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Which Income Tax Form Should Freelancers Use: Form B or Form BE?

Updated: Jun 5, 2023

The Distinction between a Freelancer and an Employee


The distinction between a freelancer and an employee is based on the nature of the working relationship between the individual and the company or person for whom they work.


Here are some key factors that can help determine whether an individual is a freelancer or an employee:


Control

Freelancers enjoy greater autonomy over their work schedule and location, allowing them to customize their workstyle as opposed to employees, who typically have designated work hours and locations prescribed by their employer.


This means that freelancers have greater flexibility in terms of how they manage their time and work schedules.


Working from home is an option for freelancers, whereas employees usually work in a designated office space.


Payment

Freelancers are typically paid on a per-project or hourly basis, while employees are paid a fixed salary or hourly wage.


Freelancers can negotiate their rates and fees based on their expertise and the complexity of the project.


Employees, on the other hand, receive a fixed salary that is determined by their employer.


Benefits

Employees are usually entitled to benefits such as EPF, SOCSO, EIS, annual leave, and medical benefits, while freelancers are responsible for their own benefits.


This means that freelancers must cover their own retirement and healthcare costs, and of course, they won't receive any retirement benefits.


All employees are now protected by the Employment Act 1955 and are entitled to a range of benefits and protections under the law.


These benefits include:

  1. Minimum wage: The Employment Act sets a minimum wage that employers must pay to employees. The current minimum wage in Malaysia is RM1,500 per month.

  2. Working hours: The Employment Act also sets limits on the number of hours that employees can work per day and per week. In general, employees should not work more than 8 hours per day or 45 hours per week.

  3. Overtime pay: If an employee is required to work beyond their normal working hours, they are entitled to overtime pay. The rate of overtime pay is usually 1.5 times their normal hourly rate.

  4. Annual leave: Employees covered by the Employment Act are entitled to various days of paid annual leave depending on the length of service of the employee.

  5. Sick leave: Employees are entitled to paid sick leave if they are unable to work due to illness or injury. The length of sick leave entitlement varies based on the length of service of the employee.

  6. Public holidays: Employees are entitled to paid time off on public holidays.

  7. Maternity leave: Female employees are entitled to 14 weeks of paid maternity leave if they are eligible for such benefit.

  8. Termination notice: Employers are required to give employees notice of termination before ending their employment. The length of notice varies based on the length of service of the employee.


Taxes

Employers are responsible for withholding and paying taxes on behalf of their employees, while freelancers are responsible for paying their own taxes.


Freelancers must track their income and expenses and file their taxes on their own.


This can be more complicated than filing taxes as an employee, as freelancers may have more deductions available to them.


Contractual Relationship

Freelancers often work under a contract that outlines the terms of their work, while employees have a more formal employment agreement that outlines their rights and responsibilities.


Freelancers can negotiate the terms of their contract, including their rates, payment schedule, and scope of work.


Employees, on the other hand, are bound by their employer's policies and procedures.

It is important to note that there is no single factor that determines whether an individual is a freelancer or an employee, and the determination can depend on the specific circumstances of the working relationship. 
If you are unsure whether you are a freelancer or an employee, you should consult with a qualified legal or tax professional.

The Classification of Freelancer's Income

The classification of a freelancer's income as either employment income or business income will depend on the specific nature of the freelancer's work and the terms of their engagement with clients.


In general, if the freelancer is engaged in work that is similar to the work of an employee, such as working regular hours and receiving instructions from a client or employer, their income may be considered employment income.


On the other hand, if the freelancer is engaged in work that is more entrepreneurial in nature, such as managing their own schedule and taking on multiple clients, their income may be considered business income.


It is important to note that the classification of income can have significant implications for tax purposes, including the types of deductions that are available to the taxpayer.


As such, it is important for freelancers to carefully consider the nature of their work and seek the advice of a qualified tax professional to determine the appropriate classification of their income.


When and which forms should you use to file your taxes in 2023 (for YA 2022)?

The answer varies on the type of tax form you're filling out, which is based on a number of factors, such as whether you're a salaried employee, a business owner (including a freelancer), a resident or a non-resident, and so on.


Many of you, though, will file your tax returns using Form BE, which is for people who do not run a business and has a deadline of April 30, 2023.


If you submit your file through e-Filing, you get a grace period of 15 days. This means that the final deadline for Form BE submissions is May 15, 2023.


Form B (or Form e-B, for electronic filing) is the form that you will need to submit if you are a resident individual who runs your own business (including a freelancer).


For you, the deadline for submitting your tax returns for Year Of Assessment 2022 is June 30, 2023, and the deadline for e-Filing submissions is July 15, 2023.


Freelancers whose Income is considered Business Income

As a freelancer whose Income is considered Business Income in Malaysia, you are also responsible for preparing and submitting your own income tax return.


You will need to register as a taxpayer with the Inland Revenue Board of Malaysia (IRB) and obtain a tax identification number (TIN).


When it comes time to file your tax return, you will need to report all of your income from freelancing, as well as any deductions or expenses that you are eligible to claim.


Some common expenses that freelancers may be able to deduct on their tax returns in Malaysia include telephone charges, travelling expenses, printing and stationery, and entertainment that is incurred wholly and exclusively to generate income.


It is important to keep detailed records of these expenses throughout the year, as well as any receipts or invoices that support your claims. You should also ensure that you are aware of all applicable tax laws and regulations in Malaysia, and seek the advice of a qualified tax professional if you are unsure about how to prepare and file your income tax return.


In addition, freelancers in Malaysia are required to make Tax Estimation Advance payments [CP 500] twice a month up to 6 times commencing from March every year based on an estimated amount of their annual income.


Failure to make these payments or to file your tax return on time can result in penalties and fines.


Conclusion

In conclusion, the distinction between a freelancer and an employee is based on several key factors, including control, payment, benefits, taxes, and contractual relationships.


It is important for individuals to understand the differences between these two categories to ensure that they are classified correctly and receive the appropriate benefits and protections.


It is also important for freelancers to carefully consider the nature of their work and seek professional advice to determine the appropriate classification of their income.


FAQs

1. Can someone be both a freelancer and an employee at the same time?

Yes, it is possible for someone to have multiple work arrangements at the same time.


For example, someone could work as a freelancer for one company and also work as a part-time employee for another company.

2. Do freelancers have to pay more taxes than employees?

Freelancers are responsible for paying their own taxes.


However, they may also be eligible for certain tax deductions that are not available to employees.


It's important for freelancers to consult with a qualified tax professional to ensure that they are properly reporting their income and taking advantage of all available deductions.


3. Can freelancers receive benefits like Employee Provident Fund (EPF) and retirement benefits?

Freelancers are responsible for obtaining their own benefits, including retirement funds or benefits.


It's important for freelancers to carefully consider their needs and options when it comes to benefits.

4. How do I determine whether I am a freelancer or an employee?

The determination of whether someone is a freelancer or an employee depends on several factors, including the nature of the working relationship, the level of control the individual has over their work, and the terms of the agreement between the individual and the company.


If you are unsure about your work status, you should consult with a qualified legal or tax professional.


5. What are some common types of freelance work?

Common types of freelance work include accounting, graphic design, web development, consulting, and photography.


However, there are many other types of freelance work, and the freelance economy is constantly evolving.


6. What is the deadline for filing taxes for freelancers in Malaysia?

The deadline for filing taxes for freelancers in Malaysia depends on the type of form being used.


Form BE, which is for people who do not run a business or freelancers whose income is considered employment income, the deadline is April 30, 2023, with a grace period of 15 days for e-Filing submissions, making the final deadline May 15, 2023.


For Form B (or Form e-B, for electronic filing), which is for resident individuals who run their own business (including freelancers whose income is considered business income), the deadline for Year of Assessment 2022 is June 30, 2023, with a deadline of July 15, 2023, for e-Filing submissions.

7. What are some common expenses that freelancers may be able to deduct on their tax returns in Malaysia?

Some common expenses that freelancers may be able to deduct on their tax returns in Malaysia include telephone charges, travelling expenses, printing and stationery, and entertainment that is incurred wholly and exclusively to generate income.


However, not all expenses are tax deductible.


It is important for freelancers to keep detailed records of these expenses throughout the year, as well as any receipts or invoices that support their claims.


8. What should freelancers do to ensure they are complying with applicable tax laws and regulations?

Freelancers should ensure they are aware of all applicable tax laws and regulations and seek the advice of a qualified tax professional to determine the appropriate classification of their income.


They should also keep detailed records of their income and expenses throughout the year, as well as any receipts or invoices that support their claims.


Finally, they should register as a taxpayer with the Inland Revenue Board of Malaysia (IRB) and obtain a tax identification number (TIN).


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