Understanding Stamp Duty Requirements for Employment Contracts in Malaysia

Are you an employer in Malaysia? If so, there's a crucial update regarding stamp duty on employment contracts that you need to be aware of. The Inland Revenue Board of Malaysia (LHDN) has issued a new Stamp Duty Audit Framework on 1 January 2025.

LHDN officers conducting an audit on employment contracts in Malaysia.

The LHDN has recently been visited taxpayers, advising them that their employment contracts and other employment-related documents should be stamped. Late stamping penalties will be imposed. However, on 6 June 2025, LHDN announced several exemptions on the imposition of stamp duty on the employment contracts as follows:

Employment Contract executed	Stamp Duty	Penalty
Before 1 January 2025	Exempted	Waived
1 January 2025 to 31 December 2025	Applicable	Waived if stamped before 31 December 2025
1 January 2026 onwards	Applicable	Will be imposed

Why is this important?

Stamping legal instruments, including contracts, gives them legal validity and admissibility in court. Failing to stamp a document that requires it can have implications for its enforceability.

What is the stamping deadline?

The instrument, in this case, your employment contract, must be stamped within:

• 30 days from the date it is executed (signed) in Malaysia.

• 30 days after it is received in Malaysia if it was executed outside of Malaysia.
  

What are the penalties for late stamping?

The LHDN imposes penalties for instruments not stamped within the stipulated period. These penalty rates are effective from January 1, 2025, so it's vital to adhere to the deadlines.

Here's a breakdown of the penalties:

• If stamped within 3 months after the time for stamping: RM50.00 or 10% of the deficient duty, whichever is higher.

• If stamped after 3 months from the time for stamping: RM100.00 or 20% of the deficient duty, whichever is higher.
  

What should employers do now?

All employers are strongly advised to:

1. Review their employment contract procedures: Ensure your internal processes account for the new stamp duty requirements for contracts signed from January 1, 2025, onwards.

2. Act promptly: Make sure all employment contracts signed on or after January 1, 2025, are stamped accordingly within the 30-day timeframe to avoid penalties.

3. Seek clarification if needed: If you have any doubts about the applicability of stamp duty to your specific employment contracts, it's always best to consult with legal or tax professionals.
   

Staying informed and proactive to ensure compliance and avoid penalties. Start preparing now!

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Please note that tax laws can change, and it's essential to verify the latest updates with the authority or consult a tax professional to ensure that you're submitting your tax returns based on the most recent regulations.

For further clarification, please feel free to reach out to us at gunalan@gskassociates.net or contact the manager with whom you typically engage or who oversees your organisation's tax matters.