How To File Your Income Tax When You're Freelancing

by Desiree Nair

Income Tax

How To File Your Income Tax When You're Freelancing

Before you ask, yes, you do need to file your taxes even if you freelance. If you already have a tax file registered (from previous employment), do submit your return form even if your annual or monthly income falls below the chargeable level (RM34,000 after EPF deduction).

However, if you don’t already have a tax file registered and your income is below the chargeable level, you don’t have to register a tax file.

Are There Any Differences Between Filing Taxes As An Employee And As A Freelancer?

There isn’t too much that separates employees from freelancers. In fact, both might even use the same form depending on whether a business has been registered or not (more on this later on).

But there are a couple of differences, for one, employees receive a document called an EA form which details their total salary earnings as well as total EPF and SOCSO contributions for the year.

This required summary of income is quite helpful when filling in your return form. Full-time freelancers will have to figure out their earnings by tabulating their profits through invoices and expenses.

Furthermore, employees may also be under the Monthly Tax Deduction (MTD) programme where their company calculates and makes tax deductions for them, on a monthly basis. When it comes the time to actually file taxes, an employee may only pay a small amount because of the MTD or even receive a refund if they’ve overpaid. Apart from this, full-time freelancers and the employed will have to go through the same process to file taxes.

So As A Freelancer, Which Tax Form Should I Use?

If you have not registered your freelance work as a business, then you can use Form BE – for individuals not carrying on a business. However, if you have registered a business, you will need to file your taxes with Form B.

Do I Need To Pay Taxes On All My Earnings?

You do need to pay taxes for most but not all types of earnings; there are in fact certain exemptions. Here are a couple to take note of:

  • A maximum exemption of RM10,000 for royalties received for use of your copyrights and patents such as publications of artistic works; RM12,000 for translation of books and literary work for certain purposes; and RM20,000 for publications of literary works, paintings and musical compositions.
  • 50% exemption of statutory income derived from research findings that have been commercialised.

Find out about the other types of income that you may receive exemptions for here.

What If My Freelance Income Is From Outside Of Malaysia?

It’s not uncommon for freelancers to earn income from foreign companies (not based or registered in Malaysia). Well, here’s some good news, because as of YA 2004, income received from outside Malaysia is exempted from tax.

What Can I Do To Make It Easier On Myself As A Freelancer When Tax Season Comes Around?

Contribute To Your EPF Account And Private Retirement Scheme

Since you don’t have an employer to make monthly tax deductions, the figure you pay will be in a lump sum, which can be rather hefty if your earnings are large. Take advantage of tax reliefs for retirement contributions: EPF (RM6,000 relief) and private retirement schemes (RM3,000 relief), as well as life and medical insurances to pay less in tax. Find out what other tax reliefs you may be eligible for.

Register Your Business

It’s tricky to get a loan as a freelancer but your chances are definitely improved when you have a viable, legitimate business to show. Moreover, you could enjoy better tax rates (for sole proprietors), claim for business expenses and deductions; and perhaps even demonstrate greater credibility to your clients.

Hire A Tax Consultant

While this is not a must, you’d be wise to hire a professional to help you with your taxes at least for the first time. This would be a big help especially if your freelance income is significant or the numbers are looking particularly complicated. They can help you legitimately claim for business expenses and deductions to pay less in tax. More importantly, they can teach you how to (legally) plan your taxes and file them the following year.

Pay A Visit To LHDN

Undoubtedly, there are some grey areas when it comes to freelancing full-time and since every freelancer has specific tax issues to deal with, it’s safest to go directly to the source. Make an appointment or write in to the LHDN to clarify all your tax concerns with your regard to your line of business.

Armed with this information, don’t let freelancing deter you from properly declaring your income taxes (well, mostly because you’re legally obligated to file your taxes correctly). If you need a step-by-step guide to filling up your income tax return form, make sure to check out our income tax guide