Freelancer and Side Income Tax in Malaysia: What Must You Declare?
Many freelancers and salaried workers with side income ask the same question every tax season: "Do I actually need to declare my side income?" Some assume that as long as the amount is small, LHDN will never notice. Others think that since PCB is already deducted from their salary, freelance earnings do not need to be reported. Both assumptions are wrong, and they can expose you to penalties far more expensive than the tax itself.
In this article, we answer it clearly: what must be reported, which form to file, when the deadlines fall, and how tax is calculated on freelance and side income in Malaysia.
The Quick Answer
All freelance and side income must be declared to LHDN, no matter how small the amount. This type of income is treated as business income, so you must file Form B (not Form BE), with an e-Filing deadline of 15 July each year. You only pay tax if your chargeable income exceeds certain thresholds, but the obligation to report stands even if the income is tiny or the business made a loss.
What Does LHDN Count as Freelancer and Side Income?
Under the Income Tax Act 1967, income from a "business" is defined broadly. According to LHDN, it covers any activity carried out continuously with the intention of making a profit. Clear examples include:
- Professional freelance work - graphic design, writing, translation, programming, photography, video editing
- Gig economy - e-hailing (Grab, inDrive), food delivery (Foodpanda, GrabFood), platform work on Upwork and Fiverr
- Online selling - Shopee, TikTok Shop, Instagram, dropshipping or selling your own products
- Content creators and influencers - YouTube ad revenue, TikTok Creator Fund, endorsements, affiliate marketing. EPF has itself published guidance confirming that influencer income is taxable
- Commissions and fees - insurance, real estate and takaful agent commissions, private tuition fees
- Rental - income from renting out a house, room or vehicle (reported as rental income rather than business income, but still must be declared)
Keep in mind that gains from buying and selling shares on Bursa Malaysia as an individual investor are generally not subject to capital gains tax. We explain this in more detail in our article on tax for stock investors in Malaysia. Digital assets are similar - if you actively trade crypto, LHDN can treat it as a business. Read more in our article on crypto tax and LHDN.
When Must You Register and File Taxes?
There are two separate obligations that people often confuse:
First: the obligation to register a tax file. If you are a salaried employee and your annual income exceeds RM34,000 after EPF deductions, you must have a tax number and file a return every year. For the basics on who needs to pay, see our article on what income tax is and who must pay.
Second: the obligation to report business income. This is the part most people miss. LHDN does not set any minimum amount for business income. That means even if your side income is only RM200 a month from online selling, it must still be reported in your tax return. Even a loss-making business must be reported, because business losses can be carried forward to offset future profits.
Registration can be done entirely online through the MyTax portal using e-Daftar. You are also encouraged to register your business with SSM if your freelance activity is carried out consistently, although this is not a prerequisite for reporting tax.
Form B or Form BE: Which One Applies to You?
This is one of the most common mistakes freelancers make. The difference is simple:
- Form BE - for individuals with employment income only (salary alone). Deadline 30 April, or 15 May via e-Filing.
- Form B - for individuals with business income, including freelance and side income. Deadline 30 June, or 15 July via e-Filing.
The key point: if you have a salary AND side income, you still use Form B, not BE. Your salary goes in the employment income section and your freelance earnings in the business income section, all within one Form B. Filing a BE when you have business income means that income goes unreported, and that is an offence.
How a Freelancer's Chargeable Income Is Calculated
The good news: you are not taxed on the gross amount that lands in your bank account. The basic formula:
Gross income - allowable business expenses = adjusted business income
Under Section 33 of the Income Tax Act 1967, expenses incurred "wholly and exclusively" in producing income are deductible. For freelancers, common examples include:
- Software and tool subscriptions (Adobe, Canva Pro, hosting, domains)
- A portion of internet and phone bills (based on the ratio of work use)
- Work equipment such as laptops and cameras (claimed through capital allowances rather than direct deduction)
- Transport costs for work purposes, petrol and tolls for e-hailing drivers
- Platform fees and marketplace commissions (Shopee, Fiverr, Upwork deductions)
- Advertising and marketing costs (FB Ads, TikTok Ads)
Your adjusted business income is then combined with employment and other income, and personal reliefs are deducted (RM9,000 individual relief, EPF and life insurance, lifestyle, medical and so on) to arrive at your chargeable income, which is what the tax rates apply to.
Individual Income Tax Rates for Year of Assessment 2025
Malaysia uses a progressive tax system. Based on the rate schedule compiled by RinggitPlus for year of assessment 2025:
| Chargeable Income (RM) | Rate (%) |
|---|---|
| 0 - 5,000 | 0 |
| 5,001 - 20,000 | 1 |
| 20,001 - 35,000 | 3 |
| 35,001 - 50,000 | 6 |
| 50,001 - 70,000 | 11 |
| 70,001 - 100,000 | 19 |
| 100,001 - 400,000 | 25 |
| 400,001 - 600,000 | 26 |
| 600,001 - 2,000,000 | 28 |
| Above 2,000,000 | 30 |
Only the portion of income within each band is taxed at that band's rate, not your entire income. Individuals with chargeable income of RM35,000 or below also qualify for a RM400 tax rebate.
Worked Example: Salary + Side Income
Say Aiman earns a fixed salary of RM4,000 a month (RM48,000 a year) and does freelance design work with gross income of RM1,500 a month (RM18,000 a year). His freelance expenses (software, internet, advertising) total RM4,000 for the year.
- Employment income: RM48,000
- Adjusted business income: RM18,000 - RM4,000 = RM14,000
- Total income: RM62,000
- Less reliefs (RM9,000 individual + RM4,000 EPF + RM2,500 lifestyle + RM2,500 others): RM18,000
- Chargeable income: RM44,000
Tax is calculated in tiers: RM600 on the first RM35,000, plus 6% on the remaining RM9,000, which is RM540. Total tax: RM1,140. Without claiming that RM4,000 in expenses, Aiman's tax bill would be higher. This is why expense records matter so much for freelancers.
e-Invoice: Do Freelancers Need It?
Between 2024 and 2026, Malaysia is rolling out its e-Invoice system in phases. Most freelancers do not need to worry for now. LHDN has deferred implementation for smaller income groups, and taxpayers with annual turnover below RM500,000 are currently exempted from e-Invoice.
In other words, if your side income is RM2,000-RM10,000 a month, you are still far below the threshold. But remember: an e-Invoice exemption is NOT a tax exemption. The obligation to report your income in Form B continues as usual. One more important note: if you run several sole proprietorships, LHDN combines the turnover of all your businesses when testing the threshold, not each one separately.
CP500 and Record Keeping
Once you start reporting business income, LHDN may issue a CP500 notice, an instalment payment scheme for individuals with business income. Payments are made 6 times a year (every two months). If LHDN's estimate is too high compared to your actual income, you can apply to amend it before 30 June of that year.
You must also keep business records for 7 years, including invoices, expense receipts, bank statements and sales records. Nothing fancy is required - a simple spreadsheet updated consistently every month is enough for a small freelance operation.
What Happens If You Don't Declare Side Income?
This is not something to take lightly. Under Section 112 of the Income Tax Act 1967, failure to submit a tax return can result in a fine of RM200 to RM20,000, imprisonment of up to 6 months, or both. For incorrect returns or understated income, Section 113 provides for fines of RM1,000 to RM10,000 plus a penalty of 200% of the tax undercharged.
LHDN today has far broader data access than before - bank records, e-commerce platform data, e-hailing data, even social media activity. Audit campaigns targeting online sellers and content creators are increasingly active. The cost of hiding is far higher than the cost of complying. If you have never declared before, the best move is to come forward voluntarily - LHDN periodically offers Voluntary Disclosure Programmes with much lower penalty rates.
Step by Step: Declaring Side Income for the First Time
If this is your first year reporting freelance income, follow this simple sequence:
- Get your tax identification number (TIN) - register through e-Daftar on the MyTax portal. Most individuals who have ever been employed already have a tax number automatically. Check MyTax first before registering a new one.
- Update your MyTax profile - make sure your address, phone number and bank account for refunds are current.
- Gather a year's worth of income records - bank statements, platform income reports (Grab, Shopee, TikTok, Fiverr), invoices you issued to clients.
- List your business expenses - separate out work-related receipts only. If an expense is mixed personal and work use (for example, your home internet bill), apply a reasonable and consistent ratio.
- Fill in Form B via e-Filing - select e-B in MyTax. Enter your employment income from your EA form (if any), then your business income in the relevant section. The system calculates your tax automatically once your reliefs are entered.
- Pay or claim a refund - if the PCB deducted by your employer exceeds your actual tax, you get a refund. If not, settle the balance through ByrHASiL before 15 July to avoid an automatic 10% tax increase.
For a small freelancer, the whole process usually takes under an hour if your records are organised. Subsequent years get faster because your profile and record templates are already in place.
Legal Ways to Reduce Your Tax
Reporting side income does not have to mean a big tax bill. Some legitimate strategies:
- Record every business expense - every eligible ringgit spent reduces your chargeable income
- Maximise personal reliefs - voluntary EPF (i-Saraan for freelancers), PRS, SSPN, life and medical insurance, lifestyle relief
- Contribute to i-Saraan - freelancers can contribute voluntarily to EPF, qualify for government incentives, and enjoy tax relief at the same time
- Time your big purchases - if you plan to buy work equipment, the timing of the purchase affects which year of assessment you benefit in
We cover this topic in more depth in our article on how to save on LHDN income tax.
FAQ
Do I still need to declare side income if my employer already deducts PCB?
Yes. PCB only covers your salary. Freelance and side income is not factored into PCB, so it must be reported separately through Form B. The PCB already deducted will be offset against your final tax bill.
What is the minimum side income that must be reported to LHDN?
There is no minimum. LHDN requires all business income to be reported no matter how small, even if the business made a loss. You may not owe any tax if your chargeable income is low, but the reporting obligation still applies.
Do freelancers have to register with SSM?
From a tax perspective, SSM registration is not a prerequisite for reporting income in Form B. However, under the Registration of Businesses Act 1956, business activities carried out continuously should be registered. SSM registration also makes it easier to open a business bank account and apply for financing.
Which tax form applies if I have a full-time salary and side income?
Form B. As long as you have business income, even if your main income is a salary, you use Form B with an e-Filing deadline of 15 July. Do not use Form BE.
Can I deduct my laptop and internet bill from freelance income?
Yes, with conditions. Internet bills and software subscriptions can be deducted based on the proportion of business use. Laptops and equipment are claimed through capital allowances rather than a one-off deduction. Keep all receipts as evidence.
Is income from TikTok, YouTube and affiliate marketing taxable?
Yes. Ad revenue, endorsements, gifted products of value and affiliate commissions all count as taxable income when received on an ongoing basis. LHDN has repeatedly confirmed that content creators and influencers are subject to income tax like any other business.
What should I do if I have never declared my side income?
Come forward voluntarily before LHDN contacts you. Update your declarations through MyTax or visit an LHDN branch for advice. Voluntary disclosure typically attracts far lower penalties than errors uncovered through an audit.
Conclusion
All freelance and side income must be reported to LHDN through Form B, regardless of the amount. By recording your business expenses and maximising reliefs, the actual tax payable is usually far lower than people fear. The bottom line: complying early is much cheaper than paying penalties later.
Once your freelance income becomes stable, the smart next step is to put that surplus income to work through investing.
Open a CDS account to start investing in Bursa Malaysia as well as foreign stocks such as US and Hong Kong markets.
Download the Stock Market Basics Ebook for free to understand your first steps in stock investing.