In Malaysia, employers play an important role in ensuring proper income tax compliance for employees. In fact, employers act as an intermediary between employees and the Inland Revenue Board of Malaysia (LHDN) in administering employment income taxation.
Under the Income Tax Act 1967, employers must fulfil several responsibilities, including registering with LHDN, deducting monthly tax from employees’ salaries, and submitting relevant tax forms. Therefore, understanding these obligations is essential to avoid penalties and ensure compliance.
This article summarises the key roles and responsibilities of employers highlighted in the HASiL Navigasi 2026 guide.
1. Register as an Employer with LHDN
To begin with, every employer must register with the Inland Revenue Board and obtain an employer tax reference number (E number).
This registration enables the employer to report employee income and fulfil payroll-related tax obligations. Once registered, the employer can submit tax-related information through the MyTax portal and other electronic services provided by LHDN.
2. Deduct Monthly Tax from Employee Salaries (PCB / MTD)
Next, employers are responsible for deducting Monthly Tax Deduction (MTD) — also known as Potongan Cukai Bulanan (PCB) — from employees’ remuneration.
MTD is a mechanism whereby employers deduct a portion of the employee’s salary each month and remit it to LHDN as advance payment of the employee’s income tax.
Furthermore, employers must ensure that the amount deducted is calculated correctly according to LHDN guidelines.
Importantly, the deducted tax must be remitted to LHDN by the 15th day of the following month.
3. Submit Employer’s Annual Tax Return (Form E)
In addition to monthly deductions, employers are also required to submit an annual employer return.
Specifically, employers must file:
- Form E – Employer’s return of remuneration paid to employees
- Form CP8D – Detailed statement of employee remuneration
These forms must generally be submitted by 31 March of the following year via the e-Filing system.
4. Provide Income Statement to Employees (Form EA)
Moreover, employers must issue an EA Form to each employee.
The EA form contains important information such as:
- Total salary and wages
- Bonuses and allowances
- Benefits-in-kind
- Monthly tax deductions (PCB)
- Statutory contributions
Employees use this information to prepare and submit their personal income tax returns.
5. Notify LHDN of Changes in Employment Status
Another key responsibility involves notifying LHDN about employee employment status changes.
For example, employers must submit specific notification forms when:
- A new employee is hired (Form CP22)
- An employee resigns or ceases employment (Form CP22A / CP22B)
- An employee leaves Malaysia for more than three months (Form CP21)
These notifications ensure that LHDN can properly monitor employee tax obligations.
6. Withhold Payments for Tax Clearance (Where Required)
In certain circumstances, employers may also be required to withhold money payable to an employee.
For instance, when an employee:
- Leaves employment; or
- Leaves Malaysia for an extended period,
the employer must withhold payments for up to 90 days or until a tax clearance letter is issued by LHDN.
This ensures that any outstanding taxes are settled before the employee departs.
7. Consequences of Non-Compliance
Finally, employers should note that failing to fulfil these obligations may result in penalties.
For example, employers who fail to deduct or remit PCB may face:
- Financial penalties
- Fines
- Legal enforcement actions
Therefore, employers should ensure that payroll systems and tax reporting procedures are properly implemented.
Key Takeaways
| Responsibility | Description |
|---|---|
| Employer registration | Obtain employer tax number from LHDN |
| Monthly tax deduction | Deduct PCB from employee salaries |
| PCB payment | Remit tax to LHDN by the 15th of the following month |
| Annual reporting | Submit Form E and CP8D |
| Employee tax statement | Provide EA form to employees |
| Employment notifications | Inform LHDN of new hires or resignations |
Final Thoughts
Overall, employers play a crucial role in Malaysia’s income tax system. By acting as the intermediary between employees and LHDN, employers help ensure that employment income taxes are accurately deducted, reported, and paid.
Therefore, businesses should maintain proper payroll records, comply with reporting deadlines, and regularly review their tax procedures to ensure full compliance with Malaysian tax regulations.
Disclaimer: This article is for informational purposes only and does not constitute tax or compliance advice. Organisations should consult their tax advisors or refer to IRAS guidance for tailored instructions.
Source: https://www.hasil.gov.my/media/3bvlkbww/navigasi-hasil-2026.pdf
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