The Freelancer’s Guide To Income Tax

Whether you’re a full-time freelancer who has never set foot in an office, a part-timer fresh out of SPM looking to gain experience before college, or a regular office worker who moonlights for some extra income, freelance work has been on the rise in Malaysia. Some might even argue that, with the increasing cost of living, it has become a necessity for many of us just to make ends meet.

That being said, when you inquire around the neighbourhood, most people believe that the income earned from freelance work is not subject to taxation by LHDN. Why should you even bother declaring it in the first place? Well, I’m sorry to burst that bubble because even freelance workers are subject to income tax and are required to file their taxes if their annual income exceeds RM34,000 after deducting EFP contributions.

And yes, this applies to both full-time employment and freelance income. So, even if you earn RM33,000 annually from your company job and RM1,000 as a freelancer in 2023, you’d better prepare your tax forms by April next year.

Steps To Declare Your Freelance Work

If you don’t have an HR department to assist you with your taxable earnings, it might seem complicated. However, don’t worry because you can submit your tax declarations through the e-Filing system, which is widely used on the LHDN portal. We highly recommend taking this route, as it saves you the trouble of printing multiple forms and traveling to your nearest LHDN office to wait and submit your documents. Also, it’s an environmentally-friendly option.

With e-Filing, the first step is to determine whether you’re a part-time or full-time freelance worker, as different forms are required depending on your status. If you’re a part-time freelancer, you will use the standard BE form. Enter your annual income from your full-time job under the ‘Statutory Income from sources of employment in Malaysia’ field and your annual income from your freelance work under the ‘Statutory Income from sources of interest, discounts, royalties, premiums, pensions, annuities, other periodical’ field.

Source: RinggitPlus

However, if you’re a full-time freelancer who has registered your own company, you will need to use the B form. In this case, you should report all your income under the ‘Statutory Income from sources of interest, discounts, royalties, premiums, pensions, annuities, other periodical payments, and other gains or profits pursuant to paragraph 43(1)(c) in Malaysia’ field.

Source: RinggitPlus

After you’ve completed the form, the system will calculate your total income, taking into account any applicable tax deductions. It will then provide you with the income tax amount you need to pay. Thanks to the convenience of the digital age, you can make your payments directly through the LHDN portal using methods like FPX or credit and debit cards. Alternatively, you can visit POS Malaysia counters or designated banks for your payment needs.

Deductions for Freelancers

As a freelancer, you are eligible for the same tax deductions and reliefs as regular employees. These deductions can apply to various expenses, such as lifestyle purchases, medical treatment, education fees, and more.

In addition to deductions, there are also some notable tax exemptions available, including:

  • An exemption of up to RM10,000 for the publication of artistic works, recording discs, or tapes.
  • An exemption of up to RM12,000 for the translation of books and literary works.
  • An exemption of up to RM20,000 for the publication of literary works, original paintings, or musical compositions.
  • A 50% exemption of statutory income derived from research findings that have been commercialised.
  • A total exemption of income earned from abroad.

It’s worth noting that freelance income is not subject to the EPF Act of 1991, which means the decision to contribute to the Employee Provident Fund is entirely up to you. Nevertheless, we believe that contributing to EPF is a wise choice, as it allows you to invest your income in a future retirement fund that will prove beneficial down the road.

Declare Your Happiness

Congratulations! You’ve successfully settled your income tax and made a contribution to the welfare of our great nation. If you’re interested in reinvesting and growing your freelance income into a secure retirement, stay tuned with us on PEGH. We regularly discuss topics related to ESG, investments, and key industries in Malaysia to help you make informed financial decisions.

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