As we unravel the complexities of foreign worker tax in Malaysia, employers bear important responsibilities tied to income tax management. These responsibilities are closely linked to mandatory contributions that are vital in fostering a balanced financial environment for employers and employees.
1. Monthly Tax Deduction (MTD)
Employers must first remember the Monthly Tax Deduction (MTD), often called Potongan Cukai Bulanan (PCB). This means taking a small part of an employee’s salary immediately to cover income taxes. Employers are responsible for sending this tax money to the Inland Revenue Board of Malaysia (IRBM) for the employee. The deadline for this remittance is set on or before the 15th of the ensuing month.
2. Social Security Organisation (SOCSO)
In Malaysia, the Social Security Organisation (SOCSO) is like a safety net for employees’ finances, which safeguards the financial well-being of employees through a comprehensive framework. This structure encompasses the Employment Injury Insurance Scheme and the Invalidity Pension Scheme, enshrining the welfare of Malaysians.
Notably, SOCSO contributions are a binding obligation for all employees, including Malaysian citizens, permanent residents, and foreign workers. Employers are responsible for arranging these monthly contributions for each eligible employee.
Simultaneously, employees have their contributions deducted from their wages, following the guidelines outlined in the Employees’ Social Security Act (1969). These contribution rates are divided based on age and income, showcasing a detailed approach to ensuring social security benefits.
Read more: Understanding the SOCSO Contribution Rate
3. Employees Provident Fund (EPF)
The Employees Provident Fund (EPF), an instrumental government fund that fosters Malaysian financial security, manages the fiscal landscape of retirement planning in Malaysia. While limited to citizens and permanent residents, EPF payments are also optionally extended to foreign workers.
In this dynamic, employers undertake the task of deducting EPF payments from the employee’s salary and subsequently channelling them to the EPF on the employee’s behalf. In parallel, employers exercise a distinctive responsibility by contributing to the EPF in alignment with the employees’ prospects.
4. Employment Insurance Scheme (EIS)
The Employment Insurance Scheme (EIS) is a distinctive contribution framework embedded within the Malaysian employment landscape. Most Malaysian citizens and permanent residents fall under the purview of EIS, fostering a financial safety net for these individuals. EIS contributions, which aid workers in job loss, extend to those under 57 with certain exceptions.
The contribution percentages for the EIS are established at 0.4% of the employee’s estimated monthly salary. Of this, 0.2% will be covered by the employer, while the remaining 0.2% will be subtracted from the employee’s monthly earnings. These contribution rates are capped, applying to a presumed monthly salary of RM4000.
Read more: What is Gross Salary: Definition and Components