(TAX UPDATE) Form E and Form EA in Malaysia

(TAX UPDATE) Form E and Form EA in Malaysia

(Common Mistakes That Trigger LHDN Audits)

Introduction

Every year, around February and March, many SME owners ask the same questions:

“Company dormant, still need to file?”
“EA and Form E must really match?”
“Why LHDN suddenly issue warning letter?”

Form E and Form EA are not just routine HR paperwork. They are core tax compliance documents under Malaysia’s self-assessment system.

Any error, omission, or late submission can trigger LHDN scrutiny, penalties, and in some cases, a full payroll or director tax audit.

This newsletter summarises the most common mistakes we see in practice and the best compliance habits SME owners should adopt.

Among these obligations, Form E and Form EA remain two of the most critical—and most frequently misunderstood—compliance requirements for employers.

Despite their routine nature, errors in these forms continue to be a leading cause of LHDN warning letters, payroll audits, and penalties, particularly among small and medium enterprises (SMEs).

This newsletter summarises the key compliance principles, highlights the most common mistakes observed in practice, and outlines best practices that SME owners, directors, and finance teams should adopt to mitigate risk.

Understanding Form E and Form EA : The Compliance Framework

Under Malaysia’s self-assessment system, employers are legally required to report employee remuneration through two annual tax forms:

Form EA : Statement of Remuneration from Employment

Form EA is a detailed annual statement issued by the employer to each employee, summarising:

• Employment income
• Allowances
• Bonuses and incentives
• Benefits and perquisites
• Employee EPF and PCB deductions

Employees rely on Form EA to prepare and submit their individual income tax return (Form BE).

Accordingly, employers must issue Form EA no later than 28 February of the following year.
This deadline is statutory and non-negotiable under the Income Tax Act 1967.

Form E : Employer’s Return

Form E is the employer’s annual declaration to the LHDN, reporting on an aggregate basis:

• Total number of employees
• Total remuneration paid
• Total Monthly Tax Deduction (MTD / PCB) remitted

Form E is submitted together with CP8D via the MyTax platform.

The statutory deadline is:
• 31 March, or
• 30 April for e-Filing (subject to LHDN announcement)

Importantly, Form E is not a separate computation.
It is a summary derived directly from all Form EA issued.

A Critical Compliance Principle: Reconciliation

At the heart of Form E and Form EA compliance lies one fundamental rule:

Payroll records → Form EA → Form E must reconcile.

Any inconsistency between these three data sets is automatically detectable by LHDN’s systems and is one of the most common audit triggers.

Common Mistakes in Preparing Form EA

In practice, most Form EA errors arise from the misclassification or omission of employee remuneration, often resulting in under-declaration of taxable income.

Omission or Misclassification of Benefits

A recurring misconception among employers is that non-cash benefits are not taxable.

This is incorrect.

Non-cash or cash-convertible benefits—including certain benefits-in-kind and employer-borne personal expenses—must be reviewed carefully and reported appropriately in Form EA.

Failure to do so may result in understated employment income.

Incorrect Treatment of Allowances

Allowances represent one of the highest-risk areas in Form EA preparation.

Common errors include:

Treating taxable allowances as tax-exempt
LHDN routinely cross-checks payroll records against tax filings.
Where taxable allowances are incorrectly reported as exempt, under-declaration is easily detected.

Failure to report tax-exempt allowances
Even where an allowance qualifies for tax exemption, it must still be disclosed in Part F of Form EA.

Tax-exempt items are subject to specific conditions and limits.
Examples include:

• Petrol, travelling allowances and tolls for official duties (up to RM6,000 per year)
• Parking allowances or payments made directly to parking operators

Non-disclosure, even for exempt items, may still raise compliance concerns.

Failure to Issue Form EA to All Employees

Employers are legally required to issue Form EA to all employees who received remuneration during the year, including:

• Part-time employees
• Contract employees
• Employees who resigned or were terminated before year-end

Failure to issue Form EA by 28 February constitutes an offence under the Income Tax Act 1967.

Common Mistakes in Preparing Form E

Errors in Form E are typically related to reconciliation failures and late submission.

Mismatch Between Form E and Form EA

This is the single most common trigger for LHDN payroll audits.

LHDN’s system automatically cross-checks:

• Total remuneration
• PCB amounts
• Statutory contributions (EPF, SOCSO, EIS)

across:
• Form E
• CP8D
• Individual Form EA

Any discrepancy immediately flags the employer for further review.

Inconsistency with Payroll Records

Errors in PCB computation or omission of income components often cause Form E figures to diverge from payroll records.

From a regulatory perspective, all records must be internally consistent:
Payroll records, Form EA, CP8D and Form E must reflect the same underlying data.

Late Submission

Form E submission deadlines are strictly enforced.

Failure to submit Form E by 31 March (or 30 April for e-Filing) is an offence and may result in penalties, regardless of whether tax has been paid.

It is also important to note that dormant companies are not exempt from filing obligations.

Implications for SME Owners and Directors

For SMEs, errors in Form EA and Form E can have consequences beyond immediate penalties, including:

• Payroll tax audits
• Director personal tax exposure
• Backdated tax, penalties and interest
• Disruption to financing, licensing or corporate transactions

In many cases, what begins as a clerical or HR oversight escalates into a multi-year compliance issue.

Best Practices for Accurate and Timely Compliance

Based on industry experience, the following practices significantly reduce compliance risk:

Monthly Reconciliation

Employers should not wait until year-end.

Monthly reconciliation of:
• Payroll data
• PCB calculations
• EPF, SOCSO and EIS contributions

allows discrepancies to be identified and corrected early.

Adoption of Automated Payroll Systems

Digital payroll and HR systems reduce manual errors by generating:
• Form EA
• CP8D
• Form E

directly from processed payroll data, ensuring alignment across all filings.

Strict Adherence to Statutory Deadlines

Key dates to observe:
• 28 February – Issue Form EA
• 31 March / 30 April – Submit Form E

Late compliance almost always costs more than early review.

KTP’s Perspective

In our experience, most Form E and Form EA issues are not deliberate. They arise from weak reconciliation processes, incomplete documentation, or reliance on outdated payroll practices.

With proper controls and timely review, these risks are entirely manageable.

Effective tax compliance is not about complexity—it is about discipline, consistency, and timing.

How KTP Can Assist

If you are uncertain whether:

• Your Form EA correctly reflects allowances and benefits
• Your Form E reconciles with payroll and CP8D
• Your dormant company filings are compliant

we recommend seeking a professional review before submission deadlines.

Early review is significantly more cost-effective than responding to an LHDN audit.

PS : Read others Form E & EA in KTP Blog

Easy Steps to Submit Form E (CP8D) via LHDN MyTax Portal

https://www.ktp.com.my/blog/form-e-2025/13mar2025

Form E & EA in Malaysia: What Every SME Employer Needs to Know

https://www.ktp.com.my/blog/form-e-2025/28feb2025

Common mistakes in Form EA : Benefits-In-Kinds (BIK)

https://www.ktp.com.my/blog/common-mistakes-in-form-ea-benefits-in-kinds-bik/22feb24

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