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Personal Tax Clearance Guide

Rising Global Consultants

In addition to the tax reporting obligations stipulated under the Income Tax Act of 1967, employers are responsible for notifying the Inland Revenue Board of Malaysia (IRB) when an employee ceases employment, retires, passes away, or leaves Malaysia for more than three months. This is to enable the IRB to issue a **Tax Clearance Letter**. The Tax Clearance Letter informs the employer of the employee's outstanding tax obligations, allowing the employer to process the final payment of wages, compensation, or gratuities to the employee

Personal Tax Clearance Guide

When an employee

  • resigns
  • leaves Malaysia for more than 3 months
  • retires
  • or passes away

Employer's Responsibilities

Employers must notify the Inland Revenue Board (IRB) and apply for a Tax Clearance Letter (SPC) within 30 days prior to the employee’s expected resignation or termination date. If the employee has passed away, the SPC must be applied for within 30 days following the employee’s death. A shorter notice period requires reasonable justification to be submitted to the IRB for special consideration

The tax clearance can be applied for electronically via the e-SPC system or by submitting the relevant forms at an IRB branch to process the employee’s tax documents

Upon receiving the notice, the IRB requires 90 days to issue the SPC. Until the SPC is issued, the employer must withhold any amounts payable to the employee (e.g., salary/compensation/remuneration). Once the SPC is issued, the employer may release the withheld amounts. In practice, employers usually release the payments only after receiving the SPC

The forms to be filled out

Form CP21 (Employer’s Notification regarding Employee Leaving the Country); or

Form CP22A (Tax Clearance Form for Private Sector Employees Leaving); or

Form CP22B (Tax Clearance Form for Public Sector Employees Leaving); and

Checklist for requesting the Tax Clearance Letter

Special Cases Where Notification of Termination of Employment Is Not Required

If the employee’s income is calculated based on Monthly Tax Deduction (MTD) and the employer has made the deductions; or
If the employee’s monthly income is below the minimum amount for MTD; and
The employer knows that the employee will be working elsewhere in Malaysia

Employee's Responsibilities

  • Employees who are about to stop working, retire, or leave Malaysia for more than three (3) months must ensure that their tax assessments for the previous years and the current year are accurate and complete

Employees who are about to stop working/retire:

i. If MTD is applicable as the final tax: Employees are not required to submit an income tax return for the previous year but must submit a tax return for the year of resignation/retirement in the next year to disclose their income accordingly

ii. If MTD is not applicable as the final tax: Employees must submit income tax returns for the previous years and for the year of resignation/retirement

For employees who will be leaving Malaysia for more than three (3) months:

iii. Eligible for MTD as the final tax – Employees are not required to submit an income tax return for the previous year but must submit a tax return for the year of service completion

iv. Not eligible for MTD as the final tax – Employees must submit income tax returns for both the year of service completion and the previous year

MIRB’s Responsibilities

  • The SPC will be issued within 10 working days from the date MIRB receives the complete documents.
  • The SPC will provide a copy to the employer and the affected employee.
  • MIRB may issue a certificate to the Chief of Police or the Director of Immigration, instructing that the employee cannot leave Malaysia until all unpaid taxes are settled.
  • As per TCL’s directives, MIRB may file a civil suit against the employer to collect the unpaid taxes.

Consequences of Non-Compliance: If the employer fails to notify the Inland Revenue Board about employees who are about to cease employment, retire, or leave, the employer will bear the following responsibilities

  • A fine of not less than RM2,000 and not exceeding RM20,000;
  • Imprisonment for a term not exceeding 6 months;
  • Or both of the above;
  • And responsibility for the employee’s outstanding tax liabilities.