This post is dedicated to my sister, who runs the Instagram shop Malaysia Plus Size and sells chic, Muslimah-friendly fashion. We had a conversation about finances and what she should have, as an online business in Malaysia when it comes to paying taxes. Then we were interrupted by mom’s gulai and didn’t manage to continue, so this post is for you sis. If you have a small online business – selling products and/or services from Facebook, Instagram, Mudah, etc and have your own branding (logo) – you should find this helpful, too.
Here’s what you have to have in order, when it comes to taxes.
Disclaimer: not a tax expert. Please consult LHDN for your individual cases, or engage a tax accountant. If any information here is wrong, please comment and I’ll edit the them.
#1 – A LHDN Account
For tax purposes. You make payment on income generated the previous year, ie tax submitted in 2017 is for 2016 income. iMoney has a useful guide about taxes here (2017), containing 11 short chapters. Here’s the 2016/2017 tax booklet by PWC, for in-depth clarification (slightly confusing if you don’t know tax lingo).
Not paying taxes on online or e-commerce income is an offense – people who evade may be fined, imprisoned or barred from leaving the country. Not sure if your business model should be taxed? Check the guidelines on taxation on E-Commerce by LHDN here. As an individual with business income, you’re submitting Form B. This is an in-depth guidebook to Form B, also a bit outdated but the most comprehensive I can find.
Don’t have a LHDN account? Here’s how to e-Daftar yourself. If you have your own business, you should register as ‘Individual with business income‘ even if you’re still employed – ideally you should have your business registration information and certificate ready. See #2.
You only have to pay taxes for online business if you make over a certain amount annually (it changes, last I know it was RM34k per annum). If you don’t make this amount, declare it anyway to keep your records clean. Your tax rate will depend on your income, from 0-28% (as of 2017). Check tax rates here.
If you’ve been earning and not declaring taxes, there are sections to self-declare earning from previous years. You can find Form B under e-Form. The tax amount is automatically calculated based on what you input in e-Hasil.
#2 – Registered Business
Go to SSM. Depending on your nature of business, you can register as Sole Proprietorship, Partnership, Limited Liability Partnership or Company. For many small-scale online businesses in Malaysia, Sole Proprietorship (single owner) or Partnership (more than one owner) is enough, and the cheapest option.
Go to a SSM branch near to you, get the forms, fill it up (there are examples there on how to fill it up) and get a number. Have a few business name options in case your first choice was snapped up. When your turn comes, the representative will double check the information. Make the payment, then wait to receive your business certificate.
Tip: Make the business registration address as where you spend the most time doing the work. If you’re home-based, use home address. It’s handy when you want to write off some expenses as business expenses.
#3 – Have a dedicated banking account/credit card only for the business
If you’ve always used your personal banking accounts for your online business, it’s time to get dedicated business ones.
All business-related expenses, such as:
- Buying stock and equipment
- Paying staff
- Marketing and advertisement
- And more,
Pay it from the business banking account and business credit card. Don’t use it for personal use (ie: buy groceries from Tesco), make it separate.
#4 – Keep tally of business income, expenses and receipts
The cheapest way is to make an Excel document and log in income and expenses. Sort it by month and year. Otherwise, you can also pay an accounting service and log all the info in there (Google ‘accounting small business Malaysia’). Each expense must have receipts, which you have to keep for at least 7 years. I do it this way:
- Google Spreadsheet: Logs Incomes and Expenses, sorted by name, date, amount, receipt no/tx no
- Income: Keep bank statements (your banking account and credit card statements from #3), invoices
- Expenses: I snap pictures/screenshot my receipts and placed them in my Google Drive, also sorted by month and year. Bank and credit card statements go here as well.
Read my Must-Have Financial Tools to Make Freelancing in Malaysia Easier guide, there is a basic accounting template you can use.
If you work from home, you can deduct some expenses like electricity, rent, staff salary, mobile, internet and website. Travel, car (payments, petrol, parking, toll), food and accommodation costs related to work can be deducted too. Sylvialim.com has some tips, available here. All expenses should fit the below categories:
Note: I don’t have the full list of what can and cannot be deducted. I also don’t know the percentage that you can deduct from each expense. Please comment if you have this information.
#5 – Max out your tax relief and tax rebate where you can
Tax reliefs and tax rebates help to reduce taxable income. It’s announced yearly in the National Budget, and changes slightly every year. For tax relief and tax rebates claimable in 2017 (for 2016 income), see below (credit to Malaysian Digest).
Tax relief tend to remain the same every year, so always keep receipts and records for:
- EPF & SOCSO (mainly for employed individuals, unless you do self-contribution)
- Education fees
- Medical expenses, equipment and care for self, spouse, parents and children
- Sports equipment (not attire)
- Some investments like PRS (my guide) and SSPN
Muslims can claim zakat as tax rebate (my writeup on zakat)
Simplified version of how taxes work
Form B’s submission dateline is 30 June of every year. It’s fairly easy to submit from e-Hasil, but the main barrier in my opinion is the jargon. You have no choice but to get familiar with them and what they mean. I plan to attend a training on this if it comes up (know any good ones? Share in comments)
Basically, your payable amount follows this simple calculation.
- A = Total income for the year
- B = Tax relief
- C = Tax rebate
- (A-B) x tax rate (% depending on income bracket) – C = Payable amount
Are you doing your taxes this year? How do you find the process? Any tips not included here that helped you? Please share in comments 🙂
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