How to File Taxes for Freelancers

The freelancing market in Malaysia has witnessed tremendous expansion over the last few years, with many relying on modern tools and technology to make money through social media and freelancing platforms. 

 

In addition, the COVID-19 pandemic has also encouraged more people to focus on personal development and look for ways to make money online.

 

If you are working as a freelancer, you should be familiar with the tax incentives in Malaysia and how you can properly file taxes to avoid legal issues. 

 

First of all, let’s start with some basics:

 

Definition of a Freelancer

The World Bank defines self-employed persons as someone whose income relies directly on the profits produced — which appropriately represents freelancers and gig workers as well. 

 

This term is also mirrored in various government efforts, where this group is provided comparable benefits as self-employed persons (such as the Self-Employment Social Security Scheme). 

 

It also includes gig economy employees, such as e-hailing drivers, delivery riders, and merchants on e-commerce platforms. Therefore, it is clear that freelancer is a broad term that includes a variety of jobs in different sectors.  

 
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Is it necessary to file your taxes?

It is a common misconception among many freelancers that they do not have to file taxes when they are earning online. 

 

 

However, if your annual income is greater than RM34,000 after the deduction of EPF contributions, you are legally obligated to file your taxes like any other individual. 

 

 

This threshold is set by the tax authorities in all conditions, so the source of your income does not matter. 

 
Whether you are working for a company or as a freelancer, you have to file your taxes after achieving a certain level of income. Professional accounting firms in Malaysia can help you in filing your taxes. 

Filing Taxes as an Employee and as a Freelancer

There are no obvious distinctions between workers and freelancers. Both of them can also utilize the same form according to the company’s registration and license status. 

 

However, you should keep some major differences in mind. For example, workers will get a document called an EA form outlining their yearly pay earnings, as well as annual year-round EPF and SOCSO contributions.

 

The essential summary of revenue will become beneficial when filling out your return form. On the other hand, freelancers have to figure out their revenues by tabulating their profits via invoices and costs.

 

Employees might also be under the Regular Tax Deduction (MTD) program, which their employer calculates for them and makes tax deductions. 

 

When the time comes to submit taxes, every employee may pay only a modest fee owing to the MTD or even claim a refund if they have overpaid. 

 

Besides that, workers and full-time freelancers would have to go through the same procedure to submit taxes.

 

Tax Incentives in Malaysia

If you are a freelancer, most of your earnings will be taxable, but there are certainly some exemptions. Like the employees, freelancers can apply for various reliefs, deductions, exemptions, and tax incentives in Malaysia. Some of these incentives are:

 

  • Exemption of up to RM10,000 if you publish artistic work and record tapes. 
  • Freelancers who translate books and literary work can get up to RM12,000 exemption. 
  • Commercialized research findings can get a 50% exemption of the statutory income. 
  • Publishing books, musical compositions, and paintings can get you up to RM20,000 exemption. 
 
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Registering a Business

If you want to get more tax incentives in Malaysia while working as a freelancer, you should consider registering your business. 

 

You can easily complete the registration process with Suruhanjaya Syarikat Malaysia (SSM) or consult professional accounting services in Malaysia to do it. 

 

You should register your business, even if you are merely freelancing as a side project because SSM offers up a range of tax deductions intended exclusively for companies. 

 

For instance, you may be allowed to claim some expenditures as the company running costs – which you cannot do as a non-business taxpayer. 

 

In Summary

Be careful to perform your accounting properly and exactly; otherwise, an inaccurate reporting of your taxes (wrong revenue and incorrect tax amount paid) may lead you to penalties and an audit request from LHDN, which will result in significant penalties. 

 

It is also feasible to create a business bank account. In this manner, you can segregate your personal funds and company finances, making your bookkeeping, tax filing, and accounting much simpler, even if you are only working as a freelancer. 

 

Overall, you can make this entire process of filing taxes as a freelancer by relying on the accounting services of an accounting firm in Malaysia and also get the relevant tax incentives.