Having a comprehensive understanding of the legal definition of employment, including the distinction between a contract of service and contract for service, is essential for both employers and employees alike. This is because it establishes the parameters of the relationship between them, including the level of control, the ability to substitute staff, profit-sharing, and other benefits or liabilities.
The Income Tax Act 1967 provides a clear definition of employment and explicitly outlines the differences between a contract of services and a contract for services. Gaining a thorough grasp of these distinctions can enable employers and employees to make informed decisions about their relationship and prevent any potential legal issues.
i. Employment means:
(a) Relationship of master and servant subsists;
(b) Any appointment or office, whether public or not and whether or not that relationship subsists, for which remuneration is payable.
ii. Employer means:
(a) Relationship of master and servant subsists, the Master;
(b) If relationship does not subsist, the person who pays or is responsible for paying any remuneration to the employee who has the employment, notwithstanding that the person and the employee may be the same person acting in different capacities.
iii. Employee means:
(a) Relationship of master and servant subsists, the Servant;
(b) If relationship does not subsist, the holder of the appointment or office which constitutes the employment.
|Contract for Services (Self-employed)
|Contract of Services (Employment)
|Existence of a principal and agent relationship
|Existence of a master and servant relationship
|Absence of control
|Control by employer (method of doing works)
|Ability to substitute of staffs
|No ability to substitute staff (cannot hire helper)
|Share profit and risk
|Share profit but not risk
|Risk of bankruptcy if business failed
|Risk of job termination
|No applicable benefits
|Enjoy the benefits such as EPF Contribution, leave pay, compensation for loss of employment and other
|Own the tools
|Tools provided by the employer
|Business Income assessed under Section 4(a)
|Employment Income assessed under Section 4(b)
|Subject to business tax estimate (CP500)
|Subject to Monthly Tax Deduction (MTD) or Potongan Cukai Bulanan (PCB)
|Due date on 30 June:
·Submit Form B
|Due date on 30 April:
· Submit Form BE (Employment – Resident); or· Submit Form M (Employment – Non-Resident).
Tax consulting is the core service of ANC Group. Our tax professionals provide clients with comprehensive tax support and guidance. We offer tax consulting and compliance services for expatriates, entrepreneurs, and listed and non-listed companies.
Our tax consulting services include business tax, transaction tax, personal tax, and corporate income tax. We don’t just guide you in interpreting and applying complicated taxation rules, but to explore new opportunities and business trends.
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