Q&A Stamp Duty for Employment Contract in Malaysian Company
- Is stamping of employment contract mandatory in Malaysia?
Yes, stamping an employment contract is mandatory under Malaysian law. Subsection 4(1) of the Stamp Act, 1949 (“the Act? requires that any instrument specified in the First Schedule must be stamped based on the prescribed rates set out in that Schedule.
The term “instrument?is defined in Section 2 of the Act as any written document. Stamp duty generally applies to instruments that are legal, commercial, or financial in nature.
An employment contract falls within this definition, as it is a formal agreement that establishes the relationship between an employer and an employee. As such, an employment contract falls within the scope of the First Schedule and is subject to stamp duty accordingly.
- What is the importance of stamping employment contact?
Stamping an employment contract is important to ensure compliance with the statutory requirements under Section 36 of the Act.
If an employment contract has not been stamped, it may be rendered inadmissible as evidence in court proceedings under Section 52 of the Act. This can create complications in the event of a dispute between the employer and the employee. Therefore, stamping of the contract is not only a statutory requirement but also serves to strengthens its legal enforceability.
- Who is responsible for paying the stamp duty ?the employer or the employee?
Under Section 33 of the Act, the party liable to pay stamp duty is determined based on the Third Schedule of the Act. For employment contracts, the liability falls on the person who first signs the instrument.
In practice, the employer usually signs the offer letter or employment contract first. As such, the employer is generally the party responsible for paying the stamp duty.
- What is the stamp duty rate imposed on employment contracts?
The determination of stamp duty is based on the substance of the document rather than how it is titled. If the substance of the instrument establishes an employer-employee relationship (commonly referred to as a relationship of master and servant), it is treated as an employment contract. Where an employment relation is clearly established, the applicable stamp duty is RM10 for each original copy, as outlined under Item 4 of the First Schedule of the Act.
However, if the document does not meet the criteria for an employment contract, it may be classified as a service contract instead. If the document does not qualify as an employment contract, it may instead be classified under Item 22(1)(a) of the First Schedule and taxed at a different rate.
Additionally, under Section 12 of the Act, duplicate copies of instruments are also subject to a stamp duty of RM10, provided that the original instrument has been duly stamped.
- What are the consequences if an employment contract is not stamped?
All instruments listed in the First Schedule of the Act must be duly stamped. Under Section 63 of the Act, a penalty may be imposed on any person who executes an instrument without stamping it.
If an instrument is not stamped within the prescribed thirty (30) day period, penalties apply based on the delay period as follows:
- RM50 or 10% of the deficient duty, whichever is higher, if stamped within 3 months after the 30-day period; or
- RM100 or 20% of the deficient duty, whichever is higher, if stamped more than 3 months from the expiry of the 30-day period.
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- Are employment contracts eligible for stamp duty exemption?
Yes, certain employment contracts are eligible for stamp duty exemptions or penalty remissions, as announced in the Inland Revenue Board of Malaysia (“IRBM?’s media statement dated 5 June 2025. The treatment is as follows:
a) Employment contracts executed before 1 January 2025 are granted stamp duty exemption under the authority of the Minister of Finance pursuant to subsection 80(1A) of the Act. Penalties for late stamping may also be remitted under the Director General of Inland Revenue (“DGIR?’s authority under subsection 47A(2).
b) Employment contracts executed between 1 January 2025 and 31 December 2025 are eligible for penalty remission under Section 47A(2) of the Act, given that they are stamped on or before 31 December 2025.
c) Employment contracts executed on or after 1 January 2026 are subject to stamp duty, and late stamping will attract the applicable penalties.
- Does an employment contract signed before 1 January 2025 and granted duty exemption need to be submitted to the IRBM for endorsement?
Yes. Employment contracts that qualify for stamp duty exemption may be submitted to the IRBM for assessment and endorsement. Upon approval, the IRBM will issue a stamp duty exemption certificate as confirmation that the contract is duly exempted.
For more details, please visit the official website of the Inland Revenue Board of Malaysia: https://www.hasil.gov.my/en/
KAIZEN Group, together with its associate firms in Malaysia, can help the clients to perform these compliances formalities so as to maintain the Malaysia company in good standing. Please call and talk to our professional accountants in Kaizen for further clarification.
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