Guideline for Personal Tax Clearance – Form CP21, CP22A, CP22B
As an employer, are you aware of the reporting obligations under the Malaysian Income Tax Act, 1967? It is important to understand the obligations under the law as these obligations are mandatory and failure to comply with these obligations would result in penalties to be imposed. Amongst others, one of the employer’s responsibility is to notify Malaysian Inland Revenue Board (MIRB) on cessation of employment, retirement, death or departure from Malaysia of an employee.
The MIRB has issued Operational Guidelines on procedures for application of tax clearance letter for Individual on 12 February 2016. This guideline has also explained the responsibilities of each party in relation to the tax clearance application.
The Tax Clearance Letter (Surat Penyelesaian Cukai (SPC)) is a letter issued by MIRB to notify the employer of a deceased / retiring / resigning employee’s tax liability to enable the employer to make the final payment of salary / compensation / gratuity to the employee.
When to make the application
When the employee:
- Leaving Malaysia for a period exceeding 3 months; or
- Resigning from employment; or
- Retiring; or
- Death of an employee
Responsibility of Employer
The employer is required to notify MIRB and apply for SPC not later than 30 days before the date of the employee’s expected date of departure / termination of employment or, in the case of death, within 30 days after the death.
It is possible to give a shorter written notice if the MIRB is satisfied that it is reasonable to do so in the circumstances.
The employer is required to retain whatever amount of money due to the employee (e.g. salary / compensation / gratuity) until 90 days after the MIRB receives the notification, or after SPC is issued. Then, the employer is permitted to release the money withheld. In practice, the employer would normally release the money after obtaining the SPC.
The application for the SPC can be made through online application by employer (e-SPC) or through submission of forms manually to MIRB branch which handles the employee’s income tax file.
Forms to be filled by employer:
- Form CP21 (Notification by Employer of Departure from the Country of an Employee); or
- Form CP22A (Tax Clearance Form for Cessation of Employment of Private Sector Employees); or
- Form CP22B (Tax Clearance Form for Cessation of Employment of Public Sector Employees); and
- SPC request check-list.
An employer is not required to give notice of cessation of the employment in the following instances:-
a. Where the income of the employee is subject to monthly MTD and deduction has been made by the employer; or
b. Where the monthly income of the employee is below the minimum amount subject to the MTD;
and where it is known to the employer that the individual is to be employed elsewhere in Malaysia.
Non-compliance and Penalty
Employers may face fines between MYR 200 and MYR 20,000 and imprisonment for up to 6 months in addition to becoming liable for the employees’ outstanding tax obligations.
Responsibility of Employee
Employee who is about to cease employment, retire, or leave Malaysia for more than three (3) months is required to ensure that his prior years’ and current year’s tax assessments are accurate and complete.
Employee who is about to cease employment / retire and :-
i. Eligible for MTD As a Final Tax– the employee is not required to submit the income tax return for prior year but is required to submit the income tax return for the year of cessation / retirement in the following year to disclose his income accordingly.
ii. Not Eligible for MTD As a Final Tax– the employee is required to submit the income tax returns for the prior years and the current year of cessation/retirement.
For employee who is about to Leave Malaysia for more than three (3) months:-
iii. Eligible for MTD as a Final Tax – the employee is not required to submit the income tax return for prior year but is required to submit tax returns for the year of completion of service.
iv. Not eligible for MTD as a Final Tax – the employee is required to submit tax returns for the year of completion of service and the previous year.
Responsibility of MIRB
SPC will be issued within 10 working days from the date of receipt of complete documents by MIRB.
SPC will be provided to employer with a copy to the affected employee.
The MIRB may issue a certificate to a Commissioner of Police or a Director of Immigration requesting that the employee be prevented from leaving Malaysia until he has paid all outstanding tax.
The MIRB may initiate civil proceedings against the employer for non-remittance of the outstanding tax to the MIRB as instructed in the TCL.