A New Rule Every Malaysian SMEs Should Know
Did you know? Starting 1 January 2025, the Inland Revenue Board of Malaysia (LHDN) has intensified its enforcement on stamp duty compliance, particularly focusing on the stamping of employment contracts. This move has significant implications for employers nationwide, especially small and medium enterprises (SMEs), who may not be fully aware of the legal obligations and penalties involved.
In this article, we will walk you through what stamp duty on employment contracts entails, what types of contracts are affected, the deadlines, and how your business can remain compliant to avoid fines.
What Is Stamp Duty on Employment Contracts?
Stamp duty is a government-imposed tax required to give certain legal documents—including employment contracts—legal enforceability. Under the Stamp Act 1949, certain legal documents are subject to stamp duty. These include bonds, covenants, loan agreements, service agreements, and equipment lease contracts. Importantly, employment contracts fall under the category of “service agreements,” and are therefore subject to stamp duty as well.
While this requirement is not new, LHDN has recently stepped up its enforcement, conducting audits across Malaysia and issuing penalty letters to companies found in breach of the rule. To avoid fines and legal complications, employers should review their documentation and ensure every service agreement is duly stamped before execution.
Deadline for Stamping Employment Contracts
According to the Stamp Act 1949 (Malaysia), all legally binding employment contracts must be stamped within 30 days of signing. This includes:
- Full-time employment agreements
- Part-time contracts
- Fixed-term/contract-based employment agreements
What Happens If You Don’t Stamp the Contract?
LHDN has the right to take enforcement action on unstamped employment contracts, including:
- Late penalty applies based on delay:
- Within 3 months: RM50 or 10% of the duty (whichever is higher)
- After 3 months: RM100 or 20% of the duty (whichever is higher)
- Risk of audit by LHDN
- Contract may be invalid in court if challenged
With the new Stamp Duty Audit Framework in effect, LHDN is expected to actively monitor company compliance.
What Should Employers Do? 2 Things You Must Act On
1. Use the LHDN MyStamp Online System
To simplify compliance, LHDN has launched the MyStamp portal, where employers can:
- Upload contract copies
- Calculate the correct stamp duty
- Pay online & receive a digital stamp certificate
No more physical visits — it’s quick and convenient!
2. Establish Internal HR Compliance SOPs
Many SMEs or HR departments are not familiar with the stamp duty process, leading to delays or errors.
We recommend:
- Providing basic stamp duty training for HR
- Adding stamp duty processing into your employee onboarding checklist
- Keeping records of stamped contracts for audits
Why Employers Should Take This Seriously
LHDN is currently conducting nationwide audits to ensure compliance, with a renewed focus under the Stamp Duty Audit Framework to actively identify companies that fail to meet stamping obligations for employment contracts. Several companies have reportedly received penalty notices for failing to stamp employment contracts. SMEs, in particular, are urged to act immediately to audit their existing contracts and implement a compliance process moving forward.
Frequently Asked Questions (FAQ)
1. Do all employment contracts require stamp duty?
Yes. Regardless of the employment type, if it’s a formal contract, it must be stamped.
2. How much is the stamp duty?
Most employment contracts fall under “non-monetary” documents and are charged RM10. If the contract includes clauses on salary or bonus payments, the amount may vary. It’s best to consult a professional.
3. Can I stamp a previously signed contract?
Yes, but late payment penalties and interest may apply. It’s best to act quickly.
Disclaimer: This article is for general informational purposes only and does not constitute legal advice. Please refer to LHDN or consult a licensed tax agent for the most accurate guidance.
