Malaysia 10 min

How to set up as an independent contractor in Malaysia

Written by Pedro Barros
May 2, 2023
Pedro Barros

Share

share to linkedInshare to Twittershare to Facebook
Link copied
to clipboard

If you’re thinking of going it alone as an independent contractor, then Malaysia is an ideal location.

Whether you want to set up shop among the fast-moving hustle of downtown Kuala Lumpur, or opt for a more tranquil working experience in the lush greenery of the Cameron Highlands, this Asian peninsular is a great place to merge work and lifestyle.

But before you can get started, you’ll need to know how to:

  • Register your business in Malaysia

  • Avoid misclassification as an employee

  • Create compliant contracts that protect you

  • Invoice and collect payments from around the world

In this article, we’ll cover all these things, and help you navigate your tax responsibilities as a self-employed worker. We’ll also discuss some of the other risks and liabilities you should be aware of , so let’s begin.

First, it’s important to clarify how Malaysia defines independent contractors.

What is an independent contractor according to Malaysian law?

Independent contractors are workers who provide paid services (or products) to another party. However, they are classified differently to employees, and are usually not entitled to the same benefits, such as paid leave, sick days, and minimum wage. On the flip side, contractors have more freedom and flexibility in the way they work.

See also: Why businesses hire contractors vs. international employees

In Malaysia, a recent industrial court ruling stated that independent contractors are engaged under a contract for services, as opposed to a contract of service. This is an important distinction. 

To differentiate between the two, the Malaysian courts look at the relationship of authority — and whether you, as a contractor, are subject to one. In real terms, this means you are generally considered a contractor if you:

  • Work when, where, and how you want

  • Are able to provide your services to as many as clients as you like

  • Are not financially dependent on the business you’re working for

  • Provide your own tools and equipment

  • Can delegate or subcontract work

When you work with clients, you must be correctly classified to avoid penalties and fines, and to ensure that you are paying the right taxes.

Business registration in Malaysia

Before you can begin working as an independent contractor in Malaysia, you’ll first need to choose a formal structure for your business. Some of the most popular models include:

  • Sole proprietorship: A simple structure that is ideal for independent, individual contractors. You have full control of the enterprise, although there is no legal separation between you (the owner) and the business; you are personally responsible for all its debts and liabilities.

  • Partnership: A simple partnership agreement. Again, there is no legal separation between the individual and the business; you and your partners are personally responsible for any debts and liabilities.

  • Private limited company (Sdn Bhd): A formal, legal entity that is separate from you, the individual. All income and losses are attributed to the company as opposed to you personally (i.e. you are only liable for the capital you invest in the company).

There are pros and cons to each of these structures, but most independent contractors choose the sole proprietor model, as it is fairly simple to set up and operate. If you’re unsure, it’s a good idea to speak with a registered solicitor or accountant first. 

If you do opt for the sole proprietor structure, you will need to register with (and pay an annual fee to) the Companies Commission of Malaysia (SSM). You can do this online in around an hour through the EzBiz portal. Note that you can either register your business under your own name, or an assumed trade name.

How do I get paid as an independent contractor in Malaysia?

As an independent contractor, it’s down to you to handle your invoices and payment collection. Unfortunately, this means billing each client individually and collecting payment through their preferred payment method — which can be inefficient and time-consuming.

Some of the most common ways to collect payments include:

  • Bank transfers

  • Direct deposits

  • Paper checks

  • Money orders

  • Virtual wallets

  • Digital transfer services like PayPal and Wise

These methods all have their own pros and cons. For instance, bank and digital transfers can be pretty quick, but often come with hefty service fees. And if you have clients in other countries besides Malaysia, the payment collection process can be even more complicated. 

Alternatively, you can use a trusted solution like Remote. Our platform is a simple, secure, and reliable way to get paid quickly in Malaysian ringgits — and with no hidden fees. Learn more about how our platform can help.

Independent contractor taxes in Malaysia

As an independent contractor, you’re responsible for filing and paying your own taxes and social contributions.

The good news is that, as a sole proprietor in Malaysia, you pay personal income tax on your business profits (using your personal tax ID number). This means that you do not have to fill out a separate tax return, or pay additional corporate taxes.

Malaysia operates a self-assessment tax system, which means you will need to calculate, estimate, and pay your taxes in advance. You must file your tax return (the B form) by June 30 each year, or by 15 July if you opt to file online.

Personal income in Malaysia is taxed at slab rates. Depending on how much you earn, you will pay a set flat amount plus anywhere between 1% and 30% on the excess.

From 2023 onwards, it’s compulsory for self-employed workers to contribute to the Self-Employment Social Security Scheme (SKSPS). You can also choose to make contributions to the Employees Provident Fund (KWSP) up to RM60,000 (around $13,500) a year.

On the plus side, you can claim tax deductions and reliefs on multiple business expenses, including:

  • Rent and utility costs on business premises

  • Travel and transport costs

  • Repairs and maintenance on business equipment and vehicles

  • Marketing and advertising

  • Insurance premiums

SST information for independent contractors in Malaysia

You may also be required to register for sales and service tax (SST), which acts as a value added tax. If you generate annual sales of over RM500,000 (around $112,000), or you provide certain services over a pre-defined threshold, then you are required to register.

You can learn more about these thresholds — and about SST in general — on the SST website.

Liability considerations for independent contractors in Malaysia

As a sole proprietor, you are personally liable for finance and tax debts, which means your private assets can be forcibly used to settle your business debts. Many independent contractors purchase liability insurance to help mitigate this risk.

It’s also important to cover yourself when drafting and signing agreements with clients. Our legal experts can provide you with fully compliant contract templates, for both Malaysian and international clients.

Accounting requirements for independent contractors in Malaysia

As a sole proprietor, you do not need to publish financial statements or accounts. However, you must still keep organized, accurate records of all your income and expenditure (including client invoices, purchase orders, bank statements, and receipts). This will help you correctly file your taxes, give you a stronger picture of your financial situation, and generally make life easier if you are audited by the tax authorities.

You can either manage these records yourself using an accounting or bookkeeping tool, or hire a professional bookkeeper or accountant.

The dangers of contractor misclassification in Malaysia

As we’ve mentioned, independent contractors are classified differently to employees in Malaysia. Many of the protections and benefits employees enjoy do not typically apply to contractors.

As a result, companies may deliberately misclassify you to circumvent their legal obligations, while at other times, it may happen accidentally. Whether it’s intentional or not, misclassification can result in penalties and fines for both you and your client.

As an independent contractor, you can work with your clients to ensure this doesn’t happen. Discuss your role and responsibilities with them, and review the working arrangement regularly.

If your working relationship changes over time and you become more integrated into a client’s company, you can ask to be converted into an employee.

Use our Contractor Compliance Checklist to avoid misclassification

Work through this checklist to help determine if a new hire should have a contractor or employee relationship.

A tablet with the title contractor compliance checklist.

How do I ask the company I’m working with to convert me to an employee in Malaysia?

Open a dialogue with your client and carefully discuss the risks and benefits of moving to an employer-employee relationship. In particular, be clear about how it can benefit both parties — not just you.

You can even suggest the help of a third-party solution, such as Remote, to ease the transition. Our global employment services help both parties stay compliant by taking care of key HR functions (like payroll management and benefits administration) in line with Malaysian law.

4 ways Remote makes life easier for contractors and their clients

As you can see, there’s a lot to take on board when setting up as an independent contractor. Remote can help you with many of these challenges, allowing you to focus on growing your business and delivering to your clients. Here’s how:

1. International payments in countries around the world

Navigating all of your clients’ different invoicing, approvals, and payments systems can be complicated and time-consuming. And manual methods of invoicing and collecting payments can increase the risk of fees, errors, and delays.

Remote gives you access to a highly secure, streamlined dashboard that makes invoice management and international payments cost-effective and efficient. You can use our platform to get paid in Malaysian ringgits hassle-free, without any hidden fees.

2. Localized in-app contracts and advice

When you draft agreements and contracts for your clients, you run the risk of non-compliance with local labor laws — especially when working with international clients. Remote offers localized contracts tailored to Malaysian laws, ensuring that you always stay compliant. Our legal experts can also provide guidance on complex issues, such as local classification and intellectual property protections.

3. Invoicing automation

With Remote, you no longer need to rely on spreadsheets and other manual tools to invoice for payments; we remove many of the inaccuracies and delays caused by archaic processes and manual management. Our platform lets you create invoices, submit them for approval, and subsequently get paid in your local currency without needing to switch to any other tool or software.

4. Tax management

Tax management is notoriously complex work. Remote helps you quickly and efficiently deal with tax management by compiling data about your income based on your invoices and payments received.

Setting up as an independent contractor in Malaysia

Having the freedom and flexibility to work on your own terms is liberating. But your administrative responsibilities can distract from what you really want to be doing: helping your clients, delivering great work, and collecting invoices.

By using a stable, trusted platform like Remote, you can manage these obligations quickly and efficiently, allowing you to focus on your business goals. Specifically, we can help you:

  • Avoid intermediary fees and delays with international client payments

  • Draft compliant contracts for both Malaysian and foreign clients

  • Enhance your invoice management and avoid manual processes

  • Comply with local labor laws regarding work practices

Our platform makes it quick, simple, and seamless to get started as an independent contractor. Learn more about how our expertise can save you time and resources today.

Subscribe to receive the latest
Remote blog posts and updates in your inbox.