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 isn’t cancelled and the foreign employee has left Malaysia for good, two things can happen:
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.
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 as shared in Part 1 of this blog post.
Stay tuned for our next blog post titled ‘Tips on how to survive a Payroll Tax Audit’.