Self-Employed Tax in Malaysia

Who must file Form B, and how does it differ from Form BE?

Every Malaysian tax-resident who earns income from a business -- sole proprietorship, freelance practice, partnership share, or commission agency -- must file Form B with Lembaga Hasil Dalam Negeri Malaysia (LHDN). The key distinction from Form BE (for salaried employees) is the business-income code: Form B requires the taxpayer to declare a business registration number and activity code alongside all other income sources. Where an employee also runs a side business, Form B replaces Form BE entirely -- both employment and business income are consolidated on the single Form B. Manual filing is no longer accepted from Year of Assessment (YA) 2024 onward; all submissions must go through the MyTax e-Filing portal at mytax.hasil.gov.my. The annual deadline is 30 June for paper (legacy only) and 15 July for e-filing. Late filing attracts a penalty under Section 112 of the Income Tax Act 1967. See also the Malaysia country overview for broader residency and filing context.

How is net business income calculated and what expenses are allowable?

Sole proprietors and freelancers are taxed on net business profit -- gross receipts minus allowable business expenses -- which flows into their total chargeable income alongside any employment or investment income. LHDN allows deductions for expenditure "wholly and exclusively incurred in the production of income" under Section 33 of the Income Tax Act 1967. Commonly allowable items include:

• Office rent and utilities (business-use proportion only for home offices)
• Internet and phone costs attributed to business use
• Marketing and advertising expenses
• Professional fees, including accounting and legal costs
• Employee wages and EPF contributions paid for staff
• Business travel to client sites (not commuting)
• Software subscriptions used in the business

Capital items -- equipment, computers, vehicles -- are not deducted immediately but written off through capital allowances under Schedule 3 of the Act. Standard rates: computers and ICT equipment carry a 20% initial allowance plus 40% annual allowance; heavy machinery and motor vehicles 20% initial plus 20% annual; plant and machinery 20% initial plus 14% annual; office furniture and other assets 20% initial plus 10% annual. Private-use motor vehicles are subject to a qualifying expenditure cap of RM 100,000. A qualified tax professional can confirm the correct rate schedule for mixed-use assets.

What are the personal income tax rates applicable to self-employed income?

Self-employed income is taxed at the same progressive rates as employment income -- there is no separate self-employment tax in Malaysia. Chargeable income (after deductions and personal reliefs) is taxed at the YA 2025 rates confirmed by LHDN:

Key personal reliefs that reduce chargeable income: individual relief RM 9,000; EPF voluntary contributions and life insurance premiums combined up to RM 7,000; education insurance and medical insurance up to RM 4,000; serious disease medical expenses up to RM 10,000; lifestyle relief (books, internet, devices, gym) up to RM 2,500; self-education fees up to RM 7,000. Residents with chargeable income below RM 35,000 after reliefs also qualify for a full rebate of RM 400 that eliminates remaining tax. Non-residents face a flat 30% rate with no reliefs.

How does the CP500 bi-monthly instalment scheme work?

Because sole proprietors and freelancers have no Monthly Tax Deduction (PCB) withheld by an employer, LHDN issues a CP500 notice to spread the estimated tax liability across the year. The instalment amount is derived from the previous year's assessed income and divided equally into six payments due on the last day of: March, May, July, September, November, and January. Payments can be made via LHDN's ByrHASiL online portal, bank counter, or ATM. A 10% penalty applies automatically to any instalment not paid within 30 days of its due date.

If business income changes materially -- a slow year, a gap in contracts, or cessation of a revenue stream -- the taxpayer may submit Form CP502 to LHDN to revise the instalment amount downward. LHDN accepts two revision windows: the first before 30 June of the assessment year, and the second before 31 October. Supporting documentation (management accounts, income projections, bank statements) accompanies the CP502. Note for YA 2026: LHDN announced a one-year penalty waiver -- no late-payment penalties will be imposed on CP500 instalments for that year -- though the underlying tax liability still accrues and will fall due with the final Form B settlement. A qualified tax professional can assist in calculating a realistic CP502 revision to avoid a large year-end payment.

What voluntary social security options are available to the self-employed?

With no employer to make mandatory EPF and PERKESO contributions, self-employed individuals in Malaysia must actively opt in to any retirement or injury protection.

EPF i-Saraan: The Employees Provident Fund runs an i-Saraan programme specifically for the self-employed. Contributions can be made in any amount up to RM 100,000 per year, and the government provides a matching incentive of 20% (capped at RM 500 per year, with a lifetime cap of RM 5,000 or until age 60). Voluntary EPF contributions are tax-deductible under the RM 7,000 combined cap alongside life insurance premiums. Registration is via the EPF i-Akaun portal.

PERKESO LINDUNG KENDIRI: The Social Security Organisation's self-employment scheme covers over 20 industry sectors including passenger transport, food services, agriculture, construction, professional services, and household services. Monthly contributions range from RM 13.10 to RM 49.40 depending on the selected earnings tier. Coverage includes medical treatment at PERKESO panel clinics, temporary disability allowance (minimum RM 30 per day), permanent disability benefit, and funeral assistance up to RM 3,000. Registration is through the Prihatin app or prihatin.perkeso.gov.my. The scheme was expanded in 2026 to include freelance photographers, personal trainers, private tutors, and mobile grooming providers. Contributions to LINDUNG KENDIRI are separately claimable as a tax relief up to RM 350 per year.

What are the e-invoicing requirements for sole proprietors?

LHDN is rolling out a mandatory e-invoice regime through MyInvois, the government's invoice validation portal. The obligation is triggered by annual revenue thresholds: businesses above RM 100 million were first in August 2024, followed by phased entry for smaller operators. From 1 January 2026, businesses with annual revenue between RM 1 million and RM 5 million must comply (with a relaxation period running through 31 December 2026). Sole proprietors and freelancers earning below RM 1 million remain permanently exempt and may continue issuing conventional invoices. Those who cross the RM 1 million threshold -- even later -- must enrol and remain enrolled.

For sole proprietors approaching compliance, the process involves registering as a "Business Owner" on the LHDN MyTax portal (linking individual tax identification number to the business registration number), then submitting invoice data via the MyInvois Portal or a compliant API integration before issuing the invoice to the customer. Non-compliance can attract fines up to RM 20,000.

What records must be kept, and for how long?

Section 82A of the Income Tax Act 1967 requires every person who has submitted an income tax return to retain sufficient records for seven years from the end of the year of assessment. For a self-employed individual, this means:

• Invoices and receipts for all business income
• Bank statements showing income deposits
• Supplier invoices and payment receipts for deductible expenses
• Payroll records for any employees
• Asset purchase invoices supporting capital allowance claims
• Mileage logs and travel records for travel-expense claims
• Tax relief substantiation documents (EPF statements, insurance certificates)

Records may be maintained in manual or electronic form but must be readily convertible to readable format on request. LHDN audit officers can request records at any time during the retention window; failure to produce them can result in a fine of RM 300 to RM 10,000 and an assessment based on the Director General's best judgement. For questions on what constitutes a sufficient record for a specific trade or profession, consult a qualified tax professional familiar with LHDN's Public Ruling No. 4/2000 and No. 5/2000 on record-keeping.