Tax Clearance: CP21, CP22A and the 90-Day Rule

Payroll teams treat tax clearance as a form. It is not a form — it is a withholding duty with a liability attached, and the liability is not the employee’s.

Section 83(5) of the Income Tax Act 1967 says that where an employer holds any money payable to an employee who has ceased or is about to cease employment, or who is about to leave Malaysia for more than three months with no intention of returning, the employer shall not, without the permission of the Director General, pay any part of those moneys until ninety days after LHDN receives the required notification. And if LHDN directs, the employer must pay the money over towards the employee’s tax instead.

The consequence is the part that gets misdescribed. Section 107(4) provides that an employer who fails to comply with s.83(2), (3), (4) or (5) shall be liable to pay the full amount of tax due from the employee, and that the amount shall be a debt due from that employer to the Government and shall be payable forthwith. LHDN says the same on its employer page in Malay — “Majikan bertanggungjawab untuk membayar amaun penuh cukai yang kena dibayar oleh pekerjanya” — and names s.106 civil recovery as the mechanism.

Two clarifications that most write-ups get loose. It is a liability of the employer, not personal liability of a director or an HR manager. And it is not final: the proviso to s.107(4) lets the employer recover the amount from the employee as a debt. What you lose is the money you already paid out and the leverage you had while you were holding it.

The three forms, and the 30 days

Event	Form	Deadline	Statute
Employee ceases employment (private sector)	CP22A	not less than 30 days before cessation	s.83(3)
Employee ceases employment (public sector)	CP22B	as above	s.83(3)
Employee dies in service	CP22A / CP22B	not more than 30 days after being informed of the death	s.83(3)
Employee leaves Malaysia for more than 3 months	CP21	not less than 30 days before the expected departure date	s.83(4)
New employee who is or may be chargeable	CP22	within 30 days of commencement	s.83(2)

Both provisos matter. Under s.83(3) the Director General may accept a late notice, or one given on or after cessation, where he is satisfied it is reasonable in the circumstances — so a late CP22A is a concession, not a right. Under s.83(4)(b) he may waive the CP21 requirement entirely for an employee who has to leave Malaysia at frequent intervals in the course of the job, which is the answer for regional roles that would otherwise generate a CP21 a month.

Since 1 January 2024 all three departure forms are mandatory online through e-SPC on the MyTax portal. CP22A and CP22B accept either a web form or a batch .txt upload capped at 3 MB; CP21 is web form only. Cancellations still have to be lodged at an LHDN office — e-SPC handles original, amended and supplementary applications only.

The exemption most employers miss

The default assumption in Malaysian HR is that every leaver needs a CP22A. The guideline says the opposite for the ordinary case. GPHDN 2/2024 para 3.2 removes the notification requirement where:

• the employment income is not chargeable to tax;
• the employee is a Malaysian citizen whose monthly income was below the PCB threshold and who receives no gratuity or compensation on cessation;
• the employee is a Malaysian citizen whose income was subject to PCB under the Income Tax (Deduction from Remuneration) Rules 1994 and who receives no gratuity or compensation;
• the employee is a non-citizen meeting either of those two tests and continuing to work in Malaysia; or
• the employee receives a retirement gratuity or benefit but does not actually retire and stays with the same employer.

That third limb covers most resignations from a salaried job. The trigger back into the regime is the gratuity or compensation — an ex-gratia payment, a termination package or a retirement benefit puts the leaver straight back into CP22A territory even though PCB was deducted all along.

Note what the exemption does not do. It removes the notification. Where a notification is required, the s.83(5) withholding follows it, and LHDN’s own employer page frames the withholding as applying to employees not covered by the exemption.

The 90 days, and what actually releases the money

The 90 days runs from LHDN’s receipt of the CP21, CP22A or CP22B — not from the last day of work, and not from the date you filed. Three things can end it early or redirect it:

• LHDN gives permission to release (s.83(5) is expressed as a prohibition without the permission of the Director General);
• LHDN directs the employer to pay all or part of the money towards the employee’s tax, which the employer must then do; or
• the SPC is issued, confirming the position and any amount claimed.

The SPC goes to the employer, copied to the employee, and its status is visible in e-SPC. LHDN will not process it until the employee’s own house is in order — GPHDN 2/2024 para 6.1.1 lists complete forms and supporting documents, returns filed for the latest and all prior years of assessment, any audit for earlier years closed, and any compound or prosecution case settled.

What the employee has to do

The employee’s duty is the return position, and it splits on whether PCB as final tax (PCBCM) was elected:

Situation	Current YA return	Return for the year employment ends
Ceasing employment, elected PCBCM	not required	required, filed the following year
Ceasing employment, not eligible or did not elect	required	required, filed the following year
Leaving Malaysia, elected PCBCM	not required	required
Leaving Malaysia, not eligible or did not elect	required	required

Where LHDN has not yet released the return form for the current year of assessment, the guideline’s own workaround is to use the previous year’s form and strike out the year — para 4.3.3, with a worked example.

Two conditions travel with this. Tax already assessed and due must be paid, even where the assessment is under appeal — which is the same rule as appealing an assessment, applied at the worst possible moment in an employee’s cash flow. And if the amount claimed in the SPC goes unpaid, LHDN may issue a s.104 certificate to the police or Immigration to prevent departure; leaving anyway is an offence under s.115(1).

What non-compliance costs

Failure	Consequence
No CP22A / CP22B / CP21, without reasonable excuse	Offence under s.120(1): fine RM200 to RM20,000, or up to 6 months, or both
Releasing the money inside the 90 days	s.107(4) — employer liable for the full amount of tax due from the employee, a debt to the Government payable forthwith, recoverable by civil suit under s.106
Failure to deduct PCB as directed	s.107(4) — employer liable for the tax not deducted

Both limbs can run at once, and the s.107(4) liability is not a penalty capped at RM20,000 — it is the employee’s whole tax bill.

One drafting point worth knowing. Section 120(1)(c) on its face covers failure to give the notices under s.83(2), (3) and (4) — it does not list s.83(5). LHDN’s guideline and its employer page both apply s.120(1) to a breach of the withholding duty as well. The real exposure on s.83(5) is s.107(4), which is larger anyway.

Common mistakes

Filing a CP22A for every leaver. For a citizen whose pay ran through PCB and who gets no gratuity or compensation, GPHDN 2/2024 para 3.2 says no notification is needed. Filing anyway starts a 90-day hold you did not have to impose.

Skipping the CP22A because PCB was deducted — when a package is paid. The exemption is conditional on there being no gratuity or compensation. A severance payment removes it.

Counting the 90 days from the last day of work. It runs from LHDN’s receipt of the form.

Paying out the final salary on the normal payroll run. That is the breach that engages s.107(4). Hold it, or get written permission.

Treating the CP21 as an expatriate-only form. It applies to any employee chargeable to tax who is leaving Malaysia for more than three months — including Malaysians going on a long overseas posting or secondment.

Assuming the employer eats the loss. It does not have to: the proviso to s.107(4) gives a statutory right to recover the amount from the employee as a debt. Collecting it from someone who has already emigrated is the practical problem, which is exactly why the withholding exists.

What’s next

If a resignation has landed, run the para 3.2 test first — citizen, PCB, no gratuity or compensation — and only open e-SPC if the answer puts you inside the regime.

If you are inside it, file the CP21 or CP22A at least 30 days out, ring-fence the final payment in payroll on the day the form is submitted, and diary the 90 days from LHDN’s acknowledgement rather than from the leaving date.

For the rest of the exit checklist — EPF and SOCSO cessation, final pay timing, work-pass cancellation — see the offboarding statutory checklist.