How to File Income Tax For Your Side Business

Do you have a burgeoning side income but are unsure of how to declare or pay taxes for it? Here’s your guide to managing taxes of a small business project.

Your income isn’t just what’s on your payslip. It’s also however much you’ve made in profit from your own efforts. This is important to remember in tax season, especially if you have a form of side income that’s not related to your monthly salary. This includes work done part-time, or in a freelance capacity.

Which Form Should You Use For This?

Depending on the kind of side gigs you do, you might still be able to record your side income earnings on your BE form (for those who do not carry a business) under the ‘Other Gains or Profit’ section (B3). However, the type of income covered here is limited to “payments received for part-time or occasional broadcasting, lecturing, writing and so forth.”

If your annual earnings are substantial enough (roughly RM34k and above) for you to pay taxes on it, it might be worthwhile to register your work as a business.

Registering a Business

It’s a simple processwhere you can have your business licence in your hand a mere hour after payment has been made.

The easiest type of company to register is a sole proprietorship which only costs RM30 if you use your own name (as per your Identification Card). If you choose to use a trade name or have a partner that you’d like to register your business with then the fee will be RM60. If you’re still unsure which type of business you should register as, we recommend checking out our article on the different types of business entities in Malaysia.

Once you’ve registered your side business, it will be recorded on Form B (the same form you have to use when filing your taxes) for individuals who are carrying on business activities. Both your employment and business income can be captured on this form. In this form, you’ll be able to claim for business expensesthat you wouldn’t otherwise have been able to without registering your business. For instance, you may offset expenses such as interests on a business loan and repairs on vehicles used for business purposes. All of which you cannot do without registering as a business beforehand. To find out if your tax has been deducted properly, an income tax calculator can help you to do just that.

What is the Nature of Your Side Business?

We’ve recently gained some clarity on e-commerce businesses and how it should be taxed and filed. Thus, if your side business has to do with blogging, having an online store, affiliate marketing and just about anything where you derive income from an online source, you will need to pay taxes with respect to e-commerce guidelines.

Here is some tax information you’ll find helpful:

  1. As a business owner (and individual), you must register an income tax file.
  2. You must also retain documents like your statements from payment gateways, invoices and purchase receipts, income statement from ad companies (if you’re involved with affiliate marketing) and sales confirmations, etc. in good condition for 7 years.
  3. You may claim for web maintenance fees, domain renewal, web consultant fees, internet fees and equipment, server rental as well as utilities and etc.
  4. You are not allowed to claim for personal, domestic utilities like your water bill, for example.

What You Should Never Do When It Comes to Your Side Business

While it’s tempting to not want to declare your side income or to downplay your revenues, you can incur the wrath of the Inland Revenue Board of Malaysiaif you are found out. Think of hefty fines (up to RM20, 000), imprisonment and being barred from leaving the country. So it’s best to be upfront about your taxes, however, staying out of trouble with the authorities isn’t your only incentive to fully declare income.

In fact, showing healthy earnings and responsible tax payments is proof of your creditworthiness. But even as banks differ with credit-granting criteria, this might help you obtain better credit rates, access to more credit and improved chances for loan approvals.

Want to know more about how to earn extra on the side? Check out our article on The Best Ways to Make Money From Home. Don’t be shy to share your thoughts and ideas in the comments section down below!

0 comments

Agree or disagree with this post? Questions? You also have your word!

  • alan

    Being a shareholder of a company (Sdn Bhd), should I fill up B form?

    Reply
    • RinggitPlus

      Hi alan,

      Since this means you have a business source for your income, you do need to fill in Form B.
      If you need further clarification on this matter, we recommend you contact your nearest LHDN branch for more information.
      Thanks for your question!

      Reply
    • Chris

      Hi RinggitPlus,
      I do not receive a salary or own a business, but derive income from freelance work as well as from rental. Should I use Form B or BE?
      Thanks for your advice!

      Reply
    • Stephanie Lim

      do i need to separate employment income and business income in Form B?

      Reply
      • RinggitPlus

        Hi, Stephanie

        Thanks for the question. Unfortunately, we do not have a clear answer for this. We recommend contacting LHDN for this matter.

        Thanks for the question and we hope this help.

        Reply
      • Eric

        Hi, I have a full time employment which gives me a EA form.
        Apart from that I also do freelance works (no invoice issued, recorded on bank transactions) as well as Grab driver. Freelance income amount is not substantial, averaging to <RM1000 per month; while my EA form states my Total annuity to be RM55000.
        Which form do I use? BE or B?

        Reply
        • RinggitPlus

          Hi, Eric.

          If your freelance work is not a registered business, then you can file the freelance income with the BE form as the B form is for people who own a registered business.

          Thanks for the question and we hope this help.

          Reply
        • Kaylie Quah

          Hi, i own a business and register as Enterprise with 1 partner. Both of us didnt gain any salary from the business. Kindly advise what type of tax we need to do.

          Reply
          • RinggitPlus

            Hi, Kaylie Quah.

            Based on what we gather from you, it is understood that your business is a partnership since you registered it with a partner. Regardless of whether you received any income from the business, the main procedure is to file the CP form to declare the income the business has generated. You can read more here http://lampiran1.hasil.gov.my/pdf/pdfam/P_2009_Explanatory_Notes_2.pdf.

            We also recommend contacting LHDN for more information and tax advice.

            Thanks for the question and we hope this help.

            Reply
          • Emily

            Hi, I'm under full time employment which I do tax filing with form BE with tax account number starts with SG. I recently started a business registered as Enterprise with 2 other partners, while still under the full time employment. Do I need to use form B in future? Do I need to convert my account to OG?

            Reply
            • RinggitPlus

              Hi, Emily

              This depends on the situation. If your business is registered, then you will have to use Form B. As for the converting of your account, it will be in your best interest to contact LHDN to get a better advice.

              Thanks for the question and we hope this help.

              Reply
            • ccw

              Hi, so affiliate marketing need to report tax even though just using Facebook page to promote some website?

              Reply
              • RinggitPlus

                Hi, ccw

                Yes, you need to declare the income that you gained from affiliate marketing. The income tax act stated any form of income must be declared by the taxpayer in either a Borang BE or Borang B. Besides this, we suggest you contact LHDN for more information and tax-related advice.

                Thanks for the question and we hope this help.

                Reply
              • Grace

                Hi, i would like to ask if i started online business since 2year ago but not yet register with ssm. Therefore let say now i would like to register my online business with ssm. when come to tax filing 2018, did i need to do tax filing for the previous 2 year? will i get penalty on the late register and no paying tax? or LHDN will only check for the income start with the register date?

                Reply
                • RinggitPlus

                  Hi, Grace.

                  Based on what we can gather from your situation, you have a side business for about 2 years unregistered. One thing you need to note is that you need to declare your income as long as you are working and earning income, which includes your online business. During your 2 years where your business is not registered, you should have declared it in your BE form under other income section. Since you want to register the business, you will be using the B form.

                  What you should do is to fill in the past 2 years income in the B form under section E: Non-employment of preceding years not declared. However, this is where you also need to contact LHDN to explain your situation and get more advice on what you should do in the event that you register your business this year.

                  Thanks for the question and we hope this helps.

                  Reply
                • Carol

                  Hi. I am doing direct sales and my commission is paid by the direct sale company. How should I file my income tax?

                  Reply
                • Leo

                  Hi RinggitPlus,
                  I've full time job and I also do some personal freelance I.T. projects (website and mobile app). So I can file with BE form right? Cuz I did't registered it as business. Also, for my freelance job case, I just keep all the related invoices and receipts will do? I believe I don't need to do account on it as it's not registered business.

                  Reply
                  • RinggitPlus

                    Hi, Leo.

                    As your freelance work is not a registered business, you can use the BE form to declare your side income. While you can just use receipts and invoice, it is better to do some accounting. This is to ensure that you have all expenditure and income is properly documented and to give LHDN a better cross-reference. For more information, you can always contact LHDN.

                    Thanks for the question and we hope this helps.

                    Reply
                  • Alfred

                    Hi, I am contracted by a foreign company to act as its local rep. I work from home but travel quite a bit. I registered with SSM under sole proprietorship to pay my EPF which I am paying both; employer and employee - 23%. Although I have registered with SSM, I have been filing my taxes through BE throughout. My payment from my foreign employer gets credited into my savings account before I transfer 23% for EPF to my business current account. So, whenever I file my BE, I use the total income for the year derived from my savings account statement, less 12% EPF being employer's contribution. Is this acceptable?

                    If I were to start filing through form B and claim every expenses related to the business e.g., parking, toll, fuel, meal expenses, expenses while abroad for work, etc., which would also reflect a reduced income/profit, would this have an impact on my financial borrowings with banks in future compared to filing BE without claiming business related expenses?

                    Thanks for your guidance,.

                    Reply
                    • RinggitPlus

                      Hi, Alfred.

                      This part is hard to decide as each bank has its own policy regarding this matter. That said, LHDN will check your tax filing to be sure that you have declared everything at hand. Not doing so could risk you being charged with more tax.

                      As such, you need to contact LHDN for advice.

                      Thanks for the question and we hope this helps.

                      Reply
                    • Chester

                      Hi, I will be receiving EA form for first half of the year, and followed by going fulltime freelance having a business registered. Which form do I use? Does Borang B include section for rebates like Medical Expenses, EPF contributions and etc?

                      Reply
                      • RinggitPlus

                        Hi, Chester.

                        Since your freelance business has been registered, you will need to use Form B. Don't worry, Form B have the section for tax reliefs like EPF contribution and medical expenses. For more information, you can always contact LHDN for more information.

                        Thanks for the question and we hope this helps.

                        Reply
                      • Jeff

                        Hi,
                        I am intending to register for an enterprise for a small restaurant business. Is it necesarry to pay monthly tax cp204 for enterprise when I am unsure of the monthly sales?
                        And is my full time job income and business income be declared on the same form or different form? Thanks.

                        Reply
                        • Small Business Owner

                          Hi there,
                          I am a home baker, and I run the business part time, but the annual income (minus the cost of ingredients and utilities) are less than 34K for sure. I have never filed a business tax for this (never declared under personal side incomes too). I have recently received an email from LDHN asking for voluntary declaration. Should I just declare the previous earnings under side incomes? I don't have a company registered at the moment.

                          Reply
                          • RinggitPlus

                            Hi, Small Business Owner

                            Yes, LHDN has sent out an email calling for voluntary declaration. Firstly, your declaration is dependent on whether your business has been officially registered with SSM. If it is a registered business, then it is compulsory for you to declare your income and expenses on Form B. If your business is a side business or freelance, then it should be declared under the side income column. Either way, it is important to declare both income and expenses as not only it is your responsibility but LHDN is now empowered by law according to Budget 2019 to investigate abnormal income and spendings.

                            Thanks for the question and we hope this helps.

                            Reply
                          • Melanie

                            Dear RinggitPlus, I am foreigner, and I own a small restaurant in KL. I have outsourced an accountant to handle this side of the business, considering my lack of knowledge on this matter in Malaysia. He is just asking me (September 2018) to produce a cheque for more than RM3K to pay my taxes or I will be imposed penalties if I delay the payment...I must say that my business generated much less in 2017 than 2016 and I don't remember paying that much.
                            Anyway, as far as I am concerned, taxes for last year were to be declared in April 2018, correct? Is it possible that part of the amount to be paid is actually a penalty for delaying payment or is it still acceptable to declare and pay taxes 2017 after April 2018? And the latter is the case, wouldn't that mean that my accountant is at fault for not meeting with the deadline given?
                            Please help me understand this. Thank you so much in advance for any info you may provide on this matter.
                            Regards.

                            Reply