Income Tax for Foreign Employees in Malaysia: What HR Does (2026)

Employers • Oct 29, 2026

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A foreign employee pays Malaysian income tax on their Malaysian salary, and most of the paperwork sits with the employer: a notice when they join, a deduction every month, two forms at the end of the year and a notice before they leave. This guide is for HR teams. It covers the deadlines, how the monthly deduction works in the first year, and how housing, school fees and home leave are taxed.

💡 Key takeaway: Report a new foreign employee to LHDN within 30 days of their start date on e-CP22. Deduct tax from their pay every month and pay it to LHDN by the 15th of the next month. If their employment contract is for 182 days or more, the monthly deduction uses the same rates as for Malaysians from the first month; otherwise it is 30% of pay. Whether they are a tax resident for the year is settled later, in their own tax return. A home the company rents for them is taxed at a lower value than a cash housing allowance.

The employer's deadlines at a glance

When	What the company does	Deadline
New employee	Form CP22, on e-CP22 in MyTax	Within 30 days of the start date
Every month	Deduct monthly tax (MTD, also called PCB) and pay it to LHDN	By the 15th of the next month
After the year ends	Give the employee Form EA	By the last day of February
After the year ends	File the employer's return, Form E, with CP8D, online	By 31 March
Employee leaving Malaysia for more than 3 months	Form CP21, then hold back money owed to them	At least 30 days before they leave

When a foreign employee joins: Form CP22

LHDN, the Inland Revenue Board, asks employers to report each new employee who is taxable within 30 days of the date the employment starts, on Form CP22. From 1 September 2024 the form must be sent through the e-CP22 application on the MyTax portal. An employer that fails to do this without a reasonable excuse can be fined RM200 to RM20,000, or face up to 6 months in prison, or both, and is responsible for the full tax the employee owes.

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Monthly tax deduction in the first year

The monthly deduction depends on the employee's tax residence. LHDN's 2026 specification for computerised MTD sets two cases:

An employee who is not resident, or not known to be resident, has 30% of their pay deducted. On a basic salary of RM10,000 a month, that is RM3,000 a month.
Since August 2017, a foreign employee with an employment contract of 182 days or more is put on the resident calculation, the same progressive rates and reliefs as for Malaysians. The specification says this covers expatriates.

For most Employment Pass hires on a contract of a year or more, payroll uses the resident calculation from the first month. Allowances and benefits on LHDN's exemption list are left out of the pay used for MTD. Pay the deduction to LHDN by the 15th of the following month, using e-PCB, e-Data PCB or e-CP39. An employer that fails to deduct or pay MTD can be fined RM200 to RM20,000, and is responsible for the full tax due from the employee.

Tax residence for the year

The monthly deduction is an advance. The final tax depends on whether the employee is a tax resident for the calendar year. Nationality does not matter. The main test is being in Malaysia for 182 days or more in the year. Part of a day counts as a whole day, so the days of arrival and departure both count.

An employee who arrives late in the year can still be a resident for that year. If their days in the first year link up with a period of 182 consecutive days or more that runs into the next year, both years count. LHDN's example: someone in Malaysia for 118 days in one year who then stays for more than 182 consecutive days into the next year is a resident in both years. Short trips abroad for business, for illness, or for social visits of up to 14 days in total do not break the period.

The difference is large. A resident pays tax at rates rising from 0% to 30% and can claim personal reliefs. A non-resident pays a flat 30% on all chargeable income, with no personal reliefs.

If the employee leaves before 182 days

The resident calculation for MTD is based on the length of the contract. If the employee leaves Malaysia before reaching 182 days in the year, they are usually a non-resident for that year and owe a flat 30% on all their income for the year, more than was deducted. The difference is the employee's tax, and two steps make sure it is paid:

If they are leaving Malaysia for more than 3 months, the company submits Form CP21 at least 30 days before they leave and holds back money owed to them, such as the final salary, until LHDN allows payment, for up to 90 days after LHDN receives the form. A company that skips this becomes responsible for the employee's tax.
The employee files Form M for that year and pays the balance.

Leaving the job is not the same as leaving Malaysia. If the employee moves to another employer in Malaysia, their days keep counting and they may still reach 182 days.

The employee's own tax return

The employee files their own return: Form BE if they are a resident, Form M if not. LHDN's ruling on foreign employees gives the deadline as 30 April of the following year. LHDN's individual page has allowed e-filing of Form BE until 15 May, so check the dates for the year. Any difference between the monthly deductions and the final tax is settled through the return. New arrivals often do not know they must file, so it helps to remind them when you hand out Form EA.

Housing, school fees and home leave

Relocation packages often include benefits, and each is taxed in its own way:

Benefit	How it is taxed
A home rented or provided by the company	Taxable, at a set value: the rent for the home unfurnished, or 30% of the employee's employment income, whichever is lower. Furniture is valued separately.
A housing allowance paid in cash	Part of salary. Taxed in full.
Children's school fees paid or reimbursed by the company	Taxable, for schools in or outside Malaysia.
Home leave	Tax free for one overseas trip a calendar year up to RM3,000, and up to 3 trips within Malaysia, for the employee and their immediate family.
Medical treatment	Tax free.
Relocation and moving costs	LHDN's rulings do not set out a specific exemption. Ask your tax adviser before treating them as tax free.

An example of how the housing rule works: an employee earns RM120,000 a year and lives rent free in an unfurnished home the company leases for RM42,000 a year. 30% of RM120,000 is RM36,000, which is lower than the rent, so RM36,000 is added to their income. If the company paid the same RM42,000 as a cash housing allowance instead, the whole RM42,000 would be taxed.

At the end of the year

Give each employee Form EA, the statement of their pay and benefits for the year, by the last day of February. File the employer's return, Form E, with CP8D by 31 March. Companies must file Form E online, through e-Filing.

When a foreign employee leaves

If the employee is leaving Malaysia for more than 3 months, submit Form CP21 at least 30 days before they leave, and hold back money owed to them for 90 days after LHDN receives the form. The steps, together with the immigration side, are in our guide on what the employer does when a foreign employee leaves Malaysia.

Settling in a foreign employee

How Seekers can help

Seekers is a licensed tech recruitment agency in Kuala Lumpur. We find Malaysian and foreign engineers for your team, and if your hire needs an Employment Pass, we can support the application. EP support is quoted separately from the recruitment fee. For the pass itself, see how to apply for an Employment Pass. Talk to us about a hire.

Frequently asked questions

Do foreign employees pay income tax in Malaysia?

Yes, on income from employment in Malaysia. The rate depends on tax residence for the year: rates from 0% to 30% for a resident, a flat 30% for a non-resident.

Is MTD for a new expatriate 30%?

Not if their employment contract is for 182 days or more. Since August 2017, LHDN puts these employees on the resident calculation for MTD. The 30% rate is for employees who are not resident or not known to be resident.

When must an employer submit Form CP22?

Within 30 days of the date employment starts, through e-CP22 on the MyTax portal. Paper forms are no longer accepted from 1 September 2024.

Is company-provided accommodation taxable in Malaysia?

Yes. The taxable value is the unfurnished rent or 30% of the employee's employment income, whichever is lower. A cash housing allowance is taxed in full.