By Lim Phing Phing and Cynthia Wong, Global Mobility Services, PwC Malaysia

Imagine this, you are a Londoner waiting in line at the immigration counter in Kuala Lumpur International Airport (KLIA) for your flight back home. You have just completed your assignment with “Malaysian Company X”. To your surprise, the immigration officer scrutinis es your passport, and tells you that you cannot leave Malaysia.

The reason? You have not settled outstanding taxes to the Malaysian Inland Revenue Board (IRB) since 2010. The only one way you will be allowed to leave the country: settle your unpaid taxes first. You panic – worried you will miss your flight and be trapped in Malaysia with limited funds.

What should you do now? Call your ex-employer in Malaysia?

Now imagine you are the Human Resources rep for “Malaysian Company X”. What should you do if you are on the receiving end of that call?

An overseas assignment could easily turn into a nightmare (like the scenario above) if employers are not able to navigate the complexities of immigration and tax laws when employees work abroad.

Understanding the Different Immigration Passes

Currently, the Immigration Department of Malaysia (MID) issues three main types of immigration passes to foreigners entering Malaysia — Social Visit Pass, Employment Pass and Professional Visit Pass

Types of Immigration Passes

Before making any decisions, it is important for employers to:

Identify the correct immigration pass to apply for based on the nature and duration of the assignment. A foreign employee entering Malaysia for employment on a Social Visit Pass is strictly against the law. Foreign employees, especially business travellers, who do so could risk being detained and deported from Malaysia.

Understand the tax implications under the different passes. This would include:

–   Evaluating the individual tax implications under the different passes and any domestic or treaty exemptions that these foreign employees can claim;

–   Understanding the applicable individual tax rates for residents versus non-residents, and;

–   Determining whether these foreign employees’ presence in Malaysia under the different passes could create permanent establishment risks for the foreign entity in Malaysia.

Identifying Who Sponsors the Work Passes

A foreign entity without any presence in Malaysia cannot sponsor a work pass on behalf of its employees. So it would have to rely on its related Malaysian entity or joint-venture partner in Malaysia, which must meet the minimum paid up capital requirements before it can proceed with the sponsorship.

The work pass sponsor is perceived as the employer, and is required to comply with the employer tax obligations under Section 83 of the Act, even though that sponsor may not be the actual employer. When the employer does not comply with these tax obligations, the IRB may collect any penalties and past outstanding taxes directly from the employer.

It is important for employers to plan upfront and understand the crucial tax and immigration issues from the beginning. This helps ensure that all areas of their global mobility programme including tax and immigration processes are effective and compliant to mitigate risks for the business and the foreign employees. Plus, a compliant and effective tax and immigration process will allow employers to enjoy a smoother process of mobilising foreign employees to Malaysia.

Responsibilities of the employer and foreign employee while on assignment in Malaysia

So now that the foreign employee has secured the much awaited work pass to work in Malaysia, what happens next?

From a tax perspective, the employer needs to adhere to their tax obligations towards the foreign employee during the assignment period. Similarly, the foreign employee needs to ensure that they file their individual tax returns correctly and settle the taxes accordingly with the IRB by 30 April of each year.

From an immigration perspective, it is important that the employer and foreign employee adhere and comply with these tax obligations respectively as:

The MID will require tax documentation such as previously filed individual tax returns and tax payment receipts before they can approve the renewal of the foreign employee’s work pass; and

The IRB and the MID co-operate and share information of foreigners working in Malaysia via the HASIL My EXPAT system, which matches the information obtained from the MID with a foreign employee’s tax position. Hence, settling taxes in a timely manner is crucial to prevent foreign employees from being barred from leaving the country at any point in time during their Malaysian assignment.

Another important point to note, if the foreign employee is running short of passport pages, or if their passport is expiring soon, they must renew their passport, and the employer must remember to transfer their work permit to their new passport.

If this isn’t done, and the foreign employee decides to exit the country at any point in time during the Malaysian assignment, immigration officers at Malaysian airports can stop them from leaving, on the basis that the work permit endorsed in the old or expired passport is no longer valid.

Repatriation: Responsibilities of the employer and employee

When it is time for the foreign employee to leave and say goodbye to Malaysia, is there anything else that needs to be taken care of apart from the relocation process?

The work permit sponsor or employer must see to it that all the exit immigration and tax formalities have taken place. This includes:

Cancelling the employee’s work permit. If the work permit is not cancelled and the foreign employee has left Malaysia for good, two things can happen:

  1. i. From the immigration perspective, the MID can impose penalties on the employer. Plus, cancelling a work permit without the foreign employee’s passport can be a tedious process, as it would require the employer to lodge a police report and produce a statutory declaration to the MID, stating they’re aware the foreign employee has left the country without cancelling their work pass. This is not a recommended practice, as the foreign employee could potentially breach immigration laws when they re-enter Malaysia with the passport that has their old work pass – the one that still hasn’t been physically cancelled by the MID.

What about foreign employees who refuse to have their work permit cancelled because their kids are studying in Malaysia, and the school term is still underway? Regardless, the employer has to cancel the work permit. The employer can, however, apply to the MID for the foreign employee’s dependent passes to be converted to student passes and a guardian visa, which would allow their family to remain in the country legally.

  1. ii. From a tax perspective, if the foreign employee has left Malaysia for another foreign assignment, the IRB could claim that the foreign employee is effectively exercising employment in Malaysia via the extension of their overseas duties. They could then potentially seek to tax the foreign employee throughout the period of their new, unrelated overseas assignment in a different country.

Before leaving Malaysia, the employer has to notify the IRB that the foreign employee is ceasing their Malaysian assignment, and the foreign employee has to seek tax clearance from the IRB. As part of the tax clearance process, the foreign employee’s passport has to be surrendered to the MID for them to shorten the work pass period (which should coincide with the foreign employee’s last working day in Malaysia). In addition, the IRB would also require the foreign employee to present the final individual tax return filed and their passport to verify their residency status during their assignment in Malaysia. This is necessary in order to finalise the foreign employee’s tax position and facilitate the issuance of the tax clearance letter. Once the tax clearance letter is issued by the IRB, all that’s left for the employer to do, is to make sure the foreign employee settles any outstanding taxes they may have before leaving the country.


To ensure both compliance and a positive overseas assignment experience, employers and foreign employees alike need to understand the intersecting tax and immigration implications throughout the assignment cycle in Malaysia.

It is important to note that the ramifications of the non-compliance risks are not just limited to fines and penalties. It could lead to substantial financial and reputational damage to the employer as well as render them unable to continue being a work permit sponsor for existing and future assignees to Malaysia. For foreign employees, they could be deported unceremoniously from the country for holding the incorrect pass or worse still, be prevented from leaving Malaysia due to unpaid taxes.