Foreigner vs Non-Resident in Malaysia: Key Differences to Know for Payroll & Tax

When it comes to hiring someone who isn’t Malaysian, many employers in Malaysia tend to mix up the terms foreigner and non-resident.

On the surface, they might sound the same. But for payroll and tax purposes, the difference between the two matters a lot.

Misclassifying an employee can lead to errors in contributions, wrong tax filings, and even unexpected penalties.

So if you’re managing HR or payroll, this article will help you understand the difference between a foreigner vs a non-resident and how to treat each correctly in your payroll system.

Who is a Foreigner for Payroll & Tax Purposes?

In payroll terms, a foreigner refers to any individual who is not a Malaysian citizen but works legally in Malaysia.

These individuals may hold different types of valid work passes, such as:

Employment Pass
Professional Visit Pass
Temporary Employment Permit

These passes give them the right to work in Malaysia. However, being a foreigner does not automatically mean they are taxed differently.

What matters for tax is how long they stay in Malaysia in a calendar year.

Foreign employees:

Are subject to SOCSO contributions under the Employment Injury and Invalidity Scheme (from 1 July 2024).
Can opt into EPF voluntarily (but are not required to).
Do not contribute to EIS.
Are not counted for HRDF contributions.
May be taxed like residents or non-residents, depending on how many days they’ve stayed in Malaysia.

Who is a Non-Resident for Payroll & Tax Purposes?

Here’s where things get a little tricky. A non-resident doesn’t always mean a foreigner.

For payroll and tax purposes in Malaysia, a non-resident is defined by time spent in the country, not by nationality.

If someone, Malaysian or not, stays in Malaysia for less than 182 days in a calendar year, they are considered a non-resident for tax purposes.

This affects how their salary is taxed:

Flat 30% tax rate, regardless of income.
No tax reliefs, deductions, or rebates (unlike tax residents).
Still subject to PCB (Monthly Tax Deduction) if income is above the threshold.

Payroll Differences: Foreigner vs Non-Resident

Here’s a clear view of how these categories differ in payroll and contributions:

Payroll Element	Foreigner (Tax Resident)	Non-Resident (Foreigner or Malaysian)
Tax Rate	0% – 30% (graduated)	Flat 30%
SOCSO	Yes (from 1 July 2024)	Sometimes (depends on scheme)
EIS	No	No
EPF	Optional	Usually not applicable
HRDF	Not counted in the total employee count	Not applicable
PCB	Based on resident rates	Flat 30% deduction

Employer Responsibilities for Foreigners vs Non-Residents

As an employer, your obligations don’t stop at hiring. You must manage each type of employee properly under the law.

Responsibility	Foreigners	Non-Residents
Work Permits	Must verify valid pass (Employment Pass, Professional Visit Pass, or Foreign Worker Permit)	Same
SOCSO/PCB/EPF/Zakat	Based on contribution rules	PCB flat 30%, other contributions may not apply
Tax Filing	Provide the EA Form for residents	CP58 for commissions or directors’ fees

Tax Benefits & Deductions for Foreigners vs Non-Residents

Category	Tax-Resident Foreigners (stay >182 days)	Non-Residents (stay <182 days)
Tax Reliefs	Eligible (personal, spouse, EPF, SOCSO, children, education, lifestyle, etc.)	Not eligible
Rebates	Can be claimed	Not applicable
Effective Tax Rate	Lower, depends on reliefs	High (flat 30%)

FAQ

Can a foreigner be a tax resident in Malaysia?

Yes. If a foreigner stays in Malaysia for at least 182 days in a year, they become a tax resident and enjoy tax reliefs just like locals.

Do non-residents need to contribute to SOCSO and EPF?

It depends. SOCSO applies to some categories of foreign workers under the new ruling (from July 2024), but EPF remains optional for foreign employees. Non-residents working short-term usually don’t make these contributions.

How can an employer determine if a foreigner is a tax resident?

Track their physical presence in Malaysia. If they cross 182 days in the calendar year, they qualify as a tax resident even if they’re not Malaysian.

What happens if a foreign employee's stay crosses 182 days mid-year?

They’ll be taxed as a non-resident first, and can later request reassessment from LHDN for a refund once their stay meets the tax residency requirement.

Is a foreigner eligible for tax deductions and rebates?

Only if they qualify as tax residents. Otherwise, no reliefs apply for non-residents.

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