Boardroom Malaysia https://www.boardroomlimited.com/my Smart Business Solutions Tue, 14 Sep 2021 09:23:30 +0000 en-US hourly 1 https://boardroomlimitedwp.s3.ap-southeast-1.amazonaws.com/wp-content/uploads/sites/2/2018/10/24085252/favicon-60x60.png Boardroom Malaysia https://www.boardroomlimited.com/my 32 32 A guide to the payroll process and compliance in Malaysia https://www.boardroomlimited.com/my/2021/09/14/payroll-process/ Tue, 14 Sep 2021 09:23:30 +0000 https://www.boardroomlimited.com/my/?p=7403 The post A guide to the payroll process and compliance in Malaysia appeared first on Boardroom Malaysia.

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Guide: The payroll process and compliance regulations in Malaysia

With Malaysia’s strategic location, market competitiveness, skilled multilingual talent pool and world-class technology capabilities, it’s easy to see why so many companies choose to establish operations there.

If your company is considering expanding into Malaysia, one of the keys to success is to understand the payroll process and compliance regulations from the outset. The last thing you want is for your newly established operation to attract the wrong kind of attention from government auditors.

That’s why we’ve prepared a helpful guide to the payroll process and compliance regulations your company needs to know when starting out in Malaysia.

Payroll process and compliance essentials in Malaysia

Before we examine some common payroll compliance challenges in Malaysia, it’s useful to understand the essentials of the payroll process and the main compliance considerations. Let’s start with a primer on the fundamentals of payroll in Malaysia.

Working conditions and wages
  • Working hours: Malaysia has an eight-hour workday with an average working week of no longer than 48 hours, and (most commonly) one day off per week. Government protection provisions prevent women from working in the industrial or agricultural sectors between the hours of 10pm and 5am. Women must also have at least 11 consecutive hours off work between each shift.
  • Pay cycles: salaries in Malaysia are typically paid monthly.
  • Minimum wages: Nationally, the minimum wage is RM1,100, except for areas under 56 city and municipal councils where the minimum wage is RM1,200. Our team of payroll experts here at BoardRoom can advise you on the relevant government guidelines that apply to your employees.
  • Overtime, rest day and holiday pay rates: Employees covered by the Employment Act 1955 (“EA 1955”) should be paid overtime at 1.5 times their hourly pay rate. Rest days are paid at two times, and public holidays at three times the hourly pay rate. However, the EA 1955 only applies to:
    • employees whose monthly salary does not exceed RM2,000;
    • employees within the private sector;
    • employees working in Peninsular Malaysia or the Federal Territory of Labuan; and
    • employees (irrespective of salary) involved in manual labour, operating or driving transport vehicles and domestic servants.

For non EA 1955 employees, employers can stipulate relevant provisions relating to overtime rates within their employment contracts.

Income tax
  • Withholding tax: Malaysia has a monthly tax deduction (MTD) system requiring employers to deduct withholding tax at source. Each month, employers must then send this tax to the Inland Revenue Board (IRB) of Malaysia on behalf of their employees.
  • Income tax rates: the maximum income tax rate in Malaysia is 30%, which applies to those with incomes greater than MYR 2,000,000 or ‘non-residents’. Employees who work between 60–182 days per year in Malaysia are considered ‘non-residents’, irrespective of their actual citizenship status.
  • Tax clearing and tax filing: employees must complete their tax clearing and filing at year-end before April. The financial year in Malaysia runs from 1 January to 31 December.
international payroll processing companies
Holidays and leave
  • Paid public holidays: Employees are entitled to be paid for 11 gazetted public holidays per year. Of these 11 days, five must be:

1. Hari Kebangsaan or National Day;
2. Birthday of Yang di-Pertuan Agong;
3. Birthday of the Ruler or Yang di-Pertua Negeri or Federal Territory day (varies per state);
4. Labour Day; and
5. Malaysia Day (16 September).

The remaining six paid public holidays are chosen at the discretion of the employer from the following list and these must be communicated to employees either via written notice or as stated in their employment contracts:

  • Birthday of the Prophet Muhammad (s.a.w);
  • Chinese New Year (2 days, except 1 day in the states of Terengganu and Kelantan);
  • Vesak Day;
  • Hari Raya Puasa (2 days);
  • Hari Raya Haji (1 day, except 2 days in the states of Terengganu and Kelantan);
  • Deepavali;
  • Christmas Day; and
  • Awal Muharam.

However, the government can declare additional ad hoc, paid public holidays throughout the year. If these days are declared at short notice, employers can nominate a replacement day.

In addition, there are a number of state based holidays observed around the country. However, employers are not required to pay employees for these holidays unless they have selected them to be included in their list of paid public holidays for their employees.

  • Compulsory annual leave entitlements: employees are typically entitled to between 8-16 days of paid annual leave, depending on their length of service with the company.
  • Compulsory sick leave entitlements: Employees are entitled to between 14-22 days of paid sick leave, depending on their length of service with the company.
  • Compulsory maternity leave entitlements: New mothers are entitled to 60 consecutive days of paid leave for each of their first five children.
  • Optional leave entitlements: employees can also apply for the following optional leave types, which are typically unpaid and subject to employer approval:
    • compassionate/bereavement leave;
    • marriage leave; and
    • study leave.
  • Paternity leave: most employers also offer 1-3 days of paid paternity leave, but this is not a statutory requirement.
Social security and statutory contributions
  • Employees’ Provident Fund (EPF): employers and most employees (Malaysian citizens or permanent residents only) must contribute to the EPF retirement benefits scheme. The EPF contribution rate for employees varies depending on their monthly salary, whereas the employer contribution is 12%.
  • Social Security Organisation (SOCSO): employers must contribute to Malaysia’s mandatory social insurance schemes, which are administered by SOCSO. There are two schemes:
    • The Employment Injury Insurance Scheme (EIIS) provides cover for employees who experience work-related injuries or diseases. The EIIS applies to all Malaysian citizens, permanent residents, and foreign workers (excluding domestic servants).
    • The Invalidity Pension Schemes (IPS) provides cover for employees who experience invalidity or die from causes unrelated to their work.

Employers must make a monthly contribution to SOCSO on behalf of each eligible employee.

  • Employment Insurance Scheme (EIS): employers are required to make monthly contributions for each employee. The EIS provides financial assistance to workers who have lost their job while they seek new employment.
  • Human Resources Development Fund (HRDF) Levy: this is a compulsory levy paid by employers with 10 or more employees (Malaysian citizens only) working in the manufacturing, services, mining and quarrying sectors. The levy rate is 1% of each eligible employee’s monthly wage. It allows companies registered with the HRDF to receive financial assistance when they participate in specific training and upskilling programs delivered by HRDF training providers.
  • Other contributions>: some employees may also be required to make student loan repayments to the National Higher Education Fund Corporation, or make donations known as Zakat to fulfil their religious obligations.
payroll Malaysia

Common payroll compliance issues to be aware of in Malaysia

Payroll errors can result in your company needing to pay expensive fines. They can also cause reputational damage and employee dissatisfaction. To help you avoid unpleasant situations, here are some common payroll compliance issues to be aware of in Malaysia:

  • Late MTD payments: the Inland Revenue Board (IRB) imposes penalties if employers fail to pay monthly employee income tax withholdings by the 15th of each month.
  • Failing to include perquisites, benefits-in-kind or equity incentives in compensation reporting: sometimes these benefits are not paid through payroll, which means they can be easily overlooked in compensation reporting.
  • Incorrect classification of employees: Foreign workers, non-residents and secondees are often classified incorrectly during payroll data system entry. As a result, your company might underpay these employees and deduct the wrong income tax amounts.
  • Failing to stay up-to-date with regulation changes impacting payroll: In Malaysia, there are four regulatory bodies that influence payroll processing rules which makes it more of a challenge staying up-to-date with payroll requirements.
  • Overlooking cultural norms: It’s common in Malaysian payroll processing to include ‘13th-month pay’ – a single annual payment on top of an employee’s total annual wage. This payment isn’t mandatory and would not be considered non-compliance if you did not adhere to it, but it is the cultural norm that could impact employee satisfaction.
payroll processing companies

Want expert help in processing your company’s payroll in Malaysia?

Our team of payroll experts can guide you through the complexities of the payroll process in Malaysia to help make your business expansion more successful. We can set up your company’s payroll so that you get it right the first time, every time.

It doesn’t matter whether you are a large multinational corporation or a fast-growing SME. Outsourcing to an international payroll processing company like BoardRoom ensures your company has an efficient, accurate and compliant payroll process right from the start.

Speak to our team of specialists today about how outsourcing payroll can give you more time to focus on what really matters: your company’s growth and profitability.

Related Business Insights

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10 advantages of outsourcing your payroll services https://www.boardroomlimited.com/my/2021/09/09/advantages-of-outsourcing-payroll-services/ Thu, 09 Sep 2021 06:07:23 +0000 https://www.boardroomlimited.com/my/?p=7393 The post 10 advantages of outsourcing your payroll services appeared first on Boardroom Malaysia.

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10 advantages of outsourcing your payroll services

Outsourcing is the key to making your payroll process seamless. It means everyone gets paid the right amount at the right time, every time.

All too often HR professionals find themselves spending far too much time processing pay runs at the expense of dedicating time to strategy and higher-value tasks.

Payroll is a time-intensive process – not just because you need to complete the necessary process tasks, but also because you need to ensure compliance with tax and legislative requirements.

The key advantage of outsourcing payroll services is that you can get back your time to focus on what really matters: the strategic business drivers that grow your company and culture.

Here are the top ten benefits your company stands to gain by outsourcing your payroll.

01 Save time

Outsourcing payroll is the low-hanging fruit for increasing company efficiency. Instead of spending hours every pay cycle on payroll processing, an administratively heavy task, HR teams can focus on achieving more strategic objectives, like increasing employee engagement to boost organisational productivity.

02 Reduce costs

Saving time also saves you money, which can come in the form of a lower wage bill. For example, as companies scale, they can save money by outsourcing payroll instead of spending it on expanding in-house HR teams purely  to manage a growing payroll. You may also see savings to your business from not needing to maintain cloud security for your payroll software or manage paperwork.

how to outsource payroll

03 Minimise compliance and regulatory risks

Regulatory changes that affect payroll happen at break-neck speeds, which can make staying compliant a challenging, time-consuming process. In Malaysia, four regulatory bodies develop payroll processing rules. They each issue notifications when a change to the law is made and your company needs to ensure that these changes are accurately translated into payroll formulas.

It is easy to make mistakes when updating payroll formulas, especially if they involve IF, AND, OR logical functions. If the formula is wrong, payroll is calculated incorrectly which can cause problems like under or over paying wages and tax. Chances are, you may not even realise that an error has occurred until after receiving an expensive non-compliance fine.

Outsourcing your payroll to a specialist service provider, like our team of experts here at BoardRoom, can minimise your exposure to these compliance and regulatory risks because we take care of it all for you, including updating payroll formulas correctly.

04 Gain access to specialised, local knowledge

Having a dedicated team of professionals with local knowledge of Malaysia’s labour laws is essential for your company. It means your business can take advantage of the team’s years of payroll experience without being exposed to the strict protocols and multi-level cross-checking that they’re subject to.

This is especially beneficial for companies that operate in different states or across multiple countries because an external partner will work with you to ensure compliance in each area, freeing up your in-house HR team.

05 Build payroll continuity

Some companies operate payroll systems that require staff to be on-site in order to process payroll. If the unexpected happens, as an example; your payroll staff can’t get to the office to perform their duties, or a key member of your team responsible for payroll approval resigns, how will your employees get paid? Outsourcing payroll to an expert provider guarantees payroll continuity so that your employees are paid on time, every time.

06 Enhance data security and protection

Data security is crucial for payroll processing because of the incredibly sensitive information involved such as employees’ personal data and compensation details. In Malaysia, HR departments must adhere to local laws such as the Personal Data Protection Act 2010 (“PDPA”).

If your company has limited time and budget resources, it can be challenging to maintain an appropriate level of data security and protection in-house. For one, in-house teams need to keep pace with ever-evolving cybersecurity threats. Secondly, your company is more exposed to payroll fraud when payroll is processed in-house. Third, in-house teams may not have the appropriate protocols to ensure that data is backed up regularly.

Quality payroll outsourcing providers store their data on highly secure cloud-based servers using state-of-the-art encryption. They perform regular backups to ensure that data is protected. Data protection and security are top priorities for us at BoardRoom, which is why our data centres have achieved ISO27001, and our cloud hosting has SOC 2 certification.

outsource-your-payroll

07 Reduce stress

Getting your employees paid accurately and on time is critical to the success of your company. And as every HR professional knows, there is no room for error when it comes to payroll. However, managing payroll effectively can be challenging for in-house teams when they are trying to keep up with local regulatory compliance while simultaneously managing the needs of a growing workforce. This is especially true if your company operates in  multiple countries across the APAC Region.

Our team of payroll experts here at BoardRoom will take care of payroll management for you, ensuring that pay runs are efficient, accurate and compliant. Our team has worked across multiple industries, countries and situations, so you can rest assured knowing that your payroll is in the best of hands. Ultimately, this means less stress for your HR teams.

08 Increase flexibility

Another advantage of outsourcing payroll services is that you can stay flexible in rapidly changing business environments. Outsourcing allows you to quickly scale your payroll service requirements as needed, instead of having to recruit, onboard, train and retain additional in-house staff.

09 Gain access to a pool of payroll knowledge experts

As the saying goes, ‘two heads are better than one’. Outsourcing to a professional payroll service provider gives your company access to a pool of payroll knowledge specialists without the expense of retaining them in-house. Our team of experienced payroll experts have managed payroll for businesses of all sizes, types and industries across the APAC Region. Take advantage of their vast experience and knowledge to really build your business so you can take it to the next level.

10 Integrate knowledge with value-add services

The best payroll outsourcing vendors are not only experts in all things payroll, but also offer a variety of integrated, value-add corporate services, including:

By consolidating all your back office functions into one vendor you stand to gain greater efficiencies and business productivity.

Outsourcing makes payroll easy

Spend less time sorting out pay runs and more time on your company’s growth and profitability by outsourcing your payroll function to our team of BoardRoom payroll experts.

Whether you are a large multinational corporation or a fast-growing SME, our team makes processing your payroll in Malaysia and across the APAC region easy.

So if you want efficient, accurate, compliant payroll processing, speak to our payroll specialists today about how to outsource your company’s payroll function.

Related Business Insights

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What is an Employee Share Plan? (ESAS vs ESPP) https://www.boardroomlimited.com/my/2021/07/09/what-is-an-employee-share-plan/ Fri, 09 Jul 2021 07:51:09 +0000 https://www.boardroomlimited.com/my/?p=7318 The post What is an Employee Share Plan? (ESAS vs ESPP) appeared first on Boardroom Malaysia.

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How Employee Share Plans work in Malaysia

Essentially, an Employee Share Plan is a remuneration package that can reward employees of both privately held, and publicly listed, companies in Malaysia with either:

  • the company’s ordinary shares; or
  • the option to buy these shares in the future at a subsidised rate.

Employee Share Plans are an effective way to attract and motivate your employees while providing an incentive for them to contribute to long-term company performance. These plans can help you to retain and reward your talent whilst managing company cash flow or working capital.

You can use several Employee Share Plan types to provide cash-free remuneration to staff, including:

  • Employee Share Option Schemes (ESOSs);
  • Performance Share Plans (PSPs);
  • Restricted Share Plans (RSPs); and
  • Employee Share Purchase Plans (ESPPs).

Our guide to each type below can help you to decide on the best option for your company.

Employee Share Option Schemes (ESOSs)

An ESOS gives employees the contractual right to buy company shares at an exercise price in future. Reason being, the greater the share price, the greater the gain from exercising their options. Typically, you will assign a preferential, pre-determined price or benchmarked value to the share options.

An ESOS case study example

Nora Yeoh, the Chief Operating Officer of Jack Manufacturing Company, has received a share option offer to acquire 50,000 company shares. The offer price (also known as the exercise price) per share is RM20.00. There can be a moratorium period which Nora will not be able to exercise the options, this is called a vesting period. Once the moratorium has been lifted, Nora’s options are now vested and Nora can pay an exercise cost to acquire the shares within a specified period of time.

There could also be a performance criteria that Nora will have to fulfil before the options vest.

Assuming that the share options vest and Nora still works at the company on 1 April 2020, she can choose to exercise her share options. If she does this, she will pay RM20.00 per share to receive 50,000 shares in the company.

Malaysia Employee share option schemes

Share Award Schemes (SASs)

A Share Award Scheme (SAS) is very similar to an ESOS. The key difference is that employees are rewarded with actual share ownership from the outset, instead of only receiving the option to buy future shares.

As with an ESOS, there could also be certain criteria or performance metrics that the employee will have to fulfil. 

To prevent share dilution, companies often only allot 15% of their current outstanding ordinary shares at any time to use in an SAS.

As outlined in the table below, there are two types of SAS:

  • Performance Share Plans (PSPs); or
  • Restricted Share Plans (RSPs).
Type of SAS Plan Duration Vesting Period Performance Metric Participant Target Companies
PSP 3-5 Years End of Plan (with Annual Evaluation) – Total Shareholder Return

– Return on Equity

– Return on Sales

– Market Ranking

– Directors

– Non-Executive Directors

– Senior Managers

– Heads of Department

 

– Listed and Private Companies
RSP 3 Years Annually – EBITDA

– Economic Value Added

– Manager  

Performance Share Plans (PSPs)

Performance Share Plans are typically aimed at a company’s senior management team. They provide incentives to focus on delivering long-term company performance that creates shareholder value. To help achieve longer-term company objectives, PSPs tend to have longer plan durations (often 3-5 years), and the shares vest at the end of a PSP.

Some companies have a claw-back policy that requires the individual to return a certain number (if not all) of their rewarded shares if their performance is dissatisfactory.

A PSP case study example

After joining the Jack Manufacturing Company Performance Share Plan (PSP), Sarah Perry was allotted 1,000,000 shares on 1 April 2020. At each annual performance evaluation, Sarah receives a score that is independent of her score in previous years.

At the end of her three-year period, Sarah receives 900,000 ordinary shares, based on the average of all of her scores. She can choose to keep or sell these shares. However, she knows that keeping them allows her to enjoy voting rights and makes her eligible to receive dividend payments.

Sarah’s PSP results appear in the table below:

Evaluation Date (Annually) 2 April 2021 2 April 2022 2 April 2023
Score Card 95% 110% 65%
Average Score across 3 years (95% + 110% + 65%) / 3 = 90%
Total Awarded 1,000,000 x 90% = 900,000 Ordinary Shares

Restricted Share Plans (RSP)

Restricted Share Plans work similarly to PSPs, but over a shorter term.  The key difference is that shares in an RSP vest annually, which means these plans tend to better suit companies with short-term objectives. 

An RSP case study example

After joining the Jack Manufacturing Company Restricted Share Plan (RSP), Peter Li was allotted 1,000,000 shares on 1 April 2020. The RSP plan has a three-year duration and two vesting periods.

The first vesting date is 2 April 2022. On this date, 50% of Peter’s allotted shares will vest based on his performance from 2 April 2020 until 1 April 2022.

The second vesting date is on 2 April 2023. On this date, the remaining 50% of Peter’s allotted shares will vest, depending on his performance from 2 April 2020 till 1 April 2023.

During the first vesting period, Peter only manages to reach 95% of his pre-set target. The Remuneration Committee (RC) therefore decides to vest only 450,000 shares. They could place the remaining 50,000 shares back in the company’s treasury account, or evaluate it again towards the second vesting period.

For simplicity, let’s assume for this example that they place Peter’s unvested 50,000 shares back into Jack Manufacturing Company’s treasury account.

During the second vesting period, Peter performs well and manages to reach his target. The RC therefore decides to reward him with 500,000 shares.

At the end of the three-year period, Peter has received a total of 950,000 ordinary shares. Like Sarah, he can choose to keep or sell the shares.

Peter’s PSP results appear in the following table:

Vesting Period 2 April 2022 2 April 2023
Performance Metrics 95% 100%
Vested 450,000 500,000
Unvested 50,000 0
Total Awarded 450,000 + 500,00 = 950,000
Employee Shared Plan in Malaysia

Employee Share Purchase Plan (ESPP)

You can offer this type of Employee Share Plan to all company employees. Effectively, it means your company subsidises employees to buy ordinary shares in the company.

In an ESPP, you automatically deduct a portion of the employee’s gross income every month and place it in a separate company account for a minimum one-year period. 

At the end of the year, the employee can either:

  • choose to use those funds to purchase ordinary shares; or
  • have the money transferred back to their personal account.

As an extra incentive for employee participation, you can also offer a good interest rate on the set-aside funds. This means that the employee benefits even if they don’t choose to buy your company’s ordinary shares. 

Other effective participation incentives include:

  • subsidising a certain amount (such as 25%) of the total cost of any shares that an employee purchases; and
  • share purchase matching, in which your company uses its own funds to buy x number of ordinary shares for every x number of ordinary shares the employee buys.

We can help you to identify which ESP is best for your company

In theory, you can use any of the Employee Share Plans in this article to provide cash-free remuneration to staff. However, you still need to consider the complexities and administrative costs of each option.

In our experience, coming up with a single Employee Share Plan that will work for everyone is not possible. That’s why we have designed a specialised digital Employee Share Plan system that is completely flexible.

Our experts can provide you with a purpose-built solution for your needs that will increase efficiencies and reduce costs, while still complying with current and future reporting requirements.

Looking for a trusted Employee Share Plan firm in Malaysia?

We have designed an all-encompassing Employee Share Plan solution that combines the experience of our expert team with a powerful digital platform, EmployeeServe.

Related Business Insights

The post What is an Employee Share Plan? (ESAS vs ESPP) appeared first on Boardroom Malaysia.

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Digital vs Electronic Signatures in Malaysia: a Guide https://www.boardroomlimited.com/my/2021/06/04/digital-signature-malaysia/ Fri, 04 Jun 2021 02:05:16 +0000 https://www.boardroomlimited.com/my/?p=7270 The post Digital vs Electronic Signatures in Malaysia: a Guide appeared first on Boardroom Malaysia.

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When a face-to-face meeting is impossible, paperless signatures are a practical option for your business in Malaysia. They are fast, convenient and environmentally friendly.

However, you need to carefully consider the legal implications of using digital or electronic signatures over the traditional ‘wet-ink’ variety. While the terms ‘electronic’ and ‘digital’ are often used interchangeably to refer to paperless signatures, each one is a separate legal concept under Malaysian law.

In this article, we cover the differences between electronic and digital signatures in Malaysia, and explain when they are legally binding, and where you can use them.

What you need to know about electronic signatures in Malaysia

An electronic signature is defined by the Electronic Commerce Act 2000 (“ECA”) as:

 “any letter, character, number, sound or any other symbol or any combination thereof created in an electronic form adopted by a person as a signature.”

Electronic Signature in Malaysia
Are electronic signatures legally binding in Malaysia?

The ECA legally recognises electronic signatures used in commercial transactions either:

  • to fulfill legal requirements; or
  • to facilitate commercial transactions through electronic means.

In Malaysia, electronic signatures are typically used for simple contracts and agreements (such as the ones outlined below) where the risk of legal disputes around document validity is low.

Electronic signatures are legally binding under Malaysian law, where they fulfil the ECA requirements, being:

  1. that the signature is attached to, or logically associated with, an electronic message;
  2. the signer and their approval of the related information can be adequately identified; and
  3. the signature is as reliable as is appropriate, given the purpose and circumstances for which the signature is required.

To be considered ‘reliable’, electronic signatures must also fulfill these ECA requirements:

  1. the means of creating the electronic signature is linked to, and under the control of, that person only;
  2. any alteration made to the electronic signature after signing is detectable; and
  3. any alteration made to that document after signing is detectable.

Some grey areas surround these requirements as they have largely been untested in Malaysia Courts. However, we recommend that companies adopt internal guidelines relating to the use of electronic signatures that outline the approvals process, digital security measures, electronic record keeping policies and compliance and internal audit team procedures. These guidelines can be used to provide evidence that the ECA requirements have been met. Companies may consult their lawyers or corporate secretarial agents for assistance in this regard.

Common electronic signature applications in Malaysia

Common electronic signature applications

There’s a reasonably broad scope when it comes to applying electronic signatures in Malaysia to execute documents. For example, case law suggests that even a text message can be considered a legally binding electronic signature under the ECA.

More typically, electronic signatures are commonly used in:

  • HR documents: Employment contracts, benefits paperwork and new employee onboarding processes;
  • Commercial agreementsbetween corporate entities: Non-disclosure agreements, procurement documents and sales agreements;
  • Commercial real estatedocuments: Lease agreements, and sales and purchase contracts; and
  • Minutes and resolutions:(subject to the company’s constitution).

When deciding whether to use an electronic signature in Malaysia, it is important to note that while electronically signed documents are legally enforceable, wet-ink signatures may still be required for stamping and some filing and registration procedures. Some financial institutions may also require wet-ink signatures.

Where you can’t use electronic signatures

In Malaysia, electronic signatures are not allowed in:

  • Power of Attorney documents as per section 2 (2) of the ECA;
  • Wills, codicils and trusts as per section 2 (2) of ECA;
  • Negotiable instruments, bills of exchange, and promissory notes as per section 2 (2) of the ECA;
  • Any instrument dealing with properties under the Malaysian National Land Code; and
  • Statutory Declarations under the Statutory Declarations Act 1960.

The documents listed above cannot be executed via e-signature or digital signature because they require notarisation or attestation before a public notary or commissioner of oaths. As such, wet-ink signatures are required for these documents.

What you need to know about digital signatures in Malaysia

Digital signatures are considered a subset of electronic signatures in Malaysia and are governed by the Digital Signatures Act 1997 (“DSA“).

A digital signature is defined by the DSA as:

“a transformation of a message using an asymmetric cryptosystem such that a person having the initial message and the signer’s public key can accurately determine:

a. whether the transformation was created using the private key that corresponds to the signer’s public key; and
b. whether the message had been altered since the transformation was made.”

Digital Signature in Malaysia

Electronic signature software providers like DocuSign and HelloSign use certificate-based digital IDs to authenticate each signer’s identity, providing a higher level of security and assurance. Each digital signature is bound to the document via encryption to provide proof of signing, and is validated by licensed certification authorities.

In Malaysia, it is the role of licensed certification authorities to act as a trusted third party in verifying the identity of both the signer and the recipient of electronically signed documents.

Think about it this way, a digital signature requires a process, whereas an electronic signature can be implied – such as in the case of a text message.

Are digital signatures legally binding in Malaysia?

A digital signature that meets the DSA’s validity requirements is as legally binding in Malaysia as a handwritten signature, an affixed thumbprint or any other mark.

When the law requires a seal to be affixed to a document, a digital signature must be used.

Where you can’t use digital signatures

In Malaysia, like electronic signatures, digital signatures are also are not allowed in:

  • Power of Attorney documents as per section 2 (2) of the ECA;
  • Wills, codicils and trusts as per section 2 (2) of ECA;
  • Negotiable instruments, bills of exchange, and promissory notes as per section 2 (2) of the ECA;
  • Any instrument dealing with properties under the Malaysian National Land Code; and
  • Statutory Declarations under the Statutory Declarations Act 1960.
Digital signatures must be validated by select authorities in Malaysia

Currently, there are no foreign certification authorities recognised in Malaysia. Digital signatures can only be validated with one of the following licensed certification authorities:

  • Post Digicert Sdn Bhd;
  • MSC Trustgate Sdn Bhd;
  • Telekom Applied Business Sdn Bhd;
  • Rafcomm Technologies Sdn Bhd;

Optimise your business with digitisation

A smart way to optimise your business processes is to use electronic and digital signatures, particularly when face-to-face meetings are not practical or possible. But – as we covered in this article – you need to fulfill specific legislative requirements in Malaysia to ensure that paperless signatures are legally binding.

Get in touch with our experts today to learn more about how they can help you implement innovative technological solutions to empower your business. 

Related Business Insights

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Closing Down a Company in Malaysia? Here’s what you need to know https://www.boardroomlimited.com/my/2021/05/05/closing-company-malaysia/ Wed, 05 May 2021 06:51:33 +0000 https://www.boardroomlimited.com/my/?p=7217 The post Closing Down a Company in Malaysia? Here’s what you need to know appeared first on Boardroom Malaysia.

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Change is something that you negotiate every day as a business leader.

It doesn’t matter whether you’re navigating changes in technology, shifting customer preferences or ongoing economic instability, or dealing with a mandatory regulatory update. In every case, the end-goal remains the same: staying competitive.

And irrespective of your company size and success, sometimes the best way to stay competitive is to implement a well-thought-out exit strategy.

Several options are available if your exit strategy involves closing down a company in Malaysia. Below is our guide to three tried-and-tested methods so you can identify the best option for your business.

01 Striking off a company

A simple, cost-effective method to close down an Sdn Bhd or private limited company is to request that the Companies Commission of Malaysia (“CCM”) strike it off from the register pursuant to Section 550 of the Companies Act 2016 (the “Act”).

To be considered for strike-off, your company must:

  • not carry on business/operations (and must not intend to do so);
  • have no assets or liabilities, including any outstanding charges in the Register of Charges;
  • have no outstanding penalties or compounds relating to the Act;
  • have no outstanding tax or other liabilities, and have no debts to any government department or agency;
  • not have made any return of capital to shareholders (including dividends);
  • ensure your information is up-to-date with the Registrar;
  • not be involved in any impending legal proceedings; and
  • not be a holding company or a “Guarantor Corporation”.

Your company needs to meet all of these requirements before you submit your application to the CCM.

A clear advantage of the company strike-off method is the speed of the process: in our experience, it typically only takes one year. This is relatively quick compared to other options for closing down a company in Malaysia.

However, this method does have a couple of potential pitfalls. These include:

  • the CCM having the final say in the strike-off decision;
  • anyone who suffers grievances from the strike-off having an open legal avenue to reinstate the company within seven (7) years; and
  • after a company is struck off the Register, the company will dissolve and cease to exist. The company will no longer be able to conduct any form of business or transactions. However, the liability of every director, officer or shareholder of the company will continue and may be enforced as if the company had not been dissolved. In other words, even if a company is struck off, any past misconduct or breaches of law that relate to a director, officer or shareholder of the company will still be enforceable against them.

In summary, the striking off mechanism provides many advantages to business owners who do not wish to go through the more lengthy and tedious process of winding up a company.

Want to lower your chances of getting caught by these pitfalls? Our experienced corporate secretarial experts in Malaysia combine expertise and local know-how to give you peace of mind. Let them handle all of the compliance and administrative requirements of the strike-off process on your behalf, so that you can stay focused on the bigger business picture.

02 Winding up a company by a Members’ Voluntary Liquidation

Winding up a company – also known as going into liquidation – is longer and more complex than simply striking off a company. So at first glance, it can look less appealing than a strike-off.         

However, in some circumstances, winding up a company may be more appropriate for your business.

For example, your shareholders might want to benefit from the proceeds gained by the company after selling off the assets. But – as we mentioned in the previous section – if your shareholders receive any capital from the company, the company won’t be eligible to apply for strike-off.

In this case, a company wind-up might be your best option.

Generally, the voluntary options for winding up a company in Malaysia are either:

  • a members’ voluntary liquidation (“MVL”); or
  • a creditors’ voluntary liquidation (“CVL”).

While you need to appoint a liquidator for both options, in an MVL (where the company must be financially solvent), the surplus of the company will distribute to members upon the settlement of the debts and expenses. By contrast, in a CVL (where the company is not financially solvent), the proceeds realised from selling off the assets will be paid to the creditors.

To start an MVL:

  • the company must be solvent; and
  • the Board of Directors must adopt a Declaration of Solvency and form an opinion that the company can settle all debts within twelve (12) months from the commencement date of liquidation.

After adopting this Declaration, you will need to convene a members’ meeting, which has two important functions:

  1. to seek shareholder approval to voluntarily liquidate the company; and
  2. to appoint the liquidator.

At this point, you will need to open a bank account specifically for the liquidation process.

From here, the liquidator will notify all relevant parties that the MVL process has started. These parties include the:

  • Board;
  • Company Secretary;
  • auditors;
  • tax agents;
  • Employees’ Provident Fund (“EPF”);
  • Inland Revenue Board (“IRB”);
  • Social Security Organisation (“SOCSO”);
  • Royal Customs of Malaysia (“RCM”); and
  • Human Resource Development Fund Malaysia (“HRDF”)

Then, during the liquidation process, the liquidator must prepare and submit “Liquidator’s accounts” to the CCM and the Official Receiver every six (6) months.

If the liquidation process takes more than a year, an annual meeting of members will be held to report on the winding-up processes undertaken to date. An MVL typically takes between 1-2 years to complete, depending on how long it takes to obtain tax clearance from the IRB.

However, after receiving tax clearance, the liquidator shall prepare the final account and convene a final meeting to finalise the liquidation process.

If you believe an MVL is the right option for your company, save time and skip the complexity by using our professional liquidation services. Our team of corporate secretarial experts in Malaysia will help you to dissolve your company quickly and effectively.

03 Closing a foreign company’s branch office in Malaysia

This option is only available if you have established your business in Malaysia as a foreign company (known locally as a “branch office”).

You can close your foreign company’s branch by lodging Form 578 (1) – Notice by Foreign Company of Cessation of Business with the CCM within seven (7) days from ceasing of its operation. Upon the expiration of twelve (12) months after lodging of the said form, CCM will remove the branch office name from the register.

If this option applies to your business, we can help you settle any outstanding branch office operational matters such as:

  • employee payroll
  • filing of statutory forms with the relevant government authorities
  • notifying of tax agents, auditors and other regulatory authorities (if applicable) that the branch has closed
Take advantage of our exit strategy expertise

Before you decide on a company exit strategy, you need to carefully consider any compliance, regulatory and tax implications that may be unique to your business.

BoardRoom’s experienced team can advise you on the best course of action for closing down a company in Malaysia. More than that, we can also take care of all the formalities and guide you step-by-step through the complexities.

Get in touch with our corporate secretarial experts to learn more.

Related Business Insights

The post Closing Down a Company in Malaysia? Here’s what you need to know appeared first on Boardroom Malaysia.

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Two Ways to Directly Boost Your HR Efficiency in Malaysia https://www.boardroomlimited.com/my/2021/02/09/outsourcing-payroll-in-malaysia/ Tue, 09 Feb 2021 08:39:23 +0000 https://www.boardroomlimited.com/my/?p=7152 The post Two Ways to Directly Boost Your HR Efficiency in Malaysia appeared first on Boardroom Malaysia.

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Two Ways to Directly Boost Your HR Efficiency in Malaysia

An essential part of any organisation, the modern HR team is now responsible for more than just administrative work. On top of handling traditional roles like payroll processing and recruitment, HR teams are also expected to lead talent driven activities such as training and employee engagement.

Even the most seasoned HR departments can struggle with juggling the time-consuming administrative tasks and maintaining a high-performing workforce. Especially in an increasingly digitalised industry where human connection is diminished.

There are many solutions businesses can implement that will impact efficiency and HR excellence, perhaps the two most effectual would be the adoption of an all-in-one Human Resource Management Software (“HRMS”) and outsourcing your payroll processing to a service provider in Malaysia.

01 Outsourcing to a payroll service provider in Malaysia

Outsourcing your payroll processing to a service provider can significantly boost your team’s efficiency almost immediately. Payroll is filled with administrative burden, requires a high level of attention to detail and is realistically only a sub-function of your HR department. By outsourcing this function, you allow your teams to focus on strategic business drivers that grow your company. As with all business decisions it’s critical to evaluate the advantages against your desired outcomes. Whilst there is a wealth of benefits associated with outsourcing your payroll, the top three would have to be: specialised/localised knowledge; reduced cost/timesaving and; data security.

 

Specialised/Localised Knowledge

One of the greatest benefits associated with payroll outsourcing is having a dedicated team of professionals, with local knowledge of Malaysia’s labour laws, running this important function for you. This means your business can benefit from years of experience as well as the strict protocols and multi-level cross-checking payroll vendors are subject to. This can be of particular benefit for companies that operate in different states or multiple countries, where the labour laws can vary. Having a group of specialised regional payroll experts ensures that your company can operate safely across borders and the burden is not placed on your in-house HR teams.

 

Reduced Cost & Timesaving

Payroll processing can be a resource drain when not managed carefully. Calculating payroll taxes and statutory filings, like Social Security Organisation (“SOCSO”) in Malaysia, handling payroll enquiries and disbursement; whilst being simple administrative tasks can be extremely time consuming. Add to this, factors such as rapid expansion and your HR teams can be put under immense pressure which can result in an increased propensity for error and a diversion away from strategic activities that enhance business performance. Payroll outsourcing passes the time-cost saving down to the bottom line.

In addition to this significant saving, there can also be visible savings to your business from not needing to maintain payroll software, manage paperwork and tax liabilities.

 

Data Security

A key concern in today’s highly digitalised world, HR departments are expected to adhere to local laws such as the Personal Data Protection Act 2010 (“PDPA”) in Malaysia. Payroll and employee personnel details are incredibly sensitive information that HR handles on a regular basis.

A good understanding of the personal data life cycle management process will enable proper protocols that comply with local laws. This can be especially complicated to implement for multi-national companies. Having an experienced regional payroll outsourcing vendor can help mitigate risk for your in-house HR team.

Another concern is the back-up of data; if there are any lapses in security or a hardware malfunction, this can paralyse key business functions. Most reliable payroll outsourcing service providers store their data on highly secure cloud-based servers. Backed up across multiple server locations, the servers are usually protected by high-end encryptions. All of which is managed by the outsourced vendor, taking away compliance risks and mitigating time costs.

02 Investing in an integrated Human Resource Management System (“HRMS”)

Another option, if you wish to keep payroll processing in-house is to adopt an all-in-one HRMS to mitigate administrative burden for your in-house teams.

Below are some of the benefits associated with the implementation of a well-integrated HRMS.

 

Increased Productivity

By having an integrated HRMS system in place, HR teams can automate a large portion of the payroll workflow from calculating salaries, claims, deductions and leave.

However, selecting the right HR and payroll system is critical to success. For you to achieve the greatest benefits the system should include key modules like Leave, Claims, Time and Attendance, Personnel and Payroll.

An integrated system will also have added benefits like increasing data accuracy of pay runs through the automation of several payroll processes. For example, statutory payment requirements in Malaysia are automated within the HRMS. The system calculates all mandatory payments or tax deductions such as Employee Provident Fund (EPF), Zakat and Employment Insurance Scheme (EIS), which not only alleviates administrative burden it mitigates the risks of human error.

 

Eliminate Human Errors

When you use an all-in-one system, your risk of human error is significantly reduced. Much of the manual work is automated, from data entry to calculations. You can also ensure that there’s no important data missing and ensure uniformity by setting mandatory or restricted fields within the system.

Possibly the greatest benefit of an interconnected and automated HRMS is the decreased risk of important payroll calculations such as hours worked or tax deductions. This not only saves time but also ensures accurate disbursements to your staff every time.

 

HRMS simplifies employee service

A vital function of HR is employee servicing. The number of administrative tasks can be overwhelming for an in-house HR team especially those from larger businesses.

Self-service functions empower both the HR team and employees: staff can obtain basic payroll information such as payslips or leave balances without having to add to the HR team’s workload. Employee’s feel empowered as they’re able to access the information they need when they need it.

Reputable providers will also offer a mobile application, so employees have the convenience of accessing all their HR information as their fingertips, anytime, anywhere.

Key to success

Ultimately, there are many solutions available to boost the efficiency of your HR team. In Malaysia, the two most common and effective are outsourcing payroll and adopting an integrated cloud based HRMS.

As with all change, success is dependent on your change management process. In the current Malaysian climate where people are worried for their jobs, it’s important that your change management processes are robust, and all designed with employee welfare in mind.

Efficiency does not always mean downsizing staff, instead, existing resources can be redirected to other roles such as data analysis, facilitation of outsourcing or integration.

What solution works best for your organisation will depend mostly on your current processes and the needs of the company, but it is always best practice to regularly monitor and review HR processes.

Interested to find out more about increasing the efficiency of your HR team in Malaysia? Speak to our payroll experts today.

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Mitigating Costs in an Economic Downturn https://www.boardroomlimited.com/my/2020/12/23/mitigating-costs-in-an-economic-downturn/ Wed, 23 Dec 2020 10:35:04 +0000 https://www.boardroomlimited.com/my/?p=7126 The post Mitigating Costs in an Economic Downturn appeared first on Boardroom Malaysia.

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The onset of the COVID-19 pandemic along with efforts to contain it has plunged much of the global economy into a recession. In April, the International Monetary Fund’s World Economic Outlook (WEO) projects global growth to shrink by 3 per cent. However, its October publication amended the projection to 4.9 per cent. The impact of the pandemic will continue into 2021, where the WEO projects global growth to be at 5.4 per cent, which is 6.5 per cent lower than the pre-COVID-19 projections of January 2020.

Mitigating costs in an economic downturn-Growth projection

Looking forward, we can expect the recession to leave lasting scars despite the extraordinary efforts of governments worldwide to alleviate the situation through fiscal and monetary policy support.

During these unprecedented times, companies need to take affirmative action to mitigate risk amidst the economic downturn. Crafting recession strategies to retain or expand your customer base, learning to embark on affordable yet effective marketing or even taking this opportunity to review and better optimise business operations are all practical solutions businesses can explore. However, the immediate strategy for most companies would be to adopt cost-cutting measures.

In this article, we will share some of the most popular and effective measures companies can take to mitigate costs during an economic downturn.

Look to outsource

Outsourcing is when a company engages a third-party service provider to handle or manage a business function externally instead of choosing to manage the particular service in-house.

Of the numerous functions that exist in a company, payroll is perhaps the one that will offer the most significant benefit when outsourced during an economic downturn. By outsourcing payroll, your company can effectively improve its focus and expand its accessible talent pool, which are all essential to helping the company navigate through an economic recession. But most notably (and most beneficial during an economic downturn), outsourcing can reduce and control a company’s operating cost.

While the actual cost-savings of outsourcing HR and payroll services may vary between businesses, the most common areas where they could come from are:

  • Reduced payroll employees or headcounts
  • Elimination or change of existing payroll management software (often to something like a cloud-based payroll system that offers automation solution)
  • HR and payroll system updates
  • Employee training
  • Hefty penalties that are incurred when payroll mistakes happen

Outside of payroll, some of the most popular services that companies often outsource to mitigate and manage costs are accounting, administrative services (corporate secretary) and human resources.

Look to your accountants

During an economic downturn, it becomes imperative that you have experienced accountants to help you financially navigate through this challenging landscape. Beyond their capacity for keeping financial records, accountants can interpret them and provide you with a clear and succinct evaluation of the company’s current performance and financial position that could positively influence the outcome of any business decision during a recession.

Given their unique position and objectivity, a critical and core function of accountants on mitigating costs during an economic downturn is to uncover opportunities to eliminate unnecessary expenses and save costs. In areas where it is not possible to cut costs completely, your accountant can strategically advise on how payments can be deferred to maintain a healthy cash flow during difficult periods.

In addition to cutting cost, seasoned accountants can also analyse your business trends and provide effective forecasting. Such input is critical to helping you understand the changing performance of your business and assist with realigning projections, which can help you assess the viability of your current business plan and provide insights for new alternatives should the need arise.

Look at tax relief and economic stimulus packages

In an economic downturn, it is essential to monitor tax policy changes that can aid in providing financial relief for the company and improve cashflow. During such times, it is common for banks to begin cutting their interest rates while the government actively works to put forward spending and tax packages as well as offer administrative relief by extending tax-filing deadlines. Governments across the world might even introduce tax credits and tax cuts for companies that have experienced a significant drop in revenue.

Additionally, most governments would also roll out stimulus packages as part of their plan to spur their respective economies. However, it is worthwhile to note that in the long term, these governments intend to recoup the funds that were used to finance the stimulus packages and their plans could impact the bottom line of many businesses later. A likely course of action would be adjustments made to policies and tax rates, including but not limited to Corporate Taxes and the Sales and Service Tax (SST). Therefore, we strongly advise that businesses continually revise their tax plan in response to any possible policy changes to achieve greater savings and maximising any tax benefits.

As you embark on any tax planning efforts and find yourself lacking in experience or resources to do so adequately, it is a good idea to engage a professional. In doing so, you can ensure that your tax plan is continuously revised to strategically leverage every tax benefit, maximise tax deductions, and comply with the local tax regulation and statutory requirements.

Look at better managing your working capital

An economic downturn presents several working capital challenges for businesses across industries. To stay operational, companies must look for new ways to finance their working capital. According to the Hackett Group’s 2020 Working Capital Survey, organisations have focused on the availability of corporate debt as a source of working capital for too long. While this may be a common practice, it increases the company’s exposure to unavoidable risks, such as changing customer demands and disruption to the supply chain. During an economic downturn, these potential risks to your working capital could prove detrimental to the survival of the company.

Companies need to manage their working capital during an economic downturn effectively to mitigate cost through individual strategies that address their levels of debtors, creditors, procurement and inventory, and receivables process.

Mitigating cost and managing working capital in an economic downturn

Look at BoardRoom to help you through this crisis

During an economic downturn, when faced with numerous challenges, companies will naturally seek to hunker down and begin cost-cutting strategies. Such strategies are necessary, but it is also vital to note that even in crisis, there are opportunities. Companies will have to practice greater diligence and adapt to the changing landscape quickly through the adoption of forward-looking, growth-oriented plans that prepare the company for when the economy improves.

BoardRoom can help you through any recession period and prepare your business for the inevitable upturn. As a market leader in providing accounting, payroll and corporate services, our in-house team of dedicated experts can help to provide effective cost strategies regardless of your business size or needs. Our in-depth understanding and experience of economic trends will empower your business to discover and explore new opportunities.

Are you looking for a trusted partner and advisor as you weather this difficult time? We are here for you. Contact our BoardRoom outsourcing experts here!

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Malaysia Budget 2021 – The Tax Highlights for Rakyat and Enterprises https://www.boardroomlimited.com/my/2020/11/18/malaysia-budget-2021-the-tax-highlights-for-rakyat-and-enterprises/ Wed, 18 Nov 2020 02:04:18 +0000 https://www.boardroomlimited.com/my/?p=7101 The post Malaysia Budget 2021 – The Tax Highlights for Rakyat and Enterprises appeared first on Boardroom Malaysia.

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Malaysia Budget 2021 – The Tax Highlights for Rakyat and Enterprises

On 6 November 2020, Finance Minister Tengku Zafrul Aziz delivered the Malaysia Budget for 2021. The budget is anchored on three crucial goals – Rakyat’s well-being, Business continuity, and Economic resilience. The three goals are a continuity of the PRIHATIN, PRIHATIN SME PLUS, PENJANA, and KITA PRIHATIN stimulus packages. Find out more below as we summarise the key tax highlights for Rakyat and Enterprises in the Malaysia Budget 2021. For further details you can download our full report.

Corporate Tax

Key takeaways in relation to corporate tax cover the following areas:

  • Support for companies relocating their operations to Malaysia and undertaking new investments via tax incentives for both new and existing companies. This is an extension from the original incentives unveiled in PENJANA, however, the deadline for application has been extended until 31st December 2022.
  • New incentives added for companies who have Malaysia as their principle hub and a global trading centre.
  • Income tax exemption for Equity Crowd Funding to encourage alternate financing methods for technology start-ups.
  • Tax incentives for Maintenance, Repair & Overhaul activities
  • Preferential tax rate for manufacturers of pharmaceutical products
  • Extension of income tax exemption until YA2022 for export of private healthcare services
  • Simplify and merge the tax incentive for manufacturers of industrialised building system
  • Income tax exemption has been extended for both East Coast Development Corridor, Iskandar Malaysia and Sabah Development Corridor & Sustainable and Responsible Investments (“SRI”)
  • Tax incentives for non-resource-based R&D product commercialization activities will be reintroduced.
  • Tax incentives for commercialization of R&D product by public research institutions will be extended to private higher education institutions.
  • There were also a number of incentives released in relation to employment of senior citizens, ex-convicts, parolees, supervised persons and ex-drug dependents.
  • Income tax deduction on investment on ASNB wakaf fund
  • Extended implementation timelines for the Wage Subsidy Programme

Individual Tax

Several initiatives were released in relation to individual tax:

  • Reduction in income tax rate by 1% for the chargeable income band range of RM50,001 – RM70,000
  • There were also a number of incentives released across
    • Compensation due to job loss
    • National Education Savings Scheme
    • Education fees
    • Private Retirement Scheme contributions
    • Lifestyle expenses
    • Disabled spouse
    • Medical treatment
    • Employee Provident Fund (“EPF”) contributions
  • A special income tax rate for non-resident individuals holding key positions in companies investing in new strategic investments was announced
  • Amongst other incentives a flat 15% tax rate was announced for the Revision of Returning Expert Programme (“REP”)

Sales & Services Tax (“SST”)

The following initiatives were unveiled in relation to SST

  • Sales tax exemption for the purchase of locally assembled bus including air-conditioner
  • Increase of Sales Limit for Value-added and Additional Activities Carried Out in the Free Industrial Zones (“FIZs”) and Licensed Manufacturing Warehouses (“LMWs”)

Stamp Duty

The key takeaways from the budget in relation to Stamp Duty are as follows:

  • Stamp duty exemption of 100% for the purchase of a first residential home
  • Stamp duty exemptions for the revival of abandoned housing projects
  • Stamp duty exemption will be extended for 5 years for the purchase of insurance policies and takaful certificates for “Perlindungan Tenang”
  • Stamp duty exemption will be extended for another 5 years on the Trading of Exchange Traded Fund (“ETF”)

There were a number of other incentives announced around Indirect Taxes. Our full report covers these and the above highlights in more detail.

 

Download the full Malaysia Budget 2021 tax highlights here

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Payroll Outsourcing or SaaS: Which is Best for Payroll Management https://www.boardroomlimited.com/my/2020/10/07/payroll-outsourcing-or-saas-which-is-best-for-payroll-management/ Wed, 07 Oct 2020 14:19:59 +0000 https://www.boardroomlimited.com/my/?p=7052 The post Payroll Outsourcing or SaaS: Which is Best for Payroll Management appeared first on Boardroom Malaysia.

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Payroll Outsourcing or SaaS: Which is Best for Payroll Management

A well-managed payroll process is one of the key drivers for achieving employee satisfaction. However, it also hinges heavily on an effective payroll system that cuts through tedious paperwork to present pay checks to employees on a timely basis.

Today, Human Resource (“HR”) managers are doing away with cumbersome payroll processing and opting for more efficient solutions. Such solutions include engaging payroll outsourcing service providers or leveraging an all-in-one cloud-based Software as a Service (“SaaS”) Human Resource Management System (“HRMS”) solution. A SaaS HRMS is a method of software delivery where HRMS applications are located on external servers and accessed remotely over a network to manage payroll and handle employees.

How do these two payroll models benefit HR managers? How do they compare to each other? When determining which type of model is most appropriate for managing payroll, HR managers must first understand how each model can benefit their corporate objectives while managing costs; cross border functionality and; confidentiality of employees’ personal data.

In this article, we will discuss the key difference between the two payroll models so that HR managers can make informed decisions when selecting a solution that best fits their payroll needs.

01 Task & Responsibility – Who is Doing What?

With a cloud-based SaaS model, the payroll software is hosted offsite and HR managers gain access to the software via a network. With such a model, the SaaS service provider undertakes maintenance of the software and server, technical support, and data backup of the software system for a subscription fee. As such, HR managers do not have to pay a hefty price tag for owning the software. This is not only cost-saving for the business but takes away the burden of maintaining a proprietary system, consequently allowing HR managers to spend more time on handling employee requests, processing payroll and other primary HR duties.

Comparatively, a full or partial payroll outsourcing service can provide an even higher level of ease to HR managers. Such services take on most, if not all, of the payroll function with little need for HR management intervention. This implies that the HR department can enjoy greater flexibility in deploying its manpower to manage other in-house duties.

Let’s look at a summary of the key tasks and who is responsible in both scenarios.

Tasks Who is Responsible?
Cloud-based SaaS Outsourced Payroll
Payroll processing HR manager Service provider
Handling employee & management enquiries HR manager HR manager
Data backup & system recovery Service provider Service provider
System upgrades Service provider Service provider
System support & development Service provider Service provider

02 Ease of Payroll Management – Cross Border Expansion

As a company expands operations to global markets, the complexity of payroll management will multiply because of legislative requirements, market regulations and even differences in cultural practice.  Furthermore, employees’ expatriate terms and tax obligations can make payroll processing increasing tricky especially if HR managers are unfamiliar with local regulations.

Take China as an example, due to the city-tier classification within the country, companies that are expanding their business into this market are faced with complex regulatory requirements because each city-tier has its own set of rules and conditions.  As such, the structure of employee tax, insurance and allowance are also processed very differently across different states.

For companies venturing into new markets abroad, payroll outsourcing can offer an efficient and effective solution to this problem.  Such service providers are usually well-versed with local policies and are in the best position to respond to dynamic changes that are happening in the global market. Entrusting payroll processing to an experienced service provider can reduce the risk of errors and non-compliance, freeing up local managers to concentrate on the growing business.

While the cloud-based SaaS model can provide software support that is essential for upkeeping payroll processing, HR managers who are unfamiliar with the foreign markets are still faced with tremendous difficulties in managing the payroll and employees’ enquiries.  Unless the in-house HR team has a clear understanding of the foreign regulations, adopting a SaaS solution alone may still present a high degree of challenges for the business.

03 Time & Cost Efficiency – Operating in Multiple Markets

For larger companies that operate in multiple markets with a fair number of employees (usually more than 100), outsourced payroll can serve as an efficient solution that is both timely and cost-effective. With such services, companies need not invest in costly proprietary payroll software or hire and train an in-house HR team in each market to facilitate payroll processing.

This is especially true for foreign companies that are managing payroll out of a regional headquarter. As per the example on China, illustrated in the above point, it can be a mammoth task for HR managers to keep abreast of regulatory standards and changes across multiple countries/regions when they are not physically based there. At the most basic level every market has its own unique tax rates, standard employee entitlements, currency exchange and employee social security contributions. HR managers will need to spend a significant amount of time to acquire this information and more importantly stay up to date with any changes happening across the individual markets.

Appointing an outsourced payroll service provider that has a deep understanding of the local market can ensure that payroll processing is executed professionally and according to government standards.

Is a cloud-based SaaS model beneficial for companies that operate in multiple markets then? Using SaaS does present its own advantages, especially for companies with smaller headcounts. The subscription-based model is cost-effective and easy to implement across various markets. In addition, many SaaS solutions are robust enough that once the initial setup is complete the remainder is largely automated, simplifying payroll handling. However, for it to be successful HR managers will need to be prepared to spend time on staying up to date with the requirements of each market they operate within and updating the system settings accordingly, which in itself can be a time consuming task.

04 Confidentiality and Security – Is Employee & Company Data Secure?

One of the key concerns of HR managers when selecting between an outsourced payroll service provider and a cloud-based SaaS solution lies in confidentiality and security issues. Payroll processing is an extremely sensitive matter that involves employees’ personal data and compensation details, the risks of such information becoming public knowledge can be detrimental for any organisation.

While it is common knowledge that payroll service or software providers will attest to maintaining the confidentiality of data provided to them, HR managers must still take steps to consider if these partners have legitimate security features and robust processes in place to uphold the claim.

This is especially true for payroll outsourcing service providers that have full access to employees’ records, the risk/cost of a confidentiality breach may far outweigh that of the increased time required to implement a cloud-based SaaS model. The lack of in-house HR personnel involved in the outsourced process can certainly heighten the risk of exposure.

In the case of the cloud-based SaaS model, it is not without its risk too. Fundamentally, the cloud-based system is hosted on a network that has potential for security breaches by external parties.

Choose a Payroll Model That Aligns with HR Objectives

Every company has its own unique objectives and considerations when selecting a payroll solution. There is no right or wrong option but rather one that fits into the specific HR strategy seamlessly.

Outsourced payroll processing may be the easiest option for most HR managers, however, choosing the cloud-based SaaS model can be just as beneficial if the HR team requires a flexible and cost-effective solution that can simplify a legacy in-house process.

Whatever the choice, selecting a model that aligns with the company’s go-to-market plan can certainly optimise business potential and encourage long-term growth.

Looking for a Software Solution or an Outsourcing Partner?

At Boardroom, we are experts in helping companies, from corporations to fast-growing SMEs, with their payroll, allowing them to focus on what matters – growth and profitability.

From local payroll services handling to managing substantial payroll obligations for bigger companies spread across Asia-Pacific, we help businesses comply with local statutory regulations while ensuring their most valuable asset, the employees, are paid on time.

Contact us today and empower your organisation with greater freedom through our payroll solutions.

Or you can also learn more about our payroll solutions here.

This article is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional.

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FAQs on International Tax Issues Due To Covid-19 Travel Restrictions https://www.boardroomlimited.com/my/2020/06/17/international-tax-issues-on-covid-19-travel-restrictions/ Wed, 17 Jun 2020 05:51:39 +0000 https://www.boardroomlimited.com/my/?p=6972 The Inland Revenue Board of Malaysia (“IRBM”) has issued FAQs on 14 May 2020 to provide additional clarifications on tax issues arising from travel restrictions imposed due to the global COVID-19 pandemic.

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The Inland Revenue Board of Malaysia (“IRBM”) has issued FAQs on 14 May 2020 to provide additional clarifications on international tax issues arising from travel restrictions imposed due to the global COVID-19 pandemic.

Some of the key salient points are as follow:-

1. I am currently outside of Malaysia because of COVID- 19 travel restrictions. How would my absence from Malaysia affect my residence status in Malaysia?

It will not affect your residence status in Malaysia. The period of temporary absence from Malaysia because of COVID-19 travel restrictions is considered as part of your period or periods in Malaysia for the purpose of tax residence. However, relevant documentations and records (e.g. travel documents, local authority travel restrictions guideline etc.) should be kept upon request from the IRBM.

2. My company is unable to convene a meeting of the Board of Directors (BOD) in Malaysia because of COVID- 19 travel restrictions. Will this have an effect on the company’s residence status in Malaysia?

If your company is not able to convene its Board of Directors’ meeting in Malaysia due to COVID-19 travel restrictions, the company will be considered as a Malaysian resident provided that all the conditions below are met:

  1. the company is a resident in the immediate previous year of assessment;
  2. there are no changes to the economic circumstance of the company; and
  3. the directors of the company have to attend the BOD meeting held outside Malaysia (either physical meeting or via electronic means) due to COVID 19 travel

Relevant documentations and records (e.g. board minutes stating the reason of directors were attending board meetings from their respective locations) should be kept upon request from the IRBM.

3. My company is not resident in Malaysia. Does the temporary presence of my employees or personnel in Malaysia due to COVID-19 travel restrictions lead to the creation of a permanent establishment in Malaysia?

Temporary presence of employees or personnel does not result in the creation of a permanent establishment in Malaysia, provided the criteria below are met:

  1. your company does not have a permanent establishment in Malaysia before the existence of COVID-19 travel restrictions;
  2. there are no other changes to the economic circumstances of the company;
  3. the temporary presence of the employees in Malaysia is solely due to travel restrictions relating to COVID-19; and
  4. the activities performed by the employees during their temporary presence would not have been performed in Malaysia if not for the COVID-19 travel

Relevant documentations and records should be kept upon request from the IRBM.

4. Before the MCO, I commute daily to Singapore from my home in Johor Bahru for work. Due to the MCO, I am temporarily working from home in Johor Bahru. Is my income taxable in Malaysia?

Your employment income from your employment exercised in Malaysia due to COVID-19 travel restrictions will be considered as not derived from Malaysia if the criteria below are met:

  1. there is no change in the contractual terms governing your employment overseas before and after your return to Malaysia; and
  2. this is a temporary work arrangement due to COVID-19 travel restrictions.

If any of the conditions are not met, normal tax rules will be applied to determine the taxability of your employment income for work done in Malaysia.

5. I am currently temporarily working from overseas due to COVID-19 travel restrictions. Is my income taxable in the current location?

If you would normally exercise your employment in Malaysia and is forced to work temporarily outside of Malaysia because of COVID-19 travel restrictions, you are regarded to be exercising your employment in Malaysia. The income is deemed derived from Malaysia and therefore, the income is still taxable in Malaysia.

You may be subject to taxation in the locality where you are temporarily present if no special tax measures for COVID-19 are provided by that locality’s tax authority. If you are in a state that has a tax treaty with Malaysia, you will not be taxable if you are present for less than 183 days.

6. I am a non-resident individual and currently working from Malaysia because of COVID- 19 travel restrictions.

You will be considered as not exercising an employment in Malaysia for the period of your temporary presence due to COVID-19 travel restrictions and have been working remotely from Malaysia for your overseas employer during your temporary presence in Malaysia if the conditions below are met:

  1. the period of your temporary presence is for a period of not more than 60 days; and
  2. the work you have done during your temporary presence is not connected to your assignment in Malaysia and would have been performed overseas if not for COVID-19 travel restrictions.
How we can help

As a committed tax advisor to our clients, we welcome any opportunity to discuss the relevance of International Tax Issues that your business may be facing. Find out more on our tax advisory services for more information.

Boardroom Limited is a well-established professional business service provider with a strong and reputable 50-year track record. Headquartered in Singapore, we are listed on the Singapore Exchange and ranked amongst Forbes Asia’s Top 200 Companies under a Billion. For seven years running, we have also been ranked in DP Information Group’s Singapore 1000. With our strong presence in the region, and a direct office presence in Singapore, Malaysia, Hong Kong, China and Australia, we are well positioned to support you.

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