If you have a small online business – selling products and/or services from Facebook, Instagram, Mudah, etc and have your own branding (logo) – you should find this article helpful.
Here’s what you have to have in order, when it comes to taxes.
Disclaimer: This article is only meant as a guide. Please consult LHDN (Inland Revenue Board) for individual cases, or engage a tax accountant.
1: LHDN account
You make payment on income generated the previous year i.e. tax submitted in 2017 is for 2016 income. iMoney has a useful guide about taxes, made up of 11 short chapters.
Not paying taxes on online or e-commerce income is an offence – people who evade paying their taxes may be fined, imprisoned or barred from leaving the country.
Not sure if your business model should be taxed? Check the guidelines on taxation on e-Commerce by LHDN on their website.
As an individual with a business income, you must submit Form B. The most comprehensive and in-depth guidebook on Form B, although a bit outdated, can be found at http://nbc.com.my/files/malaysia-tax/form-b-2010-guidebook.pdf?x19869.
Don’t have a LHDN account? Make sure you register yourself online first.
If you have your own business, you should register as “Individual with business income” even if you’re still employed – ideally you should have your business registration information and certificate ready.
You only have to pay taxes for an online business if you make over a certain amount annually (it changes, the last figure was RM34k per annum). If you don’t make this amount, declare it anyway to keep your records clean. Your tax rate will depend on your income, from 0-28%.
If you’ve been earning but not declaring your income for tax purposes, there are sections to self-declare your earnings from previous years.
You can find Form B under e-Form. The tax amount is automatically calculated based on your input in e-Hasil.
2. Registered business
Go to the website of the Companies Commission of Malaysia (SSM). Depending on the nature of your business, you can register as Sole Proprietorship, Partnership, Limited Liability Partnership or Company.
For many small-scale online businesses in Malaysia, Sole Proprietorship (single owner) or Partnership (more than one owner) is enough, and the cheapest option.
Go to an SSM branch near to you, pick up the forms, fill it up (there are examples there on how to fill it up) and get a number. Have a few business name options in case your first choice has already been snapped up. When your turn comes, the representative will double-check the information. Make the payment, then wait to receive your business certificate.
Tip: The business registration address should be the location where you spend the most time doing your work. If you’re home-based, use your home address. It’s handy when you want to write-off some expenses as business expenses.
3. Have a dedicated banking account/credit card only for the business
If you’ve always used your personal banking accounts for your online business, it’s time to get a dedicated business account.
Business-related expenses would include the following:
- Buying stock and equipment
- Paying staff
- Marketing and advertising
- And more…
Pay for these expenses from your business banking account and business credit card. Don’t use the bank account for personal use (i.e. buying the groceries from Tesco).
4. Keep a tally of your business income, expenses and receipts
The cheapest way is to create an Excel document and log in your income and expenses. Sort it by month and year. Otherwise, you can also pay an accounting service and log all the info in there (try Google’s “accounting small business Malaysia”).
Each expense must have a receipt, which you must keep for at least seven years.
- Google Spreadsheet: Logs Incomes and Expenses, sorted by name, date, amount, receipt no/tx no
- Income: Keep bank statements (your banking account and credit card statements from #3), invoices
- Expenses: Snap pictures/screenshots of receipts and placed them in Google Drive, also sorted by month and year. Bank and credit card statements go here as well.
If you work from home, you can deduct some expenses like electricity, rent, staff salary, mobile, internet and website. Travel, car (payments, petrol, parking, toll), food and accommodation costs related to work can be deducted too.
All expenses should fit the categories as shown below:
5. Max out your tax relief and tax rebate where you can
Tax relief and tax rebates help to reduce your taxable income. It’s announced yearly in the National Budget, and changes slightly every year. For example: For tax relief and tax rebates claimable in 2017 (for 2016 income), see below (credit to Malaysian Digest).
Tax relief tends to remain the same every year, so always keep receipts and records for:
- EPF & SOCSO (mainly for employed individuals, unless you make self-contributions)
- Insurance
- Education fees
- Medical expenses, equipment and care for self, spouse, parents and children
- Books/publications
- Computers
- Sports equipment (not attire)
- Some investments like PRS and SSPN
- Donations (Muslims can claim zakat as tax rebate)
Simplified version of how taxes work
Form B’s submission dateline is June 30 of every year. It’s fairly easy to submit from e-Hasil, but the main barrier is the jargon. You have no choice but to get familiar with these and what they mean.
Basically, your payable amount follows this simple calculation.
- A = Total income for the year
- B = Tax relief
- C = Tax rebate
- (A-B) x tax rate (% depending on income bracket) – C = Payable amount
This article first appeared in ringgitohringgit.com
Suraya is a corporate writer-for-hire and the blogger behind personal finance website Ringgit Oh Ringgit. She is more of a minimalist, less of a consumerist, a konon DIY enthusiast, a let’s-support-small-businesses-over-big-corporations kinda girl. Prior to her current role, she worked in various capacities within the non-profit industry.