Tax on net business profit at resident rates.
Income tax due
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Net profit
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Chargeable income
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Net after tax
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Freelancers are taxed on profit, not turnover
If you run a sole proprietorship or freelance in Malaysia, LHDN does not tax the money your clients pay you. It taxes your profit, which is gross business income minus the expenses you are allowed to claim. That distinction is worth real money. A designer billing RM120,000 a year who spends RM30,000 on software, a co-working desk, equipment, and travel is taxed on RM90,000, not RM120,000. This calculator starts from that profit, applies your personal reliefs, and runs the remainder through the same progressive resident rates an employee faces. The output is your annual income tax and what is left after it.
From invoices to chargeable income
The path has three stops. First, profit equals gross income less allowable expenses. Second, chargeable income equals profit less your personal reliefs, where the calculator defaults to the automatic individual relief the model sets at RM9,000. Third, the resident progressive bands apply, running from a tax-free first slice up to 30 percent on very high income, with a RM400 rebate where chargeable income is at or below RM35,000. These are the bands and reliefs the tool assumes for the current year of assessment; because they shift with the Budget, confirm the live figures with LHDN.
A freelancer on RM120,000 of billings
Use the defaults. Gross income is RM120,000, allowable expenses are RM30,000, so profit is RM90,000. Subtract the RM9,000 individual relief and chargeable income is RM81,000. Running that through the resident bands gives RM5,790 of income tax. Note that the RM400 rebate does not apply here, because it is only available when chargeable income is at or below RM35,000, and RM81,000 is well past that. The table below shows how the tax builds band by band, which is the clearest way to see why your average rate is far below your top rate.
| Band of chargeable income (RM) | Rate | Tax (RM) |
|---|
The chart makes the key idea visible. Although your marginal rate is 19 percent, only the slice of income above RM70,000 is taxed at 19 percent. Everything below is taxed at the lower band rates. That is why RM5,790 on RM81,000 is an effective rate of about 7.1 percent, not 19 percent. Confusing the two is the single most common error freelancers make when budgeting for their tax bill.
The safety net employees get for free
As a sole proprietor you have no employer paying into EPF or PERKESO on your behalf, so you have to build that yourself. EPF offers i-Saraan, a voluntary self-contribution scheme, and PERKESO runs a self-employment SOCSO scheme that covers work injury. Both are optional, both are cheap relative to the protection, and EPF contributions can feed into your personal reliefs. Treating these as part of your real tax-and-savings picture, rather than ignoring them because no one deducts them, is the mark of a freelancer who plans rather than reacts.
Who this is for, and a costly oversight
It fits gig workers, consultants, independent contractors, and small sole traders who file under their own name rather than through a company. The expensive oversight is poor expense records. If you cannot evidence the RM30,000 of costs, LHDN can disallow them and tax you on the full RM120,000, which on these numbers would push your tax well above RM5,790. Keep receipts and a clean separation between business and personal spending.
When should I consider an Sdn Bhd instead?
Roughly when profits grow large enough that the SME company rate, which the model applies at 15 percent on the first RM150,000 of company income, beats your personal marginal rate, and when you want limited liability. There is no single switchover number, since reliefs, how much profit you draw as salary, and compliance costs all matter. Compare the two structures directly before incorporating.
Do I need to register for SST as a freelancer?
Only if your taxable service turnover crosses the registration threshold, which the model treats as RM500,000 a year for most services. Below that you generally do not charge service tax. Income tax on your profit applies from the first ringgit of profit regardless, so the two are separate questions.