ON June 6, the Inland Revenue Board of Malaysia (LHDN) has clarified the stamp duty treatment of employment contracts.
In its official media statement, LHDN outlines how employment contracts will be treated across three key timeframes below, helping employers and HR professionals navigate the complexities of compliance:
- Contracts executed before 1 January 2025are exempt from stamp duty and no penalties for late stamping will be imposed.
- Contracts executed between 1 January 2025 and 31 December 2025are subject to stamp duty, but no late stamping penalties apply if stamped within the year.
- Contracts executed from 1 January 2026 onwardswill be fully subject to stamp duty and late stamping penalties.
This announcement has raised questions about whether stamping employment contracts is necessary at all. In many jurisdictions, including Malaysia, it is not a common practice to stamp employment agreements.
Admissibility, not validity
Stamp duties are imposed on instruments and “instrument” includes every written document under the Stamp Act 1949. The Act provides that instruments which are not duly stamped are inadmissible as evidence in court.
The Federal Court in Malayan Banking Bhd v Agencies Service Bureau Sdn Bhd & Ors [1982] 1 MLJ 198 held that the unstamped document only affects the admissibility of the document in evidence and does not invalidate the document:
“The purpose of the Stamp Ordinance 1949 is to impose and to collect taxes on legal and commercial documents by compelling these documents to be stamped on pain of being inadmissible…. a stamp objection really relates to the safeguarding the government revenue, … unless of course the lack of stamping goes to the root or the validity of the document itself or the case is a revenue dispute.”
Hence, an unstamped document is not automatically void or invalid but rather, it cannot be used as evidence in judicial proceedings until the applicable stamp duty is paid, along with any penalties for late stamping.
Late stamping penalty
Effective from January 1, 2025 the late stamping penalty rates have been revised as follows:
- RM50 or 10% of the deficient duty, whichever is higher, if stamped within 3 months after the time for stamping;
- RM100 or 20% of the deficient duty, whichever is higher, if stamped after 3 months from the time for stamping.
From a practical perspective, the monetary impact of late stamping for standard employment contracts is minimal, which is subject to a nominal stamp duty of RM10.
Practical considerations and risks of delayed stamping
Given the relatively low penalties for late stamping, some employers may opt not to stamp employment agreements at the outset, particularly where no immediate dispute is anticipated or where litigation appears unlikely.
Instead, stamping may be deferred until the agreement is required for legal proceedings.
While this may offer short-term administrative convenience or cost savings, such an approach carries several practical and legal risks that should be carefully considered:
- Delays in legal proceedings: An unstamped contract cannot be admitted as evidence in court until it has been properly stamped. This can be particularly problematic in urgent applications, such as for injunctions or interim relief, where an inability to rely on the contract may hinder the timely pursuit of legal remedies.
- Adverse perception in disputes: Failure to stamp an agreement may give the impression of non-compliance or an attempt to evade statutory obligations, which could affect the employer’s credibility.
- Penalties for non-compliance: Executing or signing a document chargeable with duty without the requisite stamping may attract fines. With the Stamp Duty Self-Assessment System set to be implemented on January 1, 2026 LHDNis expected to step up audit and enforcement efforts to ensure compliance.
Despite these considerations, delayed stamping may still be legally viable for some employers, since late stamping penalty is still relatively low and there is a minimal risk of litigation.
Nonetheless, both employers and employees are strongly encouraged to stamp employment contracts promptly to ensure full compliance and to avoid procedural or administrative complications should the agreement later be required in legal proceedings. ‒ June 13, 2025
Leonard Yeoh is a senior partner and Pua Jun Wen a senior associate with the law firm, Tay & Partners.
The views expressed are solely of the author and do not necessarily reflect those of Focus Malaysia.
Main image: Bernama
