Payment to Non-Malaysians Without A Work Permit or A Valid Employment Pass

PAYMENT TO NON-MALAYSIAN WITHOUT A WORK PERMIT OR A VALID EMPLOYMENT PASS

This is a critical question, and we will take an example to illustrate this.

Example:

Alpha Logistics Sdn.Bhd. had made payment to Mr. Omar for services provided to install air conditioners and renovate their office premises totalling RM15,000.00, Mr. Omar is a non-Malaysian without a work permit or a valid employment pass, but he has a valid passport and has lived in Malaysia for more than 180 days.

Q1. Is the payment an allowable expense by LHDN for Alpha Logistics Sdn. Bhd.?

Q2. What are the consequences are far as immigration is concerned?

Ans 1: Irrespective of his legal status in Malaysia, Mr. Omar has derived income from services provided in Malaysia and is subject to Malaysia Income Tax. Mr. Omar is considered a ‘Tax Resident’ because he has been in Malaysia for more then 180 days. However, as a non-Malaysian service provider he is deemed a non-resident. Effectively, Alpha Logistics Sdn. Bhd. must comply with the withholding tax regulations and deduct 10% and remit to LHDN. In doing this Alpha Logistics Sdn. Bhd. is complying with their tax obligations and the payment to Mr. Omar is tax allowable.

To remit the withholding tax to LHDN, Mr. Omar is required to register a TIN. and will have to provide his passport details.

Ans 2: When you register Mr. Omar for a TIN and remit the withholding tax, you are essentially informing LHDN that you have paid an individual for services. While this helps your company with its tax obligations, it may also flag Mr. Omar to other government bodies, including the Immigration Department. This action could expose Mr. Omar to the Immigration Department, leading to severe penalties for him and to Alpha Logistics Sdn. Bhd.

The above would also apply to payment to foreigners without a work permit for part-time work, casual wages etc.