Tax Matters – Should contracts related to employment be stamped?
THERE is significant discussion in the media and in various publications on whether contracts related to employment should be stamped.
This has arisen because the Inland Revenue Board (IRB) has recently been visiting taxpayers and advising them that their contracts of employment and other documents relating to employment should be stamped, and late stamping penalties will be applicable. The visits to taxpayers were conducted under the new Stamp Duty Audit Framework issued on Jan 1, 2025.
To add weight to the current treatment, the Malaysian Industrial, Commercial and Service Employers Association (Micsea) has issued a statement mentioning that it has agreed with the IRB a concession that the penalty will be waived for all employment contracts stamped on or before Dec 31, 2025.
The self-assessment system for stamp duty purposes will only be applicable from Jan 1, 2026, which allows the IRB to conduct audits and make additional assessments for any shortfalls for up to five years after the duty is paid or would have been paid. As to whether the IRB can go back prior to Jan 1, 2026 (i.e. before the self-assessment kicks in) is debatable. The normal understanding is: You should not apply the law retrospectively; and secondly the issue of whether the IRB has the right to impose stamp duty will only be confined to instruments which are mandatorily required to be stamped.
At the moment, the assessment of stamp duty is on an official system where the taxpayer sends the document for adjudication and seeks an assessment. Although there is an audit framework applicable from Jan 1, 2025 which allows the IRB to visit taxpayers, the findings from the audit cannot invoke additional taxes unless there is a mandatory requirement in the legislation for the instruments to be stamped.
There is significant discussion and publications by learned parties who have expressed the view that all written instruments must be stamped. The justification for their position is not clear as there is difficulty in finding the necessary legislation to support their position.
When it comes to employment contracts, Micsea states in its publication that employment contract, letter of transfer (where it will be perceived as a new employment) and fixed term contracts (including each contract issued after the expiration date) should be stamped.
Promotion and bonus letters, annual increment letters, letter of transfer within the company which does not amount to a new employment and secondment letters which do not amount to a new employment contract are 'exempted' from stamping. This appears to be their understanding with the IRB.
All the above written documents are 'instruments' as defined under Section 2 of the Stamp Act 1949. Where is the authority to dissect the above instruments between subject to stamping or exempted from stamping? This position does not seem to resonate with the law.
There is no specific provision in the Stamp Act 1949 that states that employment contracts are required to be stamped other than the fact that employment contract is an 'instrument' under the Stamp Act 1949. Based on this analysis, up to Dec 31, 2025, before the self-assessment system kicks in, there does not seem to be a need to stamp employment contracts and contracts related to employment.
To allow businesses to carry on without this ambiguity, it will be best if the visits by the IRB are clearly done with the intention of educating and preparing taxpayers for 2026 to get them ready for the self-assessment system. In such visits, taxpayers should have the benefit of our esteemed IRB officials who will be up-to-date technically and knowledgeable on the workings of the stamp duty system to help taxpayers comply with their responsibilities.
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