Tax incentives on your severance package

by | Jun 21, 2020 | Taxes | 0 comments

Anyone who has been living on this earth would know that unemployment is at a decade-high and is expected to rise further. 

With most companies scaling down & laying off people, we should be given a fair severance package. 

Once you get that package, its time to make sure the government doesn’t take more than they are entitled too. So let’s look at this with an example:

Let’s say you have worked for company A for 7 years (completed years, partial years are not counted😭) and you were given a total severance package of RM 100,000. 

LHDN gives a tax break of RM10,000 for each completed year with company A. So if you have completed 7 years with company A, RM 70,000 of the payout will be considered for the tax break. 

You would only have to pay tax on the additional RM 30,000. 

What to do to prevent paying the additional tax:

  1. Collect ALL the documents that you can get your hands on to prove that the lump sum payment you received is a compensation for loss of employment. For example, you will be required to show a letter of dismissal, contract, or even the description of the payment voucher, then discuss the matter with LHDN.
  2. You will be required to present your pay slip and EA form to prove that you have completed your said tenure of services to the LHDN.


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