tax clearance letter, tax penalty & lhdn letter: employer's tax obligation upon death of an employee

The adage "nothing is certain but death and taxes" is a well-known phrase that resonates with many individuals. In another word, there are only two things are certain in life: death and tax obligations. It also highlights the inevitability of these two things, which will happen no matter how high the person’s social status, wealth or power is.

While death is a tragic event that is difficult to know when it’s going to happen, there are certain obligations that employers must adhere when an employee passes away. In Malaysia, employers are required to fulfil two (2) tax-related obligations when an employee dies. Understanding these obligations is crucial for employers to comply with the relevant regulations and avoid any potential legal and financial consequences.

Following are the necessary actions to be taken when an employee is being informed of death:

1. Apply for Tax Clearance Letter

Employers are required to complete and submit Form CP22A to the Inland Revenue Board of Malaysia (“HASiL”) not more than 30 days after being informed of death. The Form CP22A, a specific prescribed application form for the private sector to apply Tax Clearance for the employee. 

HASiL will issue a Tax Clearance Letter or “Surat Penyelesaian Cukai (SPC)” to the employer within 14 working days from the successful submission of Form CP22A and related supporting documents.

Employers are required to submit Form CP22A through e-SPC for termination cases that are subject to tax clearance.

Kindly refer to the link to HASiL’s website for the full list of requirements. 

2. Withhold money from the employee for 90 days

Upon successful submission of the Form CP22A, the employer is required to withhold any monies (i.e. Salary, allowance, etc.) payable to a deceased employee for his (deceased employee) settlement of outstanding tax payable purpose. The employer shall not pay any such money, except with the permission of the Hasil (i.e. issuance of a tax clearance letter), to or for the benefit of the employee until 90 days after the Hasil’s receipt of the form. If there is any request by the Hasil, the employer will need to remit any outstanding balance tax payable by using the monies withheld. 

Non-Compliance by Employer

What happens if an employer fails to comply with these requirements?

1. The employer, without any reasonable excuse, upon conviction of an offence, will be liable to a fine of not less than RM200 and not more than RM20,000 or to imprisonment for a term not exceeding 6 months or to both.
2. The employer will be responsible for paying any outstanding tax owed by the employee. The amount due from the employer shall be a debt due to the Government and may be recovered by way of civil proceedings.

Although it is a tragic event after being informed of a deceased employee, employer is obliged to comply with necessary tax obligations. Nevertheless, such preparation and notification of Form CP22A may be burdensome for the business day to day operations, it is imperative to adhere and do it correctly to avoid unnecessary penalty and anxiety.

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