Malaysian Tax Stoppages: Understanding Liability and Maximizing Mobility

By: Dezan Shira & Associates
Editor: Eugenia Lotova

With the passing of Ruling No. 12/2015, it is time for Malaysian residents to double check their taxes. Section 104 of the Income Tax Act of 1967 had established that individuals with outstanding tax dues would be forbidden from leaving the country until the debt was settled, but this law was never enforced—until last year. Since a large portion of the government’s revenue is generated from taxes, the Inland Revenue Board of Malaysia (LHDN) has decided to partner with the Immigration Department to collect unpaid taxes. As a result, since 2015, over 100,000 Malaysian taxpayers have been forbidden from leaving the country, sometimes unaware that they had outstanding liabilities. This article discusses how this new ruling may affect your company and how to ensure tax compliance.

Stoppage Issuance: Reasons and Notification

Under the law, the job of tax calculation is on each individual, not the authorities and anyone who owes taxes to the Malaysian government may be blacklisted and prevented from leaving the country. In the case of companies, the director is liable for the company’s taxes, including money withheld from employees and to be paid to the LHDN. If a company is covering a portion of taxes on behalf of the employee and has an outstanding balance, the employee will be held responsible. .

The method by which exit from Malaysia is prevented is via the issuance of a stoppage. A stoppage order will be issued to the individual either in person or by mail. It is effective from the date of issuance stamped on the certificate and the individual is only responsible for the amount specified.

Considering the employer’s possible exposure, it is absolutely necessary to consult with the appropriate authorities or an expert to mitigate the risks of receiving a stoppage.

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Settling Tax Obligations: Malaysian Nationals

Malaysian nationals have two options in the event that they have been issued a stoppage. The first option is to settle all outstanding tax obligations prior to departure from Malaysia in order to secure a letter of release. This will revoke the travel ban imposed by the stoppage and allow for the national in question to leave the country. 

Payments can be made at the LHDN or via the Internet. Once the LHDN branch office has received evidence that the full payment has been made or the check has cleared, a revocation letter will be issued.

For Malaysian nationals that do not have the resources to meet all their tax obligation, a temporary letter of release may be issued under certain circumstances. For Malaysians to be issued a letter of temporary release, they must fulfill the following conditions:

• Pay a minimum of 50% (or another rate, as specified by the Director General) of the amount on the stoppage certificate
• Submit proof of payment made in cash or bank draft
• Arrange a schedule of payments— if an individual fails to comply, he or she will not be eligible to receive a temporary release in the case of another stoppage order.

Malaysian citizens can check to see if they have been issued a stoppage or monitor the status of an existing stoppage via the following website: http://sspi2.imi.gov.my/Default.aspx. It should, however, be noted that this database is only available for Malaysian nationals. 

Settling Tax Obligations: Foreign Nationals

While Malaysian nationals will be able to check their status on the website mentioned above, foreign nationals desiring to check their tax status must reach out to their LHDN branch office or make a phone call to the LHDN call center. 

While Malaysian nationals with outstanding taxes are afforded the opportunity to receive a temporary release under the conditions described above, these options are not available to foreign nationals. The individual will likely have to settle all obligations prior to leaving the country.

Payments can be made at the LHDN or via the Internet. Once the LHDN branch office has received evidence that the full payment has been made or the check has cleared, a revocation letter will be issued.

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Penalties for Leaving without Paying

If an immigration officer or a police officer determines that an individual leaves, has previously left, or intends to leave the country without payment of taxes, the taxpayer is subject to the following penalties:

• A fine between RM 200 and RM 20,000
• Imprisonment for up to 6 months
• Both

The authority also reserves the right to arrest the taxpayer at any time they suspect the individual plans to not comply with Section 104 of the Income Tax Act of 1967.

Considering the severe inconveniences of receiving a stoppage order, it is important to plan ahead and structure operations in a way that limits exposure. In the case a stoppage order is issued, companies should promptly communicate with the appropriate authorities to resolve the matter quickly. Our tax experts at Dezan Shira & Associates have the experience and the resources to ensure the risks your company may face are managed and mitigated. If you require further assistance, please reach out at asean@dezshira.com

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