How to set up as an independent contractor in Malaysia

If you’re thinking of going it alone in your professional life, Malaysia is an ideal location.

Want to set up shop in the fast-moving hustle of downtown Kuala Lumpur? Or maybe opt for a more tranquil working experience in the lush greenery of the Cameron Highlands? This Asian peninsula is a great place to merge work and lifestyle.

But before you can become an independent contractor in Malaysia, you’ll need to know how to:

• Register your business in Malaysia

• Get the right visa

• Invoice and collect payments from around the world

• Navigate taxes

• Avoid misclassification as an employee

• Create compliant contracts that protect you

This article will cover all of the above as a self-employed individual. We’ll also discuss other risks and liabilities you should know about, so let’s begin.

What is an independent contractor according to Malaysian law?

First, let’s clarify how Malaysia defines independent contractors.

Independent contractors provide paid services (or products) to another party. However, they are classified differently from full-time 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 their 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 instead of 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 a contractor if you:

• Work when, where, and how you want

• Can provide your services to as many 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 you pay the right taxes.

Choosing a business structure in Malaysia

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

• Sole proprietorship: A simple structure ideal for independent, individual contractors that gives you a high degree of control. However, there’s no legal separation between you (the owner) and the business, meaning you’re 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).

Each structure has its pros and cons. However, most independent contractors choose the sole proprietor model thanks to the simplicity of its setup and operations. If you’re unsure, speaking with a registered solicitor or accountant is a good idea.

How to become an independent contractor in Malaysia: Business registration

Once you know what kind of business you want to open, it’s time to register it.

Before we outline how this process works for the two most popular ownership structures, let’s dive into some processes that apply to any business type.

Suruhanjaya Syarikat Malaysia (SSM) is the government body responsible for overseeing business registration in Malaysia. Cooperating with it is a must to secure legitimate independent contractor status.

As an independent contractor in Malaysia, you must search for a business name and reserve it through the SSM, and it needs to comply with their guidelines. You must also submit any relevant documents to the SSM, such as your passport and address.

Plus, you need to register with the Inland Revenue Board (LHDN) to obtain a tax identification number.

Registering as a sole proprietor

If you opt for the sole proprietor structure, you can register with the SSM online in around an hour through the EzBiz portal.

Note that you can register your business under your own name or an assumed trade name.

Registering a private limited company

To register a Sdn Bhd, you need to create an account on the MyCOID portal. You can add your company directly to MyCOID using your name and business details.

By default, the person registering the company is listed as a director and shareholder, but it’s possible to change these details.

It costs 1,000 RM to incorporate a company limited by shares in Malaysia.

How to become a freelancer in Malaysia: Visa requirements

You can’t just land in Malaysia, register your business, and start running it. First, you must meet the legal requirements to work in the country.

The type of visa you opt for will likely depend on the business structure you choose. Below, we outline the three most popular routes to secure a visa.

Sponsorship

Your first option is to get a sponsorship from a client. This is the most straightforward option on paper since your “sponsor” takes on the bulk of the hassle involved in obtaining a visa.

However, as an independent contractor, it will likely be very difficult for you to secure a sponsorship. Since contractors take on short-term projects, most organizations are unwilling to take on the responsibility of sponsoring them.

Going down this route also means that whenever a contract runs out, you will need to find another sponsor to continue working in the country.

Digital nomad visa

Like many countries, Malaysia launched a “digital nomad visa” to attract remote workers after the pandemic.

The government introduced the Malaysia nomad visa (DE Rantau Nomad Pass) in October 2022, and it’s the perfect fit for many contractors and freelancers.

To be eligible, contractors must prove they earn at least $24,000 USD per year. They can then continue this work in Malaysia for up to a year (or up to two years if you renew the visa).

Employer of record

If you want to be a contractor in Malaysia on a long-term basis, one option is to obtain an employment pass through your company.

You can do this by working with an employer of record (EOR), a third party that can employ individuals on behalf of other organizations. This allows these professionals to legally operate in other countries, like Malaysia.

You can obtain an employment pass from an EPR, which gives you the residency status you need to open a company in Malaysia. Eventually, you can apply for an employment pass through your own company.

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

As an independent contractor, it’s up to you to handle your invoices and payment collection. You also need to figure out how to receive payment. Some contractors receive a flat rate or are paid on a per-project basis, while others receive hourly rates.

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 pros and cons. For instance, bank and digital transfers can be 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 — 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 taxes and social contributions.

Malaysia operates a self-assessment tax system, meaning you must calculate, estimate, and make tax payments in advance. You must file your tax return by June 30 each year or by July 15 if you opt to file online.

This involves the following steps:

1. Signing up as a taxpayer with Lembaga Hasil Dalam Negeri (LHDN)

2. Registering for online filing through ezHASIL

3. Filling in the tax form

4. Signing the form electronically

Filing taxes correctly involves collecting relevant documents, such as evidence to claim tax rebates, tax exemptions, or tax relief.

Sole proprietors file taxes using a Form B.

If you’re eligible for any tax refunds, you will receive them within 30 working days.

Tax rates

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

Personal income in Malaysia is taxed at slab rates, which the table below outlines. Note that there’s also a tax-free threshold of 5,000 MYR.

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 USD) or 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.

Social security

Self-employed workers must contribute to the Self-Employment Social Security Scheme (SKSPS).

You can also contribute up to RM60,000 (around $13,500 USD) a year to the Employees Provident Fund (KWSP), Malaysia’s retirement savings program.

Tax deductions and relief

A perk of being a contractor is that you can claim tax deductions and relief 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

Tax residency in Malaysia

You’re a tax resident in Malaysia if you’re there for more than 182 days in a calendar year. That said, you can also be a tax resident if you’re there for 90 days of the calendar year and have also been there for at least 90 days in three of the four preceding years.

If you’re not a tax resident in Malaysia, you pay tax in your resident country instead as an independent contractor.

Liability considerations for independent contractors in Malaysia

Before contracting in Malaysia, it’s not just taxes and visas you need to think about — you also have to ensure that you protect yourself legally. We detail how below.

Insurance

When you’re 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.

Taking out an insurance policy in a foreign country can be daunting, but it doesn’t have to be complicated. Some online companies that operate in English offer insurance coverage in Malaysia — or you can seek out a local firm instead.

You need to consider what you want to cover, with the main options being the following:

• Liability. Protection against losses as a result of legal issues or injury.

• Business interruption. Protection against losses due to accidents that stop you from running your business.

• Equipment insurance. Protection of the equipment you use to run your business, such as your computer.

You may also want to consider health insurance.

Contracts 

It’s also essential to cover yourself when drafting and signing client agreements. This is a contractor’s version of an employment contract.

A contract generally outlines:

• Liability of both parties

• Payment schedule 

• Scope of the job

• Confidentiality clause

• Contract period and notice period

Eighty-six percent of contracts include payment terms, making them the most common element.

Some contractors draft a basic independent contractor agreement themselves based on online templates. In other cases, the client may provide a contract for you (though you may want to seek legal advice to confirm that it aligns with your interests, too).

Alternatively, our legal experts can offer you fully compliant contract templates suitable for Malaysian clients (or other international clients).

Accounting requirements for independent contractors in Malaysia

You do not need to publish financial statements or accounts as a sole proprietor. However, you must keep organized, accurate records of all your income and expenditures (including client invoices, purchase orders, bank statements, and receipts). 

This will help you file your taxes correctly, give you a stronger picture of your financial situation, and make life easier if the tax authorities audit you.

You can manage these records 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 from employees in Malaysia. Many protections and benefits employees enjoy don’t apply to contractors.

As a result, companies may deliberately misclassify you to circumvent their legal obligations. At other times, it may happen accidentally. Whether 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 your employer to hire you as an employee instead.

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.

Download

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 using a third-party solution, such as Remote, to ease the transition. Our global employment services help both parties stay compliant by handling key HR functions (like payroll management and benefits administration) in accordance with Malaysian labor 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 optimizing your business operations 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 payment systems can be complicated and time-consuming, especially with additional complications, like exchange rates, to consider. Manual methods of invoicing and collecting payments can also 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. Our platform makes it hassle-free to get paid in Malaysian ringgits 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 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 inaccuracies and delays caused by archaic processes and manual management. 

Our platform lets you create invoices, submit them for approval, and receive payments in your local currency without switching to any other tool or software.

4. Tax management

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

Setting up as an independent contractor in Malaysia

Saying goodbye to the life of a traditional employee and hello to flexible work hours is liberating. But your administrative responsibilities can take away time from what you really want to do: help your clients, deliver great work, and collect invoices.

By using a stable, trusted platform like Remote, you can manage these obligations quickly and efficiently, allowing you to gain a competitive edge. 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

• Follow local labor laws regarding work practices

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