Category: Tax

Malaysia’s Expanded Sales and Services Tax (SST) takes effect on 1 July 2025

Malaysia’s Expanded Sales and Services Tax (SST) takes effect on 1 July 2025

Malaysia’s Expanded Sales and Services Tax (SST) takes effect on 1 July 2025

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As Malaysia gears up for a significant shift in its tax landscape, businesses and consumers need to prepare for the expanded Sales and Service Tax (SST) set to take effect on 1 July 2025. Announced in Budget 2025 on 18 October 2024, this expansion marks a pivotal move to strengthen Malaysia’s fiscal framework under the MADANI Government, ensuring sustainable revenue to fund essential public services. With new goods and services now taxable, the changes will impact businesses in their pricing, compliance, and operations across multiple sectors.

In this article, we break down the key changes, affected sectors, exemptions, and practical steps for businesses to meet your compliance obligations. Whether you’re a business owner, financial professional or consumer, our tax professionals at BoardRoom are here to equip you with the insights and guidance needed to adapt seamlessly to the new SST framework.

Overview of Malaysia’s SST System

Malaysia’s Sales and Service Tax (SST) is a single-stage tax system designed to generate revenue while keeping essential goods and services affordable. It comprises two components: Sales Tax, applied to manufactured or imported goods, and Service Tax, levied on specific services provided in Malaysia.

The SST system, reintroduced in 2018 to replace the Goods and Services Tax (GST), was designed to simplify taxation and reduce costs of living. As of March 2024, Sales Tax rates stand at 5% or 10%, depending on the type of goods, while Service Tax rates are 6% or 8% for designated services, applied to businesses with annual revenue exceeding RM500,000 (or RM1.5 million for food and beverage services).

This 2025 expansion, effective 1 July 2025, broadens its scope to include non-essential goods and additional service sectors, with the aim to boost revenue while keeping essentials tax-free. In the next sections, we take a look at the changes and how companies should prepare themselves for the changes.

Key Changes in the Expanded SST Effective 1 July 2025

Below are the key changes in the expanded scope of SST. Please note that the list of items are not exhaustive, and varying registration thresholds apply to the taxable services.

Sales Tax
  1. Basic consumer goods are exempted from sales tax:
    • Essential goods such as chicken, fish, lamb, vegetables, local fruits, rice, milk, cooking oil, medicine etc.
    • Basic construction materials.
    • Agricultural items (e.g. fertilisers) and equipment.
  2. Non-essential goods are now taxable at 5%:
    • King crabs, salmon, imported fruits, silk and industry machinery.
  3. Premium goods are now taxable at 10%:
    • Goods such as racing bicycles and antique artworks.
Service Tax
  1. Rental or leasing services taxable at 8%
    • Applies to all service providers whose rental or lease incomes exceeds RM500,000 in a 12-month period.
    • Exemptions:
      • Residential buildings, reading materials, financial leasing and tangible assets outside Malaysia.
      • MSMEs tenants with annual revenue under RM500,000.
      • B2B and Group Relief to avoid tax cascading.
      • 12-month exemption from effective date for non-reviewable contracts.
  2. Construction services taxable at 6%
    • Applies to all services providers whose value of taxable services exceeds RM1.5 million in a 12-month period.
    • Exemptions:
      • Residential buildings and public facilities related to residential buildings.
      • B2B and Group Relief to avoid tax cascading.
      • 12-month exemption from effective date for non-reviewable contracts.
  3. Financial Services taxable at 8%
    • Applies to fee or commission-based financial services.
    • Exemptions:
      • Basic services for Malaysians e.g. basic banking.
      • Foreign exchange gains, capital market deals, penalty fees, outward remittances, export-related financing.
      • Inbound transfer charges to foreign remittance agents.
      • Brokerage/underwriting for life, medical and family insurance or takaful.
      • B2B transactions, shariah-compliant fees and services for Bursa Malaysia or Labuan.
  4. Private healthcare services taxable at 6%
    • Applies to private healthcare, traditional and complementary practices and allied health services for foreigners.
    • For value of taxable service that exceeds RM1.5 million in a 12-month period.
  5. Education services taxable at 6%
    • Applies to private preschools, primary and secondary schools.
    • If annual tuition fees exceed RM60,000 per student.
    • For private higher education for international students.
    • Exemptions:
      • Malaysian students with disabilities.
      • Malaysian students in private higher education.
  6. Beauty services taxable at 8%
    • Applies to services like facial treatment and hairdressing.
    • For value of taxable service that exceeds RM500,000 in a 12-months period.
Service Sales Tax (SST)

Implementation Timeline

The new regulations will take effect on 1 July 2025, with a grace period extending to 31 December 2025, during which no prosecution or penalties will be enforced. This allows businesses sufficient time to adapt to the changes.

Impact of Expanded Scope of SST on Businesses

The expanded scope of the Service Sales Tax (SST) introduces significant changes for businesses in newly taxable sectors, requiring them to adapt to new compliance and pricing demands.

Below are some key impact:

  • Businesses in newly taxable sectors, such as private education and beauty services, must assess their Service Tax registration obligations and ensure compliance.
  • Companies with an annual turnover exceeding RM500,000 (or RM1.5 million for food and beverage services) are required to register for SST.
  • Businesses may need to make adjustments to their pricing strategies to accommodate the tax increases, particularly for non-essential goods and services.

Action Steps for Businesses

To comply with the expanded Service Sales Tax (SST) regulations, businesses must take proactive steps to ensure adherence to compliance requirements.

The following outlines the key actions:

Register for Service Tax

Businesses with annual revenue exceeding RM500,000 (or RM1.5 million for construction and food & beverage sectors) must register via the MySST portal, with separate registrations for Sales Tax and Service Tax. After submitting the registration, companies can check their registration status on the same portal.

File Bimonthly Returns

Businesses must file their SST returns bimonthly, by submitting SST-02 forms through the MySST portal by the last day of the month following the taxable period.

Penalties may be imposed for offenses such as failing to pay the correct net tax amount, not submitting an SST return, submitting an SST return with no payment or underpayment, or failing to register for SST.

Late Payment Penalty:

  • 10% of the amount not paid after the last date of the first 30 days period.
  • 15% of the amount not paid after the last date of the second 30 days period.
  • 15% of the amount not paid after the last date of the third 30 days period.

Seek Professional Guidance

Consult a tax professional to navigate SST obligations and exemptions, ensure compliance, and address specific business needs related to SST regulations.

Businesses should maintain accurate records for seven years, as mandated by the Royal Malaysian Customs Department (RMCD).

How can BoardRoom Support your Business?

Navigating Malaysia’s expanded SST can be complex, but BoardRoom is here to simplify the process. With over 50 years as Asia-Pacific’s leading corporate services provider, BoardRoom offers an integrated suite of services from Tax and Accounting to Payroll, Employee Share Schemes, Corporate Secretarial, Share Registry, IPO and Sustainability services. Our team of tax specialists helps businesses seamlessly adapt to new SST regulations, ensuring compliance while minimising operational disruptions. From handling registrations to tax compliance and strategic tax planning, we tailor our solutions to your unique needs.

Unsure if you’re ready for the new SST rules? Contact us for a consultation today!

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E-Invoicing For Tax and Accounting Excellence

E-Invoicing For Tax and Accounting Excellence

E-Invoicing For Tax and Accounting Excellence

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Table of contents

  1. E-Invoicing Enhances Tax Compliance and Drives Digital Accounting Transformation
  2. Automating Intercompany Transactions for Compliance
  3. Streamlining Accounting Practices With E-Invoicing
  4. Preparing Your Team For Successful E-Invoicing
  5. Overcoming E-Invoicing Challenges
  6. The Importance of a Comprehensive Implementation Process
  7. E-Invoicing as a Strategic Asset for Financial Management

 

E-invoicing has emerged as a vital platform for companies to streamline financial operations and comply with regulatory requirements. With the Malaysian government rolling out mandatory e-invoicing, businesses must act now to integrate robust e-invoicing solutions into their tax and accounting frameworks to ensure compliance.

E-invoicing is not just a regulatory compliance measure; it is a strategic tool enabler. E-invoicing enhances transparency and compliance by accurately matching income and expenses throughout the supply chain, identifying and reducing discrepancies in reported figures, and facilitating accurate tax reporting.

This article explores how e-invoicing supports tax compliance, drives accounting efficiencies, and serves as a key enabler for strategic financial management.

E-Invoicing Enhances Tax Compliance and Drives Digital Accounting Transformation

E-invoicing is certainly transforming how businesses approach tax compliance, pushing them towards digitalising their accounting operations. This shift involves reviewing existing accounting processes and solutions to ensure they meet the requirements of the e-invoicing framework.

According to Eunice Hooi, Managing Director Asia, Tax and Accounting, BoardRoom Group, one key advantage of the automation of e-invoicing process is that “it ensures that data flows seamlessly from accounting systems to the e-invoicing platform for tax reporting purpose, reducing the need for manual data entry and minimising errors”. This enhancement ensures a higher degree of accuracy in tax reporting.

Additionally, the introduction of e-invoicing requires companies to digitalise all invoice-related processes, which significantly improves financial forecasting and cash flow management. By automating and digitalising invoicing and payments, businesses can optimise their cash flow and improve financial predictability, enabling them to plan with more confidence and accuracy.

Eunice further elaborates: “As more businesses adopt e-invoicing, they gain valuable visibility into their accounts receivable; this visibility allows the businesses to track outstanding invoices and payment schedules more effectively.” she says. “At the same time, businesses can rely on accurate and timely invoicing data for more precise financial forecasting and budgeting.”

With e-invoicing, businesses not only meet compliance obligations but also strengthen their digital infrastructure for better control and efficiency.

Automating Intercompany Transactions For Compliance

E-invoicing plays a crucial role in managing related party transactions and transfer pricing, which are essential for maintaining tax compliance.

“It’s crucial for companies dealing with related entities to generate invoices that comply with local regulations,” Eunice explains. “Transfer pricing documentation must align with the specific regional requirements, which can vary greatly across jurisdictions This ensures that companies can provide the necessary documentation in case of tax audits, avoiding potential penalties or adjustments.”

The adoption of e-invoicing can also streamline self-billed invoicing and facilitate the management of transfer pricing agreements. Centrally recording and standardising data helps companies minimise discrepancies, improve compliance and optimise overall financial processes.

Automating Intercompany Transactions For Compliance

Streamlining Accounting Practices With E-Invoicing

From an accounting perspective, e-invoicing brings significant improvements, particularly in faster processing times and reduced manual data entry. Automation allows accounting personnel to focus less on repetitive administrative tasks and more on activities that add strategic value. However, automation does not entirely eliminate the need for human oversight.

Yang Shuzhen, Director of Regional Accounting Services at BoardRoom Group, explains more. “The automated e-invoicing process cuts down human errors because the information will flow from your accounting system to the API for submission. But you will still need an accountant or skilled personnel overseeing the process to ensure accuracy, handle any exceptions, and troubleshoot issues that the system might not detect.”

Shuzhen emphasises that e-invoicing plays a crucial role in improving the accuracy of financial reporting. “Because there’s actually more regular submission of invoices, it means people are more wary as to what transactions are going through,” Shuzhen says.

Take the case of a seafood trading company that needs to deal with damaged/returned items on a daily basis. The supplier may issue an invoice for 100 crabs, and upon delivery, eight crabs may be rejected by the buyer due to quality issues. Typically, the supplier would consider replacing the “damaged/returned” items in the next order without issuing a credit note or refund. With the implementation of e-invoicing, this would be a challenge as every returned item would have to be accounted for, and the supplier would have to issue an e-invoice in the form of a credit note/refund for every order with such a discrepancy.

“The additional credit notes increased workload and prompted the company to rethink its processes for greater accuracy,” says Shuzhen. Implementing e-invoicing introduced validation steps that encouraged issuing more precise invoices, ultimately reducing errors and improving efficiency.

Preparing Your Team For Successful E-Invoicing

Successful e-invoicing implementation requires a dedicated project leader to oversee the transition and manage all aspects effectively. Shuzhen emphasises the importance of having a project driver to propel the process forward. “There must be a dedicated leader who fully understands the process and takes charge, clearly defining the responsibilities and guiding the finance team through each step of the transition.” This leadership role is crucial for guiding the team through changes, addressing challenges and verifying that the system integration aligns with the company’s needs.

Preparing Your Team For Successful E-Invoicing With A Dedicated Leader

Overcoming E-Invoicing Challenges

Transitioning to e-invoicing can present several obstacles that companies must navigate. These challenges often stem from integrating new systems, gaining the necessary internal support, and ensuring procedures are updated to meet regulatory standards. Here are the common challenges companies face.

System compatibility

Companies often have complex or legacy systems that are difficult to integrate with e-invoicing software. Shuzhen explains, “The more systems you have, the harder it can be to integrate. You have to find a way to simplify it.”


  Solution

Simplify existing systems and ensure IT teams are equipped to handle integration and keep up with regulatory changes.

Managing system updates and changes

Frequent regulatory changes can complicate integration, particularly when multiple systems are involved. “If you choose to do direct integration yourself, you must ensure that your IT team or the project team have the capability to keep track of any changes,” says Shuzhen. “Otherwise, it will be a disaster.”


  Solution

Consider using an external service provider to manage the ongoing changes, allowing you to reduce the burden on internal teams.

Management support

A lack of buy-in from top management can significantly hinder progress. Shuzhen says, “When this happens, the operational level often struggles with the implementation. Getting buy-in from the decision-makers is essential.”


  Solution

Educate management on the necessity of e-invoicing for operational efficiency and compliance to gain their full commitment.

High initial costs

Implementing an API solution can be costly, particularly for companies with complex operations that cannot rely on MyInvois Portal.


  Solution

Explore government incentives, such as grants and tax benefits, to offset initial implementation costs.

Creating or modifying SOPs

Developing or updating standard operating procedures (SOPs) is often required when implementing and transitioning to e-invoicing. Designating clear process owners is also crucial to ensure the correct execution of the new e-invoicing procedures.


  Solution

BoardRoom has vast experience implementing e-invoicing SOPs to guide the development of processes and work with the company’s process owners to maintain accountability.

By understanding these challenges and having a structured approach, businesses can ensure a comprehensive and successful e-invoicing implementation.

The Importance of a Comprehensive Implementation Process

The Importance of a Comprehensive Implementation Process

A successful e-invoicing implementation requires a comprehensive approach, starting with designating clear process owners responsible for managing the transition and ensuring that all mandatory fields – over 50 in total – are completed correctly.

Shuzhen advises, “Ensuring existing enterprise resource planning (ERP) and cloud systems integrate seamlessly with the API invoice software is critical, and businesses may need to upgrade or modify their systems to accommodate this change”. Careful planning, testing, and verification are essential steps to avoid errors and ensure the system functions as intended.

Education and training are also key to successful adoption. Management must understand that e-invoicing is not just about meeting regulatory requirements but also about enhancing the efficiency of financial processes. Investing in training ensures that both leadership and staff are well-prepared for the transition, facilitating smoother implementation and optimising e-invoicing tools.

E-invoicing as a Strategic Asset for Financial Management

E-invoicing is a powerful tool for transforming both tax and accounting functions in Malaysian businesses. It has become a vital tool for managing tax and accounting functions strategically. To fully leverage e-invoicing, businesses must plan carefully, ensuring system compatibility, comprehensive staff training, and securing management support.

Our long-standing expertise in tax and accounting compliance, along with our comprehensive e-invoicing solutions, makes us a trusted partner for businesses seeking tailored e-invoicing solutions that address both accounting and tax needs.

Contact us today to learn more about how we can help your business achieve e-invoicing excellence.

Contact BoardRoom for more information:

Eunice Hooi

Eunice Hooi

Managing Director Asia, Tax & Accounting

E: [email protected]

T: +60-3-7890 4800

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MY Budget 2025 : Key Tax Measures You Need to Know

MY Budget 2025 Banner

MY Budget 2025 : Key Tax Measures You Need to Know

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Malaysia’s Budget 2025 aims to reinvigorate the economy through various tax reforms and tax measures impacting both businesses and individuals.

Unveiled by Prime Minister Datuk Seri Anwar Ibrahim on 18 October 2024, Malaysia Budget 2025 represents a crucial turning point for the nation’s economy with a record allocation of RM421 billion.

The theme, ‘Membugar Ekonomi, Menjana Perubahan, Mensejahtera Rakyat’ (Reinvigorating the Economy, Driving Reforms, and Prospering the People), reflects a dual focus in addressing immediate socio-economic challenges and building long-term resilience.

This budget balances economic growth, fiscal prudence and social welfare. It aims to revitalise the economy through key tax reforms and tax measures, addressing post-pandemic recovery, technological advancements, and climate change while improving the welfare of the Rakyat.

Our exclusive Malaysia Budget 2025 Commentary delves into the intricacies of these tax measures, providing valuable insights that will impact both the business and individual landscapes.

✓ Business Tax Reforms and Incentives for Corporate Taxpayers and Businesses

  • Implementation of Global Minimum Tax (GMT)and Accelerated Capital Allowance (ACA) for e-invoicing
  • Introduction of targeted incentives such as Investment Tax Allowance (ITA) for Smart Logistics Complexes (SLCs) and enhanced export incentives for Integrated Circuit (IC) Design Services

✓ Revenue and Fiscal Responsibility for Consumers and Businesses

  • Broadening the Sales and Services Tax (SST) framework and rationalising subsidies

✓ Tax Measures and Reliefs for Individual Taxpayers

  • Balancing the Introduction of new 2% Dividend Tax with extension of tax exemption on Foreign-Sourced Income (FSI)
  • Introduction of targeted tax reliefs for certain individual taxpayers

✓ ESG-Driven Initiatives

  • Introduction of a carbon tax and incentives for carbon capture, utilization and storage (CCUS) projects

As we navigate these changes line with the national aspiration, businesses and individuals must reassess their tax strategies to stay compliant and competitive.

Download our exclusive commentary now to navigate these changes with confidence. If you have any questions, please email our regional tax team at [email protected].

DOWNLOAD MALAYSIA BUDGET 2025 COMMENTARY

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Guide to e-invoicing: A fast track to compliance with Malaysia’s e-invoicing transition

Guide to e-invoicing A fast track to compliance with Malaysia’s e-invoicing transition

Guide to e-invoicing: A fast track to compliance with Malaysia’s e-invoicing transition

boardroomsuperadmin

E-invoicing was announced in Malaysia as the Inland Revenue Board’s (IRB) solution to combating the issue of the shadow economy and revenue leakage. With the first major deadline in August 2024 fast looming, now is the time for businesses to start preparing for the transition.

E-invoicing implementation is significant for all businesses, and major changes may be required for systems, processes and even strategic direction. While the rollout will be phased, implementation is essential, with all businesses expected to comply by 1 July 2025.

What is e-invoicing and how can you maximise the benefits for your business? Our comprehensive guide offers you insight into the requirements, what you need to do to switch over and the benefits it can bring.

How does e-invoicing work?

An e-invoice is a digital representation of a transaction between a supplier and a buyer. Many companies already issue electronic invoices, such as PDF invoices. However, having such electronic invoices does not necessarily mean being compliant with Malaysia’s e-invoicing requirements as set out by the Inland Revenue Board of Malaysia (IRBM). The Malaysia e-invoice requirements go beyond to include specific processes and reporting formats.

E-invoicing works by enabling seller’s accounts receivable to input invoices into their financial system, which then sends them in a structured electronic format directly to the buyer’s system. Upon receipt, the buyer’s e-invoicing system automatically processes and imports the data into their accounts payable system, which streamlines the payment process without the need for manual handling.

Only two formats of e-invoice are acceptable – XML and JSON. Both of these formats are easy for machines to read, which reduces the time it takes for a machine to translate and process the invoice.

E Invoicing Infographic

What is the timeline for implementation?

There are a number of dates that you need to be aware of in the transition. It’s critical to be mindful of the timeline, as e-invoicing implementation can take up to three to four months to complete.

The following table provides a breakdown of the key dates for the e-invoicing implementation rollout based on business turnover.

Annual Revenue of businessesImplementation Date
Businesses with an annual turnover greater than RM 100 million1 August 2024
Businesses with an annual turnover greater than RM 25 million and up to RM 100 million 1 January 2025
All businesses 1 July 2025

The above timeline is subject to changes. Please refer to LDHN website for detailed guidelines and updates.

Exemptions from e-invoicing requirements

Certain types of income expenses do not require an e-invoice.

These include:

  • Employment income
  • Pensions
  • Alimony
  • Dividend distribution by companies listed in Bursa Malaysia, or companies that are not required to deduct tax under Section 108 of the Income Tax Act 1967
  • Zakat

While government bodies, local authorities and statutory bodies are exempt from the e-invoicing requirements, they may voluntarily choose to participate. A complete list of exemptions is detailed in the IRBM’s official e-invoice guidelines.

A step-by-step guide to e-invoicing implementation

A step-by-step guide to e-invoicing implementation

E-invoicing implementation is quite complex. The process may include upgrading infrastructure, integrating systems and training staff to ensure a smooth transition.

Here is a step-by-step guide to help you understand the process and how you can best implement e-invoicing.

1. Confirm business turnover

Your turnover will dictate when you must transition to e-invoicing. Refer to your 2022 audited financial statement or tax return to confirm your business turnover.

If you had a change of accounting year end for financial year 2022, your turnover or revenue will be pro-rated to 12 months. This will be used to determine your implementation date.

2. Conduct a gap assessment analysis

Cheong Woon Chee, Head of Tax Services, BoardRoom Malaysia, says that a gap assessment analysis is a critical next step in the process.

“A gap assessment will help you to determine what you need to do to meet the e-invoicing implementation requirements,” explains Woon Chee. “This should encompass current systems and processes but also the people and the training you’ll need to undertake in preparation for the transition.”

A comprehensive gap assessment should include the following components:

Accounting system compatibility
Evaluate the compatibility of the current accounting system with e-invoicing requirements.
Invoice format compliance
Ensure the invoice format adheres to the required e-invoicing standards.
Self-billing e-invoices
Determine the need for self-billing e-invoices.
Transaction management
Assess how transactions with both B2B and B2C buyers will be managed.
Legal and contractual review
Conduct a thorough review of all legal documents, including contracts and employment agreements.

Once a gap assessment analysis has taken place, a tailored gap closure strategy should be developed that addresses the identified gaps. The strategy should provide detailed recommendations and action plans to ensure a seamless transition to e-invoicing. By understanding the requirements thoroughly, you can plan effectively, working backwards from the implementation date to ensure you are ready on time.

Having this lead time also gives you the opportunity to start talking to your clients, partners and service providers. They are critical in the transition, so it’s important to engage them early to understand their timelines and requirements.

3. Determine the best model for your needs

You have a choice between two e-invoicing models, which will depend on your business needs and size.

The first model uses the MyInvois portal, hosted by the IRB. This portal is available to all taxpayers, and Woon Chee says that if you’re processing around 20 invoices or less a month, MyInvois is a cost-effective solution.

“The other option is an application programming interface (API),” explains Woon Chee. “APIs are more suitable for businesses or taxpayers that process a substantial number of transactions.

“It is likely that your current systems will need enhancements or upgrades to support an API configuration, which comes with an upfront investment.”

Train staff on the new system

4. Train staff on the new system

E-invoicing implementation involves training in the lead up to the transition as well as after the transition to ensure a seamless changeover.

“E-invoicing isn’t like the standard invoices staff are familiar with,” adds Woon Chee. “Initially, training should focus on awareness before moving to additional rounds of training that go into detail about the new process.”

Training is crucial and should cover the strategic approaches the organisation is taking to implement e-invoicing effectively across departments, the tax implications and the compliance requirements. Staff must understand the effects e-invoicing will have on existing accounting processes, especially as the new forms now feature over 50 mandatory fields, raising the chance of errors. Post-implementation training can help identify errors and ensure they are rectified moving forward.

5. Understand the PEPPOL network

The Malaysian e-invoicing requirement is powered by the Pan-European Public Procurement Online (PEPPOL) network. PEPPOL is not a provider. It is an enabler that allows any organisation to send and receive business documents – in this case, e-invoices – through PEPPOL-accredited service providers.

While businesses aren’t required to use a PEPPOL service provider for e-invoicing, there are benefits to doing so. Namely, a PEPPOL-enabled solution ensures effortless compliance and security, seamless integration and error-free automation with real-time insights into your e-invoice progress.

6. Apply for grants and tax incentives

There are grants and tax incentives available to support you with the costs of investing in the infrastructure required to transition to e-invoicing.

These include:

Digital grant
Micro, small, and medium enterprises (MSME) can apply for a grant of up to RM 5,000 (total allocation of RM 100 million) to upgrade digital sales, inventory and accounting systems.
Tax deduction
From YA2024 to YA2027, MSME can receive a tax deduction of up to RM 50,000 for each Year of Assessment (including consultation fees incurred for e-invoicing implementation).
Capital allowance
The capital allowance claim period has been reduced from four years to three years. Capital allowance can be claimed on the purchase of ICT equipment and computer software packages, as well as consultation, licensing and incidental fees related to customised computer software development.

What are the benefits of e-invoicing?

According to the IRB, the benefits of e-invoicing include reducing manual work and associated human error. It will also help streamline operational efficiency, facilitate efficient tax filing, and digitise financial reporting to be in line with industry standards.

The Malaysia Digital Economy Corporate (MDEC) shares similar sentiments around the way e-invoicing will increase business efficiency, improve cash flow and facilitate effective tax reporting.

The BoardRoom team can see a range of benefits for our clients. Eunice Hooi, BoardRoom’s Managing Director Asia, Tax, explains that one of the biggest benefits is the minimisation of inaccuracies thanks to real-time monitoring.

“Shifting to e-invoicing will reduce inaccuracies, as both income and expenses are verified on the spot rather than retrospectively. This immediate validation allows businesses to promptly address any discrepancies identified by the tax authorities, such as disallowed expenses,” says Eunice.

What are the benefits of e-invoicing

The key benefits of implementing e-invoicing include:

  • Seamless compliance through adherence to the e-invoicing mandates, PEPPOL standards and data security.
  • Eliminate errors with automated creation, validation, delivery and archiving of invoices.
  • Smooth integration with existing ERP and business applications, enhancing overall business operations.
  • Gain real-time insights into the status of invoices to ensure timely payments, resulting in visibility and control.
  • Save time and resources by digitising and automating invoicing processes, boosting cost savings and efficiency.

The switch to e-invoicing is not just a system change. It’s a complete mindset shift. A reliable partner will be a critical part of ensuring a seamless transition and maximising your investment.

“We are currently working very closely with some of the API and IT solution providers,” adds Eunice. “Aside from tax services and outsourced accounting services, we can provide our clients with an integrated service, including the IT component with a PEPPOL-Enabled Solution.”

BoardRoom offers a range of services to support you with your e-invoicing implementation. From standalone comprehensive project management service to training workshops or ad hoc consulting, we can tailor a solution to your needs. As your strategic partner, the BoardRoom team will help you to navigate the transition with ease.

“As outsourced accountants and tax experts, we can work with the finance team to advise them on strategically leveraging the e-invoicing data for tax optimisation,” explains Eunice. “For example, we can identify the deductible expenses immediately and ensure we maximise the tax credit and tax deduction without delay.”

Your partner in e-invoicing

With the right experts on your side, you will set your business up with a strategic advantage to leverage the benefits of the e-invoicing requirements. Learn more about BoardRoom’s e-invoice solutions to save you time and money for your e-invoicing transition and beyond. Our expert accounting and tax teams will ensure a smooth and compliant transition, providing you with support every step of the way.

Contact BoardRoom for more information:

Eunice Hooi

Eunice Hooi

Managing Director Asia, Tax

E: [email protected]

T: +60-3-7890 4800

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How to navigate transfer pricing in Malaysia: a guide for companies

How to navigate transfer pricing in Malaysia a guide for companies

How to navigate transfer pricing in Malaysia: a guide for companies

boardroomsuperadmin

For companies operating across multiple geographies in Asia, regulatory compliance stands as a strategic cornerstone for companies pursuing successful and sustainable growth. Therefore, keeping up to date with the local regulations in each region you operate is important. This includes learning about the transfer pricing rules as they apply to intercompany transactions.

In this article, we consult Cheong Woon Chee, Head of Tax Services for BoardRoom Malaysia, for an overview of transfer pricing in Malaysia, recent updates to reporting requirements and what businesses can do to ensure strong compliance.

What transfer pricing is

Transfer pricing is the setting of prices for the transfer of goods, services and intellectual property between associated parties.

In Malaysia, associated parties include entities within a multinational enterprise group, such as subsidiary companies and branches.

“These are parties who control one another or are under the common control of another party, either directly or indirectly,” Woon Chee says. Transfers between these entities are referred to as related party transactions.

“Transfer pricing exists because every country has a different tax rate,” Woon Chee explains. “For example, in Malaysia, our corporate tax rate is 24%, but in Singapore it’s 17%. Considering this huge difference, companies can use transfer pricing to save on tax.”

In addition, transfer pricing can support transparent transactions between related parties. However, a potential drawback of this transparency is that it may cause conflict internally.

“If the price is higher or lower than the market price, one of the entities may feel their interests are being sacrificed and deem it unjustifiable,” Woon Chee says.

Transfer Pricing in Malaysia

An overview of transfer pricing guidelines in Malaysia

Transfer pricing is strictly regulated by the Inland Revenue Board of Malaysia (IRBM). Companies must abide by the Malaysian Transfer Pricing Guidelines, which provide detailed standards and rules on how businesses should handle transfer pricing in accordance with Section 140A of the Income Tax Act 1967 and the Transfer Pricing Rules 2023.

The arm’s length principle

Central to these regulations is the arm’s length principle, which dictates that transactions between related entities should be priced as if they were conducted between independent parties.

“Ideally, the transfer price should not be very different from the market price,” Woon Chee says. “So companies must do benchmarking to understand whether the mark-up they apply as part of their transfer pricing is at the median range for their industry.

“If your pricing is too high or low, you will need to justify this when you make the transfer to your related party.”

Transfer pricing documentation

Transfer pricing documentation requirements

Malaysian regulations require taxpayers to prepare and keep transfer pricing documentation if their company:

  • makes over RM 25 million in gross income, and the total amount of related party transactions exceeds RM 15 million; or
  • provides financial assistance exceeding RM 50 million (this does not apply to transactions involving financial institutions).

“This documentation is simply a report to show how the transfer price was determined and justify why these prices are comparable to the price that would be applied to a third party in a similar situation,” Woon Chee says. “It enables the IRBM to ensure that the transactions between related parties were priced at arm’s length.”

The documents must be detailed and contemporaneous, meaning they should be prepared at the same time as transfer pricing policies are developed or implemented.

New transfer pricing rules introduced in May 2023 require companies to complete their contemporaneous documentation before their tax return for the year of assessment is due.

“In Malaysia, the timeline to file your corporate tax return is seven months after you close your financial year end,” Woon Chee says.

Companies that fall below the threshold are held to less scrutiny and can prepare a limited (simplified) version of transfer pricing documentation instead.

The following table shows the different types of information required for detailed and simplified transfer pricing documentation:

Analysis RequiredFull TPDSimplified TPD
Organisation structure
Nature of the business or industry and market conditions
Controlled transaction
Pricing policies
Assumption, strategies and information regarding factors that influence the setting of pricing policies
Comparability, functional and risk analysis
Selection of the transfer pricing metho
Application of the transfer pricing method
Financial information

Why compliance is vital

Taxpayers in Malaysia must supply their transfer pricing documentation upon request by the IRBM. You will only have 14 days to do so. Fail to provide your documents in time, and you may be subject to a fine between RM 20,000 and RM 100,000, or imprisonment of up to six months.

Common compliance challenges

If you are a company with multiple entities in the APAC region and looking to establish a local business in Malaysia, navigating transfer pricing regulations can be challenging. However, prioritising compliance is essential to avoid financial penalisation, potential imprisonment and reputational harm.

Without professional support, businesses often struggle with:

    Understanding their obligations
    Malaysia’s regulatory system is complex and constantly evolving, so it can be difficult to understand which rules and requirements apply to your company throughout its lifecycle.
    Maintaining robust documentation
    Preparing exhaustive transfer pricing documentation can be time-consuming and usually requires at least one month to complete.
    Conducting accurate benchmarking
    Conducting quality benchmarking ahead of transactions is not a simple process. A wealth of accurate, relevant data must be gathered before meaningful comparisons can be drawn.
    Resource constraints
    Many growing businesses lack the resources to establish robust transfer pricing practices and update them regularly.

    According to Woon Chee, the most effective way businesses can overcome the challenges of transfer pricing in Malaysia is by partnering with a knowledgeable corporate services provider.

    “Businesses often don’t have time to monitor all the developments in Malaysia’s rapidly changing tax regulations,” she says. “So it can be helpful to have an expert always on hand to advise on these updates.”

    Premium providers not only have extensive knowledge of local regulations but also maintain open communication with local authorities and industry bodies. This means, armed with their extensive knowledge, they serve as invaluable navigators, assisting your business to adeptly steer through the complex landscape of compliance and governance.

    Another benefit of having a skilled external team support your compliance is that it frees up your executive staff to focus on what really matters to your business.

    “Those running the business have more time to focus on revenue-generating operations,” Woon Chee says. “Why not leave it to the experts so that you can save time and also manage your risk?”

    Tailored support with transfer pricing in Malaysia

    Tailored support with transfer pricing in Malaysia

    BoardRoom provides a full suite of customised business solutions to help your company flourish in the Asia-Pacific region. Our highly sought-after service offerings include Corporate Secretarial, Company Incorporation, Accounting & Bookkeeping and Payroll, among others. With in-depth knowledge of the local tax and regulatory landscapes and a host of resources such as webinars on tax and Budget updates, our specialist Tax Advisory & Filing team can provide quality, customised support to enhance your financial planning and compliance.

    Let us manage transfer pricing compliance for you so you can concentrate on taking your business to new heights.

    Contact BoardRoom for more information:

    Woon Chee MY TAX

    Cheong Woon Chee

    Head of Tax Services for BoardRoom Malaysia

    E: [email protected]

    T: +60-3-7890 4800

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    Malaysia Budget 2024 – Tax Highlights

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    Malaysia Budget 2024 – Tax Highlights

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    Malaysia’s 2024 Budget introduced several tax reforms which will impact local businesses and disposable income of general Malaysians.

    On 13 October 2023, Malaysia’s Prime Minister and Finance Minister, YAB Dato’ Seri Anwar bin Ibrahim, presented the Budget 2024 focusing on three pivotal areas:

    • optimising governance for enhanced service agility
    • economic restructuring to foster growth, and
    • elevating the standards of living for Malaysian citizens.

    The expansionary budget is designed to address contemporary challenges and enhance the quality of life for Malaysians.

    To fortify the government’s fiscal responsibilities, reduce the deficit to 4.3%, and augment revenue to RM307.6 billion, the budget incorporates significant structural changes to the tax system, including:

    • E-invoicing for taxpayers with an annual turnover above RM100 million (starting 1 August 2024)
    • Capital Gains Tax (CGT) arising from the disposal of unlisted shares in local companies (starting 1 March 2024)
    • Global Minimum Tax (GMT) applicable to large multinational enterprises (MNEs) with global revenue of at least EUR 750 million (starting in the year 2025)
    • Service Tax will be raised to 8% for all services except food, beverage, and telecommunication services
    • Luxury Goods Tax ranging from 5% to 10%

     

    Download our Budget 2024 Report today to find out more. If you have any questions, please reach out to your respective BoardRoom client managers or email us at [email protected].

    DOWNLOAD THE FULL MALAYSIA BUDGET 2024 REPORT

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    Understanding ESOS and tax implications in Malaysia

    Understanding ESOS and tax implications in Malaysia

    Understanding ESOS and tax implications in Malaysia

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    Employee share option schemes (ESOS) have become increasingly popular among companies in Malaysia as a way to retain top talent and boost productivity. They offer employees the option to purchase company shares at a discounted price, which can result in a significant financial gain if the company performs well.

    In this article, we will discuss the fundamentals of ESOS and why they are a valuable tool for employers. We will also examine the tax implications of ESOS in Malaysia; the regulatory bodies and laws governing ESOS taxation; and best practices for companies and C-suite leaders to achieve compliance and minimise tax liabilities.

    What are ESOS?

    ESOS are a form of employee compensation that allows employees to purchase company shares at a discounted price. These schemes are designed to incentivise employees to work productively and contribute meaningfully to the company’s success, as their financial gain is tied to the company share price movement. The higher the increase in share price, the larger the financial gain to the employees.

    ESOS typically have a vesting period, meaning that employees must wait a certain amount of time before they can purchase shares. This period is intended to encourage employees to remain with the company longer and to align their interests with those of the company.

    ESOS versus Employee Stock Ownership Plan (ESOP)

    An ESOS (Employee Stock Option Scheme) and an ESOP (Employee Stock Ownership Plan) are both employee benefit programs that involve providing employees with a stake or ownership in the company.

    However, there are some differences between the two:

    • Nature of ownership
    • Purpose
    • Structure and funding
    • Control and governance

    Plan types such as restricted share plans and performance share plans all have different objectives but can all be categorised under long-term incentive plans.

    Employee Benefits

    Tax implications of ESOS in Malaysia

    One of the most critical factors companies must consider when implementing ESOS is the tax implications for the business and their employees.

    Failure to comply with tax regulations can result in significant financial penalties and reputational damage. Therefore, it is crucial that companies fully understand the tax requirements of ESOS in Malaysia and take steps to ensure compliance.

    ESOS tax implications for employers and employees

    ESOS can have different tax implications for both employers and employees.

    For Malaysian employers, ESOS are usually considered a non-deductible expense for a company. Employers are required to report the value of the options granted to employees as an expense on their financial statements under Malaysian Financial Reporting Standard (MFRS) 2. The employer would also be required to deduct income tax from the amount of gain realised by the employee on the exercise of the option.

    Employees who exercise their options to purchase shares are subject to income tax on the difference between the market value of the shares at the time of exercise and the option exercise price paid. The individual income tax rate in Malaysia varies depending on the chargeable income of the individual, with rates ranging from 0–30%.

    Calculating ESOS tax liabilities

    Companies must accurately calculate the tax liability associated with share options for both the employer and employee to ensure compliance.

    Under MFRS 102, companies are required to recognise the fair value of the share-based payment as an expense in their financial statements. The fair value of the share-based payment is determined at the grant date, taking into account the exercise price, the term of the option, the current price of the underlying share and the expected volatility of the share price.

    Once the fair value of the share-based payment has been calculated, it is recognised as an expense over the vesting period.

    Tax Liabilities

    How to ensure ESOS compliance

    In Malaysia, the regulation of ESOS is overseen by several government bodies, including the Securities Commission Malaysia and the Inland Revenue Board of Malaysia (IRBM).

    Under Malaysian law, ESOS tax treatment varies depending on whether the option is granted to a local or foreign employee. Local employees are subject to Malaysian tax on the gain from exercising the option. In contrast, foreign employees are taxed only on the portion of the gain attributable to work done in Malaysia.

    Penalties for non-compliance with ESOS taxation regulations can be severe. Companies that fail to comply with ESOS regulations may face fines, penalties and legal action from the authorities.

    Best practices for C-suite leaders

    C-suite executives can support ESOS compliance while minimising tax liabilities by implementing the following best practices in their organisation:

    • Engage with tax experts who can provide guidance on the tax implications of ESOS and assist in accurately calculating tax liabilities for your business and your employees.
    • Ensure compliance with all regulations and laws governing ESOS taxation in Malaysia.
    • Develop a comprehensive understanding of the accounting for share options under MFRS 102. This accounting involves measuring the fair value of the options, recognising an expense in the income statement and recognising a liability in the balance sheet.
    • Keep accurate records of all ESOS transactions and ensure that all employees are adequately informed and educated about the tax implications of their share options.
    Best Practices

    Common pitfalls to avoid

    Despite the importance of compliance and accurate tax calculation, there are some common pitfalls that companies and C-suite leaders can encounter when it comes to ESOS taxation, including:

    • failure to accurately calculate the tax liability associated with share options, which can result in underpayment or overpayment of taxes;
    • incorrectly accounting for share options under FRS 102, which can lead to misstated financial statements and regulatory compliance issues; and
    • failure to meet ESOS reporting obligations.

    Woon Chee says it is not enough to ensure your company pays its ESOS taxes on time; it is also important to be aware of and fulfil the reporting requirements that follow. For example, she notes that “upon launching the ESOS, the employer has to notify the IRBM within 30 days after the expiry date of the period of acceptance of the offer.”

    How to avoid pitfalls

    To avoid these mistakes, it is crucial for companies to engage with an expert ESOS provider who:

    Offers a comprehensive platform for ESOS management that gives your employees and HR professionals full visibility of the details and status of each scheme
    Possesses a deep knowledge of local tax laws within the jurisdictions your organisation operates, a wealth of ESOS management and relevant professional qualifications
    Specialises in an integrated suite of corporate services alongside ESOS management, including taxation, accounting and payroll (so that all the expertise you need is easily, quickly accessible via one point of contact)

    Woon Chee urges businesses not to underestimate the power of an innovative ESOS management platform.

    “A good ESOS platform shows you all the details of every ESOS, so it’s easy for you to keep track of them and will largely reduce your tax liability,” she says.

    It also takes the guesswork out of tax calculations so you can have confidence in your regulatory compliance.

    Unlock the power of ESOS

    ESOS is a powerful tool for retaining talent and boosting productivity, but C-suite leaders need to have a comprehensive understanding of the tax implications and regulatory requirements for ESOS in Malaysia.

    By engaging with tax experts, staying up to date with regulatory requirements and following best practices for compliance and accurate tax calculation, companies can minimise tax liabilities and ensure that their ESOS programs successfully achieve their intended goals.

    At BoardRoom, we offer expert accounting and tax advisory services across the Asia-Pacific region. By engaging our tax professionals, you receive access to specialist guidance and support to ensure compliance with all regulatory requirements and minimise tax liabilities related to ESOS.

    Additionally, we can connect you with trusted consultants to support you with plan design, prior to implementing, so that your schemes are tailored to your needs.

    Please contact us to find out how our world-class ESOS services can benefit your business.

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    Malaysia Budget 2023

    Malaysia 2023 Budget Key Tax Highlights Membangun Malaysia MADANI (Re-tabled on 24 February 2023)

    Malaysia Budget 2023

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    Malaysia’s 2023 Budget, which was re-tabled on 24 February under the new Unity Government, totaled RM388 billion. Almost 75% of its budget has been allocated to Operating Expenditure, signaling the Government’s commitment to drive its reform agenda and revitalise Malaysia’s economy.

    Several tax incentives were announced as part of the Government’s strategy to drive an inclusive and sustainable economy. To find out how the tax measures announced will implicate your tax planning, download our Malaysia 2023 Budget Report today.

    If you have any questions relating to the information contained in this report or require tax advisory services, please email our tax advisors at [email protected].

    DOWNLOAD THE FULL MALAYSIA BUDGET 2023 REPORT
    Malaysia Budget 2023 Main Highlights Preview Updated

    Should you have any questions regarding the information provided in the report, please do not hesitate to reach out to your respective BoardRoom client managers or email us at [email protected].

    Best regards,

    BoardRoom Team

    DOWNLOAD THE FULL MALAYSIA BUDGET 2023 REPORT

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    What is SST? Your guide to sales and service tax in Malaysia

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    What is SST? Your guide to sales and service tax in Malaysia

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    If you are planning to expand your business into Malaysia, you are likely asking the question, What is SST?

    SST refers to the Malaysian sales and service tax, where a sales tax is imposed at the manufacturer level, and a service tax is paid by consumers who are using taxable services.

    Tax regulations are relatively fluid in Malaysia compared to neighbouring regions, which can make compliance challenging to maintain. This is why many growing businesses partner with a corporate services team who can help them navigate multi-country taxes as they evolve.

    Read on as BoardRoom’s Tax Director for Malaysia, Cheong Woon Chee, provides an overview of how SST works, and what you can do as a taxable person to ensure compliance.

    Did SST replace GST?

    In 2018, the Malaysian Government reintroduced sales and service tax to replace the goods and services tax (GST), which reformed the local tax system.

    “Many people actually believed that GST had increased the living cost since it was implemented,” Woon Chee says. “Therefore, the main objective of this abolishment was to put more purchasing power in the hands of the Malaysian people – especially the lower- to middle-income earners – which would result in a much higher disposable income.”

    How SST works in Malaysia: definition and rates

    SST is an indirect tax made up of the following components.

    Sales tax

    The sales tax component of SST is imposed on products manufactured and produced locally and on taxable goods imported into Malaysia. It is charged to consumers based on the purchase price of certain goods and services.

    The sales tax is only imposed at one stage of the supply chain (at the time of the goods’ sale or disposal).

    The sales tax rate in Malaysia ranges from 5%, 10% or another specified rate, depending on the type of goods.

    Your business is required to pay SST if your total sales value of taxable goods has exceeded RM 500,000 in the past 12 months.

    Service tax

    The service tax is a consumption tax imposed on taxable services provided in Malaysia by a registered business.

    The rate for service tax is 6% in Malaysia.

    Your business is required to pay SST if your total value of taxable services within 12 months exceeds the prescribed threshold, which is usually RM 500,000. Some services have a different threshold (for example, the threshold for operators of restaurants and cafes is RM 1.5 million).

    TaxServices

    How to register for SST

    If your business’s annual income has exceeded the respective thresholds for sales or service tax, you need to register for SST on the MySST website. A tax professional can assist you with this process.

    Is there anything or anyone exempt from SST in Malaysia?

    In Malaysia, services that are imported or exported are exempt from service tax, as are goods manufactured for export.

    Other exempted goods include:

    Bicycles, including certain parts, and accessories
    Books, newspapers, magazines, and journals
    Live animals, meat, seafood, and eggs
    Insecticides and disinfectant
    Cereals
    Coffee and tea
    Fertilisers
    Pharmaceutical products
    Spices
    Wood pulp

    Manufacturers of non-taxable goods are exempt from SST, as are certain government bodies and educational institutions.

    You can view complete lists of exempted goods, services and persons on the MySST website.

    Exemption rules can be complicated, and the ramifications for tax evasion are severe. This is why it is a good idea to consult a tax professional who can help determine whether SST applies to your business.

    Is SST different from company tax?

    Another common question among businesses branching into Malaysia is, What is the company tax rate?

    When it comes to understanding how to pay tax in Malaysia, business leaders should first learn the difference between SST and company tax.

    While SST is imposed by the Royal Malaysian Customs Department, corporate tax is imposed by the Inland Revenue Board.

    “Corporate tax is governed under the Income Tax Act 1967, which applies to all companies registered in Malaysia for chargeable income derived from Malaysia, including profits, dividends, interest, rentals, royalties, premiums, and other income,” Woon Chee explains.

    Currently, the general rate for corporate income tax in Malaysia is 24%.

    SST different

    What is required of businesses to comply with SST?

    All companies doing business in Malaysia – no matter their size – should do the following to ensure compliance with SST:

    Find out if you are liable for SST by checking the prescribed thresholds for goods and/or services
    Determine if your business is eligible for exemption from SST (and apply for an exemption if eligible)

    If your business is liable for SST, ensure that you:

    Register for SST on the MySST website (check first whether you are already registered)
    Charge service tax on your taxable service (if applicable)
    Issue invoices in the national language or in English
    File returns every two months
    Make payments on time
    Keep accurate records

    Ensuring SST compliance can be an arduous process, which is why many businesses in Malaysia choose to engage a skilled corporate services provider for ongoing support.

    What you may not know about Malaysian taxation

    As a business leader, it is important that you stay aware of local taxation developments and discourse. With this knowledge, you will be able to make smarter decisions when it comes to company strategy and forward planning.

    Some of the latest tax facts you should know include:

    • In its first year of implementation, Malaysia’s digital services tax brought in more than RM 400 million for the government. With the uptake of digital tools and streaming services on the rise, this indirect tax is likely to provide a significant revenue stream for the government in the years to come.
    • A tax exemption for SST on cars ended on 30 June 2022 after an extension was provided as part of the Malaysia Budget 2022. The exemption was introduced in 2020 to help automotive companies survive the impacts of the COVID-19 pandemic and also stimulate local economic growth.
    • Malaysia’s tax regulations are in a near-constant state of flux. Malaysia’s 2023 budget is set to be retabled, meaning businesses must be ready to adapt to potential new tax requirements in the near future.
    • Many companies find outsourced accounting and tax services benefit their business by ensuring they meet regulatory requirements, particularly as they grow and evolve.

    Maintain SST compliance in Malaysia with the help of a tax professional

    Navigating Malaysia’s tax landscape can be a complex and time-consuming exercise, especially for new businesses. In contrast to neighbouring countries, tax regulations and rates in Malaysia change so often that the tax research you performed at the start of your expansion journey may no longer be relevant just six months later, such as with the reintroduction of SST.

    To ensure smooth and successful business growth, and to answer any of your questions about sales and service tax or otherwise, contact a local tax professional who can help ensure your Malaysian venture is fully compliant from the start.

    Contact us to find out more.

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    Never Underestimate the Importance of Employee Engagement in a Hybrid Working Malaysia

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    Never Underestimate the Importance of Employee Engagement in a Hybrid Working Malaysia

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    In the wake of the global shift brought about by the COVID-19 pandemic, the dynamics of the workforce have evolved significantly. Understanding the changing landscape, particularly in Malaysia, is crucial for businesses striving to foster employee engagement in this post-COVID era.

    The “Great Resignation” phenomenon, as highlighted by Microsoft’s 2022 Work Trend Index, remains a noteworthy factor. It emphasises the need for businesses to adapt and prioritise employee engagement, as 41% of the global workforce is likely to consider leaving their current employer within the next year, with workers looking for better conditions, more engaged teams and a greater sense of purpose.

    At the same time, the cost of hiring is rising. The latest research has found the average cost of recruiting has doubled in some parts of the world. And it takes at least a week longer to recruit someone than it did 12 months ago.

    In many cases, it has become harder – and more expensive – to find and hire new people than it is to retain your current employees.

    With these figures in mind, the importance of employee engagement in a hybrid working Malaysia simply cannot be underestimated.

    The hybrid working Malaysia engagement juggle

    Remote and hybrid work has become the preferred way of working in Malaysia, with 77% of workers indicating they want flexible remote work options to stay. In response, 62% of business leaders are considering restructuring their offices to suit a hybrid working Malaysian team.

    Employers are under pressure to provide an exceptional experience for their people, wherever they may be: in the office, at home, or working from the local cafe. Achieving this is becoming increasingly hard when people are not physically together or even working the same 9 to 5 schedule.

    Photo taken from above a sitting woman who has a laptop in her lap. She is talking to a split screen of four other employees about encouraging employee participation.

    5 ways to encourage employee engagement in the hybrid world of work

    When we’re not physically together, many leaders are left wondering how to increase employee engagement.

    Here are five ways how to increase employee engagement to keep employees connected and engaged wherever they may be.

    1. Bridge the physical and digital worlds with technology

    Having reliable technology in place to enable collaboration and efficient work processes is fundamental to creating an efficient and frictionless employee experience. The last thing you want is for your people to be dealing with frustrating technology issues when they could be making progress on real work. 

    Automating repetitive tasks and introducing self-service portals empower people to take control of simple tasks, like booking their own leave, accessing payslips and updating contact details. By optimising the user experience with easy-to-use applications, simplified central logins and cloud-based systems, your employees will be able to immediately access and update their data from anywhere, at any time.

    Consider streamlining your core functions like payroll, finance and HR to free up your people to focus on collaboration and employee engagement strategies.  

    And, of course, having platforms in place to enable collaboration is crucial. Make sure you are set up for what Google refers to as “collaboration equity“. That is, ensuring everyone can contribute and communicate equally, regardless of location, role, experience level, language, or device preference.

    2. Prioritise wellness

    Photo taken from behind a man sitting at table with his laptop. The screen is black with white bold writing that states perks and bonuses

    While hybrid working undoubtedly has its benefits, it also comes with some downsides.

    We’re seeing a blurring of boundaries between work and life, a weakening of social bonds with colleagues and a greater push for productivity from employers. And this is causing high levels of burnout, which has an impact on not only employees but businesses as well.

    Analyst firm Gallup estimates employee burnout costs USD $322 billion in turnover and lost productivity globally.

    The good news is that companies that prioritise employee wellbeing are being rewarded with more productive and engaged employees.

    Companies that adopted key wellness initiatives such as stress management initiatives, adapted workplace design and financial education saw employee loyalty improve by 79%.

    3. Acknowledge and Show Employee Appreciation

    Publicly celebrating accomplishments might involve regular team shout-outs in virtual meetings, spotlighting achievements in company newsletters, or hosting virtual events to honour milestones. Establishing a culture of peer-to-peer recognition could involve platforms or channels where team members can acknowledge and commend each other’s efforts.

    For instance, a dedicated Slack channel for shout-outs or a monthly newsletter highlighting peer recognition contributes to a positive and appreciative work environment. These measures collectively foster engagement, which is particularly crucial for those managing the dynamics of hybrid roles.

    4. Promote Employee Development and Growth

    To promote continuous learning and growth, organisations can offer diverse training opportunities. This might include workshops on effective virtual collaboration, seminars on time management in a hybrid setting, or access to specialised online courses related to industry trends. Encouraging professional development could involve supporting employees in obtaining relevant certifications or sponsoring attendance at virtual conferences. Utilising feedback surveys and performance metrics allows organisations to gather insights on the effectiveness of these initiatives.

    For instance, a post-training survey could assess the perceived impact on job performance and satisfaction. Organisations can then tailor future programs based on this valuable feedback, ensuring that employee development remains aligned with their evolving needs and aspirations.

    5. Reward your team

    Being paid on time is vital. And people’s experience with pay directly impacts how they feel about working with an organisation.

    If people have continual issues with your current systems — for example, difficulty accessing payslips or being unable to update important details — you might want to look into how to fix this problem. Having a system in place to make sure your people get paid accurately and on time will ensure they are motivated and engaged. And that’s whether you choose to implement a payroll solution or outsource your payroll to professionals.

    Optimising your software applications to benefit your employees and simplify their day-to-day operations, will ultimately give them more control and empowerment in their role.

    Mechanics aside, how much you pay people also matters.

    The cost of living is rising steadily, and employers need to keep pace with rising costs of food, petrol and living expenses to make sure their people are taken care of.

    If you have limited funds to pay bonuses or increase salaries, an alternative is offering employees a stake in the company in the form of shares or stock options.

    Offering equity in the company means employees start seeing the business in a different light. Rather than simply clocking in and out and completing tasks, they begin to think of how to move the business forward in a meaningful way and increase revenue.

    Equity can come in many forms, but leading companies in Malaysia are adopting employee stock option plans (ESOP).

    What is an employee stock option plan?

    An employee stock option plan (ESOP) gives employees the opportunity to purchase company shares at a future date for an agreed price. An ESOP differs from an employee share award plan in that it gives employees the option to buy shares instead of simply enabling them to purchase those shares outright.

    Because ESOPs give employees financial benefits when the company performs well, they are more likely to be invested in the long-term success of the company.

    There are many benefits of offering an ESOP for both employees and business leaders.

    ESOPs help employees:

    • feel valued and rewarded because they are being compensated for their efforts
    • improve their financial position through dividend payments and profit from selling shares
    • gain a sense of part ownership in the company they work for, which means they are more likely to be satisfied and less likely to join their peers in “The Great Resignation”.

    And for companies, ESOPs enable them to:

    • reward high-performing employees without impacting cash flow
    • attract higher-quality talent
    • enhance retention and loyalty
    • enjoy sustained growth and increased company performance.
    Illustrated image of small blue figurines positioned in a circle on a white background. In the middle of the circle in the word share. A digital finger is also pointing to the word.

    How ESOPs work

    Setting up an ESOP can be a complex procedure. In Malaysia, there are specific rules and regulations as well as , so it’s important to get help from experienced professionals who understand the local landscape.

    There are several administrative processes required to effectively implement and maintain an ESOP, including:

    • offer management
    • vesting management
    • participant information record-keeping
    • participant liaison regarding plan mechanisms
    • leave management
    • regulatory reporting.

    Other important considerations to think about are:

    • How long it takes for an individual’s share to be supplied to them over the course of their employment.
    • How long an employee needs to stay before the ESOP ‘kicks in’. Also known as the “cliff” or “lock-in” time, it’s important to consider how much equity to give early employees in case they leave with your shares in hand without adding significant value to your organisation.

    Of course, an ESOP is not the only option for offering employees equity in your company.

    Other options include:

    • performance share plan (PSP)
    • restricted share plan (RSP)
    • share appreciation rights plan (SARP)
    • phantom share plan.

    To figure out which is right for your company, you’ll need the help of trusted professionals to examine different setups and scenarios before going ahead.

    Cut the complexity with a global strategy

    Incentivising your employees with ESOPs is an effective way to boost engagement and productivity. But it is not without its complexities, especially if your presence stretches across the Asia-Pacific or globally.

    And with the trend of remote and hybrid working looking set to continue, who knows how far and wide your people could reach?

    Each country will have different regulations and options for offering ESOPs, so it’s important to partner with someone who understands the intricacies of local regulations to ensure you are compliant.

    Just as there are many benefits of consolidating multinational taxes with one agency, there are benefits to consolidating your employee stock options across multiple jurisdictions.

    These include:

    • Mitigating risk: having a team of professionals that understands not only Malaysia’s laws but those across the entire Asia-Pacific region can help your business mitigate risk when it comes to offering equity.
    • Improving employee experience: streamline your correspondence with a share management platform that provides timely and clear communication in multiple currencies and languages across the region. This ensures everyone on the team, globally, has the same level of access, understanding and experience of the information at hand.
    • Reducing administrative burden: implement efficient, automated processes and a single point of contact to ensure you receive clear and consistent communication across your locations.

    At BoardRoom, we offer Employee Stock Options Plans (ESOP) Services for your business. We use leading technologies and a panel of experts to guide you through implementing and administering your ESOP. Our team of experienced professionals have in-depth knowledge of the local Malaysian regulations, as well as regional and international experience. 

    Wherever your employees work, we’ll be able to support the implementation and ongoing administration of your employee stock option plan to ensure they remain engaged and loyal for the long term. 

    Speak to our team of experts today to get started on implementing an ESOP in your company.

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