Published On: 30/01/2026By

Every year between February and March, Malaysian employers face the same wave of questions:

  • “Company dormant — still need to file Form E?”

  • “Do Form EA and Form E really need to match exactly?”

  • “Why did LHDN suddenly issue a warning letter?”

For many SMEs, Form E and Form EA are still seen as routine HR paperwork.
In reality, these two documents sit at the core of Malaysia’s employer tax compliance framework.

Under the Income Tax Act 1967, any error, omission, mismatch, or late submission can result in:

  • LHDN warning letters

  • Payroll tax audits

  • Backdated tax, penalties, and interest

  • In serious cases, director-level tax exposure

This guide explains how Form EA and Form E work together, the most common employer mistakes, and how businesses can stay compliant for Year of Assessment 2026.

Why Form E and Form EA Matter to Employers

Malaysia operates under a self-assessment tax system, where employers are responsible for accurately reporting employee remuneration.

Among all employer tax obligations, Form EA and Form E are the most frequently audited — especially for SMEs.

LHDN does not rely solely on manual review.
Most checks are system-based and automatic.

Once figures do not reconcile, the system flags the employer — often without warning.

Understanding Form EA and Form E: The Employer Compliance Framework

Form EA – Statement of Remuneration

Form EA is an annual statement issued by employers to employees, summarising their employment income for the year.

It includes:

  • Salary and wages

  • Allowances

  • Bonuses and incentives

  • Benefits and perquisites

  • Employee EPF contributions

  • Monthly Tax Deduction (PCB / MTD)

Employees rely on Form EA to file their individual income tax return (Form BE).

Statutory deadline:
📅 28 February of the following year

This obligation applies to all employees who received remuneration, including:

  • Part-time staff

  • Contract employees

  • Employees who resigned or were terminated during the year

Failure to issue Form EA by the deadline is an offence under the Income Tax Act 1967.

Form E – Employer’s Annual Return

Form E is the employer’s declaration to LHDN, submitted together with CP8D via MyTax.

It reports, in total:

  • Number of employees

  • Total remuneration paid

  • Total PCB remitted

Submission deadline:

  • 31 March, or

  • 30 April for e-Filing (subject to LHDN announcement)

Form E is not a separate calculation.

It is a summary derived directly from all Form EA issued.

The Most Important Rule Employers Must Know

Payroll → Form EA → Form E must reconcile.

This is the single most critical compliance principle.

LHDN’s system automatically cross-checks:

  • Payroll records

  • Individual Form EA figures

  • CP8D totals

  • Form E summary amounts

If the numbers do not match, the system flags the employer — often leading to audit or explanation requests.

In short:

❌ If figures don’t match, the system flags.
✅ If they match, the system moves on.

Common Form EA Mistakes That Trigger LHDN Review

1. Assuming Non-Cash Benefits Are Not Taxable

A common misconception among employers is:

“Not cash — so no need to declare.”

This is incorrect.

Certain benefits-in-kind and employer-borne personal expenses remain taxable and must be reviewed carefully.

Failure to declare applicable benefits may result in under-declared employment income.

2. Incorrect Treatment of Allowances

Allowances are one of the highest-risk areas in Form EA preparation.

Common issues include:

  • Treating taxable allowances as tax-exempt

  • Applying exemption without meeting conditions

  • Not declaring exempt allowances at all

Even tax-exempt allowances must still be disclosed in Form EA.

Examples include:

  • Petrol, travelling and toll claims for official duties (up to RM6,000 per year)

  • Parking allowances or payments made directly to parking operators

Non-disclosure — even for exempt items — may still raise compliance concerns.

3. Failure to Issue Form EA to All Employees

Employers must issue Form EA to:

  • Employees who resigned mid-year

  • Contract or temporary staff

  • Part-time employees

If remuneration was paid, Form EA must be issued — regardless of employment status at year-end.

Common Form E Mistakes Employers Make

1. Form E Does Not Match Total EA Figures

This is the most common payroll audit trigger.

LHDN compares:

  • Total remuneration

  • PCB amounts

  • Statutory contributions

across Form EA, CP8D, and Form E.

Any discrepancy is immediately visible to LHDN’s system.

2. Inconsistency With Payroll Records

Errors in monthly payroll — especially PCB calculations — often surface during annual Form E submission.

From a compliance perspective:

  • Payroll data

  • Form EA

  • CP8D

  • Form E

must all reflect the same source data.

3. Late Submission

Late filing is strictly enforced.

Even if no tax is payable, failure to submit Form E by the statutory deadline remains an offence.

Dormant companies are not exempt.

Dormant does not mean excluded from filing obligations.

Compliance Risks for SME Owners and Directors

What begins as a small HR or payroll oversight can escalate into:

  • Payroll tax audits

  • Director personal tax exposure

  • Backdated assessments

  • Penalties and interest

  • Delays in licensing, financing, or corporate restructuring

Many SME cases reviewed by LHDN involve multiple years of mismatch, not a single year error.

Best Practices for Employers in 2026

Reconcile Monthly — Not at Year-End

Waiting until February is already too late.

Monthly reconciliation of:

  • Payroll figures

  • PCB deductions

  • EPF, SOCSO, and EIS

allows issues to be corrected early.

Standardise Payroll Data

Manual spreadsheets increase risk.

Once payroll data is inconsistent, Form EA and Form E will almost always mismatch.

Observe Statutory Deadlines Strictly

Key employer deadlines:

  • 28 February – Issue Form EA

  • 31 March / 30 April – Submit Form E & CP8D

Late compliance almost always costs more than early preparation.

How Pandahrms Helps Employers Stay Tax-Compliant

Managing Form EA and Form E compliance becomes significantly easier when payroll data is consistent from the start.

Pandahrms’ payroll and HR system helps employers:

  • Process monthly payroll accurately

  • Maintain consistent remuneration records

  • Generate Form EA directly from payroll data

  • Ensure Form E totals reconcile with issued EA forms

  • Reduce manual errors that trigger LHDN system flags

By aligning payroll, statutory deductions, and annual reporting within one system, employers can reduce audit risk, improve accuracy, and stay compliant throughout the year — not just at filing time.