PCB for Foreign Workers in Malaysia: Employer’s Complete Guide

Foreign workers are an important part of Malaysia’s workforce, but managing their payroll can be complicated. Besides SOCSO and EPF, employers must also handle Potongan Cukai Bulanan (PCB). For foreign employees, the rules depend on whether they are residents or non-residents, and the responsibility to get it right falls squarely on the employer.

Do Foreign Workers Need to Pay PCB in Malaysia?

Yes. Under Malaysian law, foreign nationals working in Malaysia are subject to income tax on employment income earned here. This includes both expatriates and foreign workers on temporary employment passes.

Resident foreigners (≥182 days in Malaysia within a year) are taxed like Malaysian employees, at graduated rates with access to reliefs.
Non-resident foreigners (<182 days) are taxed at a flat rate of 30% and cannot claim personal tax reliefs.
Exemptions:
- Income is exempt if the worker is employed in Malaysia for 60 days or less in a year.
- This exemption does not apply to company directors or public entertainers.

Employers must deduct PCB (Potongan Cukai Bulanan, Monthly Tax Deduction) if the worker earns income above the PCB threshold, whether the worker is resident or non-resident.

Understanding PCB for Foreign Workers

PCB is Malaysia’s monthly tax deduction system, which serves as an advance payment of income tax.

PCB applies to both locals and foreign employees. Employers are legally responsible for:

Deducting PCB from monthly salaries.
Remitting it to LHDN (Inland Revenue Board of Malaysia).
Issuing proper records to employees.

This ensures that foreign employees’ taxes are settled progressively throughout the year, reducing the risk of unpaid taxes when they leave Malaysia.

Resident Foreign Workers

Foreign employees who qualify as residents (≥182 days in Malaysia in a tax year, or other residency criteria under ITA 1967):

Taxed under the same progressive tax rates as Malaysian citizens (0%–30%).
Eligible for tax reliefs, rebates, and personal deductions.
PCB deduction is calculated based on monthly income minus allowable reliefs.

Employer’s Responsibility in PCB for Foreign Workers

Employers play a central role in ensuring compliance:

Start deducting PCB once a foreign employee begins earning above the PCB threshold.
Remit PCB to LHDN every month, either via online systems or through appointed banks.
Keep accurate records, including:
- PCB deduction slips.
- Annual EA Form (or equivalent).
- Passport and employment contract details.
PCB deductions must appear clearly on the employee’s monthly payslip.

How to Calculate PCB for Foreign Workers

The calculation depends on residency status:

Resident foreign workers: Taxed progressively (0–30%). Reliefs such as personal relief, spouse, or child relief can reduce taxable income.
Non-resident foreign workers: Taxed at a flat 30% on total monthly remuneration, with no personal reliefs allowed.

Example (Resident):

Monthly salary RM5,000 → after reliefs, chargeable income may fall under lower brackets (e.g., 8–14%).

Example (Non-resident):

Monthly salary RM10,000 → PCB = RM10,000 × 30% = RM3,000.

Employers can use the LHDN PCB Calculator (available on the MyTax portal) to compute the exact deduction.

How to Deduct PCB for Foreign Workers

Employers must follow a structured process to make sure PCB is deducted and remitted correctly for foreign staff. Here’s the step-by-step breakdown:

Step 1: Confirm Residency Status

Check if the worker qualifies as a resident (≥182 days, or other tests under ITA 1967) or a non-resident (<182 days).

This distinction matters because residents use graduated tax rates while non-residents are taxed at a flat 30%.

Employers should keep supporting documents such as passport copies, entry/exit records, and contracts in case LHDN requests verification.

Step 2: Use the Official PCB Calculator or Schedule

Employers should never estimate PCB manually. The LHDN PCB calculator (Kalkulator PCB) on MyTax is the official tool to compute deductions accurately. For bulk staff, employers may also use payroll software that integrates LHDN’s formulas.

Step 3: Deduct the PCB Amount from the Salary

Once the PCB amount is confirmed, deduct it from the worker’s monthly wages before issuing the payslip. The payslip must clearly display “PCB” or “MTD” so the employee knows tax has been deducted.

Step 4: Remit PCB to LHDN

Employers have two options to submit deductions:

e-CP39 / MyTax portal: preferred, faster, and trackable.
Over-the-counter at appointed banks using payment slips.

Step 5: Year-end Reporting

Employers must issue the annual EA Form (for residents) or EC Form (for non-residents, where applicable), summarising the income and PCB deducted. Employees can file their personal tax return or confirm their final tax liability.

Filing and Payment Process for Employers

Once deductions are made, employers have filing obligations to LHDN.

Monthly Submission

PCB must be remitted to LHDN by the 15th of the following month. Example: PCB deducted in June must be paid by 15 July.

How to File:
- Use the e-PCB system (accessible via MyTax).
- Employers enter employee details, monthly income, and PCB deductions, then submit payment online.
Proof of Submission

Keep the acknowledgment slip or receipt from e-PCB or the bank. This is critical in the case of audits.

Penalties for Late Payment

If the PCB is not submitted on time, LHDN can impose additional charges (usually 10% of the unpaid amount).

To ensure the process is smooth, assign a payroll officer or use payroll software that automates PCB deadlines to avoid costly mistakes.

Other Payroll Contributions for Foreign Workers

Besides PCB, employers must remember that foreign workers are also covered under Malaysia’s statutory payroll system. Each scheme has its own rules:

SOCSO (Social Security Organisation)

SOCSO is mandatory since 1 July 2024 for foreign workers.

Workers below 60: covered under the Employment Injury + Invalidity Scheme.
Workers 60 and above: covered under Employment Injury only.

EPF (Employees Provident Fund)

Starting 1 October 2025, foreign workers (except domestic workers) must contribute to EPF like locals. Contributions are based on statutory rates published by EPF.

EIS (Employment Insurance System)

Not applicable to foreign workers.

HRDF (Human Resource Development Fund)

Employers do not pay HRDF for foreign workers.

Compliance and Penalties

PCB is not optional. Employers who fail to comply can face serious consequences under the Income Tax Act 1967.

Employer Liability

Employers are personally liable if PCB is not deducted or paid. So, even if the foreign employee leaves Malaysia without paying tax, LHDN can pursue the employer for the amount owed.

Penalties and Fines

Failure to deduct or remit PCB: Fine between RM200 and RM20,000, imprisonment up to 6 months, or both.
Late payment: A penalty (usually 10%) is added to the outstanding PCB.
Incorrect reporting (understating income, giving false information): Fines up to RM10,000 plus 200% of tax undercharged.

Tax Clearance Requirement

When a foreign worker resigns or leaves Malaysia, employers must file Form CP21 (Tax Clearance Form) at least one month in advance.

If the employer fails to notify, they can be penalised, and the employee may face travel restrictions (barred from leaving Malaysia until tax is settled).

Record-Keeping

Employers must keep all payroll and PCB records for at least 7 years, including payslips, EA/EC forms, deduction schedules, and proof of payments.

FAQ

1. Do employers need to deduct PCB for all foreign workers?

Yes, if their income exceeds the PCB threshold. Exceptions apply if employment is ≤60 days in a year (except directors and entertainers).

2. How do I know if a foreign worker is a tax resident in Malaysia?

Residency is based on days spent in Malaysia (≥182 days in a year, or other conditions under ITA 1967). Employers must verify using passport entries and contracts.

3. What is the PCB rate for non-resident foreigners?

A flat 30% on monthly income, with no personal reliefs.

4. Can employers be fined if PCB is not deducted for foreign staff?

Yes. Employers are legally responsible and can face fines, penalties, or imprisonment under the Income Tax Act.

5. How to update LHDN if a foreign employee resigns or leaves Malaysia?

Employers must file Form CP21 (tax clearance) at least one month before the employee leaves Malaysia.

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