If you are an employer operating in Malaysia, understanding the regulations on payroll and taxation is a vital part of running your business during this tax season. Employers are required to prepare Form EA ("Borang EA") for their employees as required by the Inland Revenue Board of Malaysia ("IRBM"). In order to fulfil this obligation, it is important for employers and HR managers understand how to prepare Form EA correctly and distribute them to their employees before the deadline.
In this blog post, we provide a comprehensive guide on employer responsibilities related to preparing Form EA including information contained in it, how to fill EA Form 2022, and any relevant penalty involved in case of non-compliance.
What is Form EA and what is its purpose?
Form EA which also known as CP8A form, is an Annual Remuneration Statement from employment for private sector employees. It includes the summary of employees’ salary and statutory contributions paid for the past year. According to Section 83(1A) of the Malaysian Income Tax Act 1967:
Section 83(1A)of Income Tax Act 1967
"...every employer shall, for each year, prepare and render to his employee statement of remuneration of that employee on or before the last day of February in the year immediately following the first mentioned year."
All employers must prepare and provide to each employee with their Form EA by the last day of February every year. The deadline for 2022 is 28 February 2023.
Employers who fail to prepare and render the Form EA to employees before the last day of February will be facing a fine of RM200 to RM20,000 and/or imprisonment for a term not exceeding 6 months.
The purpose of Form EA is to ensure that the accurate amount of earnings, contributions, deductions, tax exemptions, and any taxes paid throughout the year are accurately declared in the employee’s income tax filing. The employee can then file their personal taxes via e-filing according to the information provided to them in the Form EA.
Getting the Latest Form EA Version
Every year, IRBM will publish the updated format of Form EA for employers to use. For your convenience, you can download the latest Form EA FY2022 here: Form EA FY2022 (C.P.8A - Pin. 2022)
Alternatively, you can download the latest version from IRBM's website by following the steps below:
- Go to IRBM website - www.hasil.gov.my
- Under 'Forms' > Select 'Download Forms'
- Select 'Other Forms'
- In the 'Category' dropdown, select 'Form EA'
- Click 'Search''
- Select 'Form C.P.8A (EA)' to download
Preparing Form EA: Section-by-section Breakdown
Form EA consists of 6 main sections. Here, we will guide you through each of the sections to help you understand and prepare the Form EA for your employees.
Section A: Particulars of Employee
The employee’s particulars such as personal details, Employees’ Provident Fund (“EPF”) & Social Security Organisation (“SOCSO”) numbers, number of children qualified for tax relief, and dates of commencement/cessation of employment go into this section.
Section B: Employment Income, Benefits and Living Accommodation (excluding Tax Exempt Allowances / Perquisites / Gifts / Benefits)
There are 6 categories of employment income in Form EA under Section B, which are:
- B1 (a)-(f): Employee’s income
The income can come in the form of wages, salary, overtime pay / allowance, remuneration, director fees, leave pay, fee, commission, bonus, gratuity, tip, perquisite, tax allowance / tax borne by the employer, award, reward or allowance (whether in money or otherwise) , or Employee Share Option Scheme (ESOS) benefits.
For the purpose of Form EA, payments which are claims reimbursements for expenditures incurred by the employee in the course of performing their duties are excluded from B1.
- B2: Income in arrears
Amounts related to income received by the employee in the year of the Form EA that are owed to the employee or supposed to be paid to the employee from preceding years.
- B3: Benefits in kind (BIK)
Benefits / amenities that are convertible into money. These benefits are provided by / on behalf of the employer for the personal enjoyment by the employee, spouse, family, servants, dependents or guests of that employee.
Examples of BIK include the provision of accommodation, company car, driver, leave passage, and more.
- B4: Value of living accommodation (VOLA)
The amount in respect to living accommodation in Malaysia provided by or on behalf of the employer rent free or otherwise, for the use or enjoyment by the employee.
- B5: Refund from unapproved Pension/Provident Fund
This refers to the employer’s contributions made to an unapproved pension or provident fund (i.e. a fund which has not been approved by the Director-General of the Inland Revenue Board of Malaysia (“DGIR”)).
- B6: Compensation for loss of employment
This is payment made by an employer to an employee as compensation for loss of the employment, regardless of whether the payment was made before or after the employment ceases.
Section C: Pension and Others
This section records the pension amount paid to retired employees; or a fixed sum of money paid to an employee every year.
Section D: Total Deduction
Section D records the various amounts deducted from the employee’s salary for the purposes of tax, zakat, approved donations, gifts, contributions, and child relief.
Two types of donations, gifts, and contributions qualify as deductions as approved by the DGIR:
- Those outlined in Public Ruling No. 5/2021;
- Donations / gifts / contributions via salary deduction outlined under the National Recovery Plan & Economic Stimulus Package including cash and in-kind contributions to combat the COVID-19 pandemic.
Section E: Contributions Paid by Employee to Approved Provident / Pension Fund and SOCSO
Amounts contributed by the employee to SOCSO, EPF as well as any provident/pension fund(s) approved by the DGIR are recorded under this section.
For SOCSO, the contribution amount is the amount paid to SOCSO in accordance with Employee’s Social Security Act 1969 or the Employment Insurance System Act 2017 if the contribution is made through Employment Insurance Scheme (SIP).
Section F: Total Tax Exempt Allowances / Perquisites / Gifts / Benefits
The total tax exempt allowances / perquisites / gifts / benefits section records the amounts paid to the employee that are tax exempt allowances, perquisites, gifts, or benefits need to be reported under Section F according to the exemption limits below.
It is important to note that the tax-exempt allowances, perquisites, gifts, or benefits are not applicable to employees who either have control over the company, sole proprietors, or partners of a partnership business.
- Petrol allowance, travelling allowance or toll payment (or any of its combination) for official duties - up to RM6,000.
*Note - Actual amounts incurred from work-related petrol, travelling, or toll payments that exceed RM6,000 can also be included as a deduction and the records and receipts pertaining to these claims & deductions must be kept for a period of 7 years for the purpose of tax audit.
- Child care allowance for children up to 12 years of age - up to RM2,400
- Gifts that are fixed line telephone, mobile phone, pager, or PDA registered under the name of the employee or employer - Limited to 1 unit for each item.
- Monthly bills related to fixed line telephone, mobile phone, pager, PDA, or broadband internet subscription registered under the name of the employee or employer - Limited to 1 line for each item.
*Note: If an employee receives a monthly fixed telephone allowance instead of the actual amount equivalent to the monthly bill, then the amount of fixed telephone allowance received by the employee is fully taxable.
- Amounts given to the employee to purchase smartphone, tablet, or personal computer - up to RM5,000.
- Cash or non-monetary perquisite given to the employee related to past achievement award; service excellence, innovation, or productivity awards; and long service award (for employees who exercised employment with the same employer for >10 years) - Up to RM2,000.
- Amounts related to parking paid by the employer to the parking operator directly - Up to the actual amount.
- Regular meal allowance or meal allowance received by the employee related to working overtime, or outstation or overseas trips - Up to the actual amount.
- Interest subsidy for employee’s housing, education, or car loan - Up to RM300,000.
*Note: Amounts above RM300,000 needs to be prorated according to the prescribed formula.
For complete details of the tax-exempt allowances, perquisites, gifts, or benefits, please refer to the official Form E Explanation Notes 2022 released by the Inland Revenue Board of Malaysia (“IRBM”).
It is essential for employers to understand their responsibility regarding Form EA preparation in Malaysia. It involves gathering and filling in of all relevant employee information such as personal particulars, employment details, salary details, allowances and benefits, contribution rates and incentives.
Failure to comply to these requirements can result in penalties hence it is important that employers prepare Employee Form EA correctly and distribute them to your employees on time.
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