There will be nuances and local differences on interpretation, and you should be aware of these when drafting your client contracts.
How much more should a contractor make than an employee?
Because a contractor does not receive any employee benefits, they can negotiate a higher rate on that basis. One formula would be to use the percentage amount of employee benefits and add that to the typical employee salary for the position.
What does a pay stub look like for an independent contractor?
If your client uses the PAYE system or if you are with an umbrella company, the pay stub will look similar to an employee stub. There might be more items on an employee stub, but the tax withholding will be the same.
Popular Questions About Malaysia
What is it Like to Live and Work in Malaysia?
Is the local Malaysian culture accepting of expat workers? What are potential barriers?
Malaysia has a multicultural society with a blend of Malay, Chinese, Indian, and indigenous influences. Expats may encounter cultural differences in social norms, customs, and practices, but will be generally accepted.
While English is widely spoken, Malay is the primary language, and that can be one barrier in some situations. But Malaysians are quite friendly so language should not be a big problem.
Which city is best to live in Malaysia for expats?
For expat contractors, most will probably land in the capital Kuala Lumpur (KL) where there are greater opportunities. There is also Georgetown on the island of Penang, a smaller seaside city, and Kuching the largest city on Borneo. All have different qualities and cultural influences, but KL is probably the best for a young expat looking for work and social life in a vibrant Asian city.
Are there any items that are more expensive in Malaysia than other SE Asian countries?
Because Malaysia is primarily a Muslim country, alcohol is very expensive, although available. Otherwise, most consumer goods, food, etc are all similar to other nearby countries like the Philippines and Indonesia.
If you had a choice between working in Malaysia and Singapore, which would you choose?
Singapore may have a slightly higher standard of living, but it is much more expensive. Both countries are generally clean and safe, with a similar climate. It would really come down to the job opportunity and retained earnings after tax and expenses.
What is it like to live and work in the Malaysian part of the island of Borneo?
While Borneo is known for its natural beauty and diverse ecosystems, it is more of a tourist destination for expats. But if one were to find a role in a city such as Kota Kinabalu, you would enjoy a clean, seaside location with all amenities and excellent food. You would also have access to diverse recreation and cultural attractions.
How much is a one bedroom apartment rental in Kuala Lumpur?
It will depend on location and quality but here are some estimates:
City Center: In the city centre areas like Bukit Bintang, KLCC (Kuala Lumpur City Centre), or Bukit Ceylon, rental prices for one-bedroom apartments can range from approximately MYR 2,500 to MYR 4,500 per month.
Suburbs: Moving slightly away from the city centre, to areas like Bangsar, Mont Kiara, or Damansara Heights, rental prices for one-bedroom apartments can range from approximately MYR 2,000 to MYR 3,500 per month.
Outskirts: In areas further away from the city centre, such as Cheras, Kepong, or Subang Jaya, rental prices for one-bedroom apartments can range from approximately MYR 1,500 to MYR 2,500 per month.
Are there any special banking regulations that apply to expats opening a Malaysian account?
There are no specific published regulations for expats opening an account. But each bank may have its own policy when it comes to approving new expat accounts. Typical requirements include having your work permit/visa, forms of ID (Passport), residential address, employment and income details.
There may be a minimum deposit, and foreign checks may be held for clearing due to foreign currency regulations.