Income tax declaration for Malaysia bloggers & do you need to register as sole prop?

It is that time again of the year where we have to submit for income tax declaration.

Do you need to declare income tax if you are a blogger?

YES, you  must. If you are earning from your blog, for example via advertising (Adsense, third party banners, selling ad space), affiliates or online courses then you are REQUIRED to declare income tax.

Even if your blog does not make any money, you have to declare. Even if the little income is not even enough to cover your hosting,  you still need to declare as a loss.

It is the same for individuals who are working. Let’s say you are employed but you do not fall under the taxable bracket, you still need to file your income tax. When you submit your tax online via e-billing, their system would compute that you need not pay any tax.

Does a Malaysian blogger need to register as a sole prop?

Many are wondering if you are a blogger who is monetizing your site, do you need to register as a sole prop in order to declare your taxes?

There are a lot of different information out there however most Malaysian bloggers are pointing that you should register as a sole prop.

In fact, I was going to pay a trip to SSM (Suruhajaya Syarikat Malaysia) to register as a sole prop after hearing a lot of advise online.

Until I spoke to a good friend who is another freelancer- she told me that she did not register as a sole prop because she is only doing as a freelancer.  Even though she did not register as one, she is able to invoice the company for her work. She informed me that once I registered as a sole prop, I will have to file a proper set of accounts to declare my earnings and losses.

Note: More than 10 years ago, I had the wish to become a full time crafter while still holding a full time job. Hence following some advise, I took leave and spent almost the whole day at SSM (that time it was located at Yaohan) to register my business. Well, eventually my ‘dream’ did not materialize because there were tonnes of mass produced crafts flowing in from China. It affected income of crafters worldwide. So I aborted the whole plan and I thought it was OK. SSM officers actually called and even came to my house (while I was working) to check on why I did not renew my license.

As a freelancer, do you need to register yourself as a sole prop?

I called LHDN to seek clarification if I am required to register and file for tax as a sole prop if I intend to do the following:

• Having a earnings from a monetized blog (via Adsense, affiliates, etc)
• Freelance web content writer
• Building website for others as a freelancer

Now if your situation is different from the above, please contact LHDN to seek clarification based on your situation. I am only able to share based on my own situation and experience.

So far I have called them a few times to seek advise and I noticed that their staff are very professional and knowledgeable.

The officer mentioned that as a freelancer, it is not compulsory to register as business, be it sole prop or other forms of business. However, I am required to maintain the records of my earnings and expenses (you may refer to the guidelines  provided by LHDN on the type of deductable expenses, example hosting fee).

I would need to file under form BE (as I was also fully employed during the beginning of last year).

When do you need to register as a business

When you are doing it as a full time venture and your earnings are substantial that you know you need to keep a systematic set of accounts.

Also, if you wish to apply for any bank loan or bank account under a company name, you would need to register yourself as a sole prop, partnership, etc.

Registration as business is also useful as you would be able to write off other forms of relevant expenditures as expenses. For example if I am deducting as a freelancer, I cannot claim parking and coffee even though I have to go to a specific place to meet a potential client and buy the client coffee.

Then I also asked… how about real estate or unit trust agents? I know some of my friends are in that line and they are required to register as a sole prop. The LHDN officer replied that yes, unit trust and real estate agents are required to register under sole prop and file a separate form (sorry I forgot what it was but I am sure your upline will advise you accordingly).

The point is that freelancers are categorized differently as unit trust or real estate agents.

As a Malaysian blogger, if you are earning from your site (even at a loss), you still need to file your taxes accordingly.

However if you are a freelancer, you have the choice to register as sole prop or not. Most important is to declare the income you earn from your freelancing jobs.

But…

If you have long term goals of your venture and envision it to be something huge in future, you may wish to register at least as a sole prop. Between a freelancer and a sole prop, clients would definitely prefer to engage someone who seemed to have a legitimate business.

Then as your business expands and you need to borrow a loan, if you already registered as business from the start, then your vintage (years in business would be longer).

On the other hand, imagine that you started as a freelancer. Two years later, your business have grown that you need to start to hire staff, write off expenses (ie meeting clients and spending them a cup of branded coffee, petrol and parking) it may come a time when you need additional funding to expand your business. Then you go to SSM to file a registration.

But then, on paper, your ‘company’ is only two weeks old when you tried to apply for the loan or approach potential investors even though you already have two or more years of solid work experience and credentials.

The clients, through work directly with you may already be aware of your work performance, quality and they may be really satisfied with your work. However, if they are not the key decision makers and they required their management approval, it would be a little disadvantage if in record, your company is considered a newly set-up company.

Even if they are the key decision makers, they are also auditable for their decisions and choices.

Due to audit and compliance, large companies have a separate unit under finance as well as compliance which are required to look at tenders and contracts impartially. I know because the previous companies I have worked with all have very stringent procedures set in place. They need to select based on a list of ‘predetermined criterias’. If your company does not meet their list of predetermined criterias, they would need not make a huge lot of justification in order to approve your contract. No one would want to take the risk or trouble.

Therefore, you need to think through and consider carefully what are your long term goals and priorities. Then decide if you wish to register your venture as a business (but no matter what, please declare).