Running a business in Malaysia involves more than paying employees on time. Employers are also responsible for meeting various tax reporting and payroll obligations under the Income Tax Act 1967.
The Inland Revenue Board of Malaysia (IRBM), commonly known as LHDN or HASiL, conducts employer tax audits to assess compliance with these requirements.
Late submissions, incorrect Monthly Tax Deductions (MTD), incomplete payroll records and failure to notify LHDN of certain employment changes can expose businesses to penalties and additional administrative work.
Whether you operate a small business or manage a growing workforce, understanding your employer tax obligations is essential to maintaining payroll compliance.
1. What Are an Employer’s Tax Obligations in Malaysia?
Under the Income Tax Act 1967, employers have several responsibilities relating to employee remuneration, income tax deductions, statutory reporting and recordkeeping.
These include deducting and remitting Monthly Tax Deductions, submitting annual employer returns, issuing employees’ remuneration statements and notifying LHDN of certain changes in employment.
The following table summarises the key statutory forms and their general submission deadlines.
2. Malaysia Employer Tax Forms and Submission Deadlines
|
Form |
Purpose |
General Deadline |
|---|---|---|
|
PCB / CP39 |
Monthly Tax Deduction and remittance |
15th of the following month |
|
Form E |
Annual employer tax return |
31 March of the following year |
|
Form EA |
Annual employee remuneration statement |
Last day of February of the following year |
|
CP22 |
Notification of new employee |
Within 30 days after employment begins |
|
CP22A |
Notification of cessation of employment for private-sector employees |
At least 30 days before cessation, where applicable |
|
CP21 |
Notification of employee leaving Malaysia for more than three months |
At least 30 days before expected departure, where applicable |
These are general statutory deadlines. Filing extensions, exemptions and specific reporting requirements should be checked against the latest LHDN guidance.
3. Understanding Each Employer Tax Obligation
3.1 PCB / CP39: Monthly Tax Deduction
Monthly Tax Deduction (MTD), also known as Potongan Cukai Bulanan (PCB), is a mechanism through which employers deduct income tax from employees’ remuneration and remit it directly to LHDN.
Employers are responsible for calculating the appropriate deductions using the applicable PCB schedule or an approved computerised calculation method.
Submission deadline: On or before the 15th of the following month.
Employers should ensure that:
-
Monthly tax deductions are calculated accurately.
-
Applicable employee tax information is kept up to date.
-
PCB payments are remitted within the prescribed deadline.
-
Payroll and deduction records are maintained for verification.
LHDN provides electronic submission facilities, including e-PCB Plus. Employers should use the applicable official electronic channel.
3.2 Form E: Annual Employer Tax Return
Form E is an annual declaration submitted by employers to LHDN. It reports employment-related information for the relevant year.
Employers are generally required to submit Form E together with the relevant employee remuneration information through Form C.P.8D or the applicable electronic reporting facility.
Statutory deadline: On or before 31 March of the following year.
Companies are required to submit Form E electronically through e-Filing. Employers should check LHDN’s filing programme for any applicable administrative extensions.
Form E is only considered complete when the required employee remuneration information has also been submitted, subject to the applicable electronic pre-filling arrangements.
3.3 Form EA: Employee’s Annual Remuneration Statement
Form EA provides employees with an annual summary of their remuneration and relevant employment-related tax information.
Employees use this statement when preparing their individual income tax returns.
Deadline: On or before the last day of February of the following year.
Employers should ensure that the information in Form EA is consistent with their payroll records and annual employer tax reporting.
Public-sector employers generally use Form EC instead of Form EA.
3.4 CP22: Notification of New Employee
Form CP22 is used to notify LHDN when an employee commences employment, subject to the applicable reporting requirements.
Submission deadline: Within 30 days after the employee starts work.
Effective 1 September 2024, the submission of CP22 notifications must be completed electronically through the e-CP22 application available on the MyTax portal.
Employers should incorporate this notification requirement into their employee onboarding process to reduce the risk of missed submissions.
3.5 CP22A: Notification of Cessation of Employment
Form CP22A is used by private-sector employers to notify LHDN of certain cases involving an employee’s cessation of employment or death.
The general notification deadlines are:
-
Cessation of employment: At least 30 days before the employee’s cessation date.
-
Death of an employee: Within 30 days after the employer is informed of the employee’s death.
Not every resignation or termination requires CP22A submission. Employers should determine whether an exemption applies under the relevant tax provisions and LHDN guidelines.
Where tax clearance is required, employers may also need to withhold certain payments until the applicable conditions have been satisfied.
CP22A submissions are made through the e-SPC facility on the MyTax portal.
3.6 CP21: Notification of Employee Leaving Malaysia
Form CP21 is used to notify LHDN when an employee is expected to leave Malaysia for more than three months, where the statutory notification requirement applies.
Submission deadline: At least 30 days before the employee’s expected departure.
Depending on the circumstances, employers may need to withhold payments pending tax clearance.
Certain departures, including qualifying travel undertaken frequently in the course of employment, may be exempt from the notification requirement.
Employers should assess the employee’s circumstances before deciding whether CP21 submission and tax clearance are necessary.
4. What Happens If Employers Fail to Comply?
Failure to fulfil employer tax obligations can lead to financial penalties, compliance issues and additional administrative costs.
Depending on the nature of the non-compliance, employers may face:
-
Financial penalties or prosecution under the applicable provisions of the Income Tax Act 1967.
-
Additional tax liabilities arising from incorrect or insufficient tax deductions.
-
Further scrutiny or requests for supporting documents during an LHDN audit.
-
Delays in processing employee tax clearance.
-
Additional administrative work to correct payroll records and statutory submissions.
The consequences depend on the specific statutory obligation breached and the circumstances of the case.
For growing businesses, these risks highlight the importance of having a structured payroll and tax compliance process.
5. How Can Employers Prepare for an LHDN Audit?
An LHDN employer audit may involve reviewing payroll records, employee remuneration, tax deductions and statutory submissions.
Employers should establish appropriate internal controls to ensure that their records are accurate, complete and readily available.
LHDN generally requires employers to maintain relevant records for 7 years. Proper documentation can help employers respond to audit enquiries and identify discrepancies before they become significant compliance issues.
6. Why Employers Should Review Their Payroll Compliance Regularly
Tax compliance should not be treated as an annual administrative exercise.
Businesses experience continuous changes, including new hires, employee resignations, salary adjustments, bonuses and changes to statutory requirements.
Without a structured process, these changes can increase the risk of incorrect payroll calculations or missed reporting deadlines.
Regular payroll compliance reviews can help employers identify gaps, improve internal procedures and ensure that HR and payroll teams understand their reporting responsibilities.
For businesses without a dedicated payroll compliance team, professional payroll support can help reduce the administrative burden.
7. Frequently Asked Questions About Employer Tax Obligations in Malaysia
What is the deadline for PCB payments in Malaysia?
Employers must generally remit Monthly Tax Deductions to LHDN on or before the 15th of the following month.
When must employers submit Form E?
The statutory deadline for Form E is 31 March of the following year. Employers should check LHDN’s annual filing programme for any applicable filing extensions.
Is Form EA compulsory for employers?
Employers are generally required to provide Form EA to their employees by the last day of February of the following year. Public-sector employers generally issue Form EC.
Do employers need to submit CP22 for every new employee?
Employers must assess the applicable notification requirements when hiring new employees. Where CP22 is required, it must be submitted within 30 days after employment begins through e-CP22.
Is CP22A required when an employee resigns?
Not necessarily. The requirement depends on the employee’s circumstances and the applicable statutory exemptions. Employers should review the relevant LHDN guidelines before determining whether notification and tax clearance are required.
How long must employers retain payroll and tax records?
Employers are generally required to retain relevant tax records for 7 years.
The answers above reflect LHDN’s published employer guidance.
8. Stay Compliant with Professional Payroll Support
Managing payroll involves more than calculating monthly salaries. It also requires employers to keep track of statutory deadlines, maintain accurate records and fulfil their reporting responsibilities.
At CM Horizon, we help businesses simplify payroll administration and manage their ongoing payroll compliance requirements.
Whether you are a startup establishing your payroll processes or an established business looking to improve payroll efficiency, having the right support can help you focus on running your business.
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