Written by Desmond Ho and Iman Balqis Naser
Legal Position under the Stamp Act 1947
The Stamp Act 1949 (‘the Act’) mandates documents listed in the First Schedule to be stamped. Item 4 of the First Schedule of the Act specifies that any agreement under hand is chargeable with a fixed stamp duty of RM10.
In line with this, employment contracts, whether full-time, part-time, fixed-term, or short-term, and whether involving local or foreign employees, fall within the scope of this provision and are therefore subject to a flat stamp duty of RM10 per contract. An exception applies where the monthly wage of the employment does not exceed RM300, in which, the contract is not required to be stamped. For contracts that are chargeable, they must be stamped within 30 days from the date of execution in order to avoid the imposition of penalties under the Act.
This article explores the legal position, recent enforcement developments by the Inland Revenue Board of Malaysia (Lembaga Hasil Dalam Negeri) (‘LHDN’) and the consequences of non-compliance for employers.
Audit Implementation
LHDN has recently introduced the Stamp Duty Audit Framework (‘the Audit Framework’), which came into effect on 1 January 2025. This marks a significant shift in enforcement practice and signals LHDN’s intent to closely monitor compliance through audit mechanisms.
The Audit Framework will retrospectively cover a period of three years, from 1 January 2022 to 31 December 2024 in which all employment contracts executed within this period may be subject to review.
Stamping Timeline and Penalty Implications
Contract Signing Period | Stamp Duty | Penalty | Remarks |
Pre-Audit Period | |||
Before 1 January 2022 | RM 10 per contract | Full penalty under Section 47A applies. | Stakeholders are engaging with LHDN on the possibility of a blanket waiver for both penalties and stamping, with written clarification expected to follow. |
Audit Period | |||
1 January 2022 – 31 December 2024 | RM10 per contract | Waived | Covered under general amnesty. No penalty if regularised voluntarily. |
1 January 2025 – 30 April 2025 | RM10 per contract | Penalty may be imposed if stamping was done more than 30 days after execution | Special consideration for waiver, but not guaranteed. |
On or after 1 May 2025 | RM10 per contract | Full penalty under Section 47A applies. No waiver available. | |
Validity vs Enforceability in Court
It is pertinent to note that an unstamped employment contract remains legally valid and binding between the parties. However, under s 52(1) of the Act, it states that such a contract cannot be admitted as evidence in Court unless it is duly stamped. This means that while the rights and obligations under the contract remain intact, an employer may face significant challenges enforcing those rights in legal proceedings without first regularising the stamping.
That said, it is worth highlighting that, as of the date of this article, the Industrial Court in Malaysia does not differentiate between stamped and unstamped employment contracts. As a court of equity, the Industrial Court has, for now, been willing to accept unstamped employment agreements in proceedings, prioritising substantive justice over strict procedural compliance.
Conclusion
It is clear that employment contracts are subject to stamp duty under the Act. While unstamped contracts remain valid, they are inadmissible in court unless duly stamped — except, for now, in the Industrial Court, which adopts a more equitable approach.
Employers should take proactive steps to review and regularise past contracts, especially those executed from 1 January 2022 onwards, which fall within LHDN’s audit period. For contracts executed before 1 January 2022, stakeholders are currently engaging with LHDN on the possibility of a blanket waiver for both stamping and penalties, in which, written clarification is expected.
Looking ahead, implementing internal controls to ensure timely stamping will be essential to minimise audit exposure and avoid potential penalties.
Published on 30 May 2025