What is a Tax Clearance?
In essence, a tax clearance means a certificate letter from Malaysian Inland Revenue (LHDN) that indicates whether your employee owes any outstanding income tax.
Upon receiving this letter, the employer will release the balance of any money withheld from the employee after he/she settles the outstanding taxes (if any) as shown in the tax clearance letter/certificate.
The Tax Clearance Letter or Certificate (Surat Penyelesaian Cukai - SPC) applies to both Malaysians and expatriates or foreign employees.
How to apply for a Tax Clearance?
To do this, the employer (usually HR Department) needs to complete one of the following forms:
- Form CP21 (if you are leaving the country)
- Form CP22A (for retirement, resignation or termination of employment if you work in the private sector)
- Form CP22B (for retirement, resignation or termination of employment if you work in the public sector)
The submission can be done online through e-SPC (by the employer only) or manually through the LDHN office that handles your income tax file.
In the event of death, the beneficiary of the deceased taxpayer must inform the taxpayer's employer; thereafter the employer needs to inform LHDN immediately of the death.
When to apply for Tax Clearance?
The employer must notify LHDN at least 30 days BEFORE the expiration of the employee's work contract, the date of resignation or termination of employment, or the date of the employee's departure from Malaysia.
In the case of death, the Next-of-Kin must submit the application within 30 days after the date of death.
For EPF/SOCSO, the employer does not need to submit any special forms to EPF or SOCSO in the case of an employee ceasing employment.
What happens if Tax Clearance is delayed?
Delay in submitting the application for tax clearance may be subjected to penalty. The penalty will be in the form of fines between MYR 200 and MYR 20,000 and imprisonment for up to six months. LHDN may take legal action against the employer who fails to pay the outstanding tax as per the Tax Clearance Letter.
How long will LHDN take to process the Tax Clearance application?
If the employer submits all the required documents and there are no further queries, LHDN will process and issue the Tax Clearance Letter within ten working days.