Summary

The central part of the Malaysian Social Security system is a provident fund (the EPF) which is primarily designed to deliver benefits that can be withdrawn at retirement age or in a limited range of other circumstances. There are also minor schemes which provide Invalidity benefits and unemployment insurance which generally only apply to Malaysian citizens and permanent residents. The EPF is essentially a mandatory personal savings scheme.

Details

Contributions

The nominal rates of mandatory EPF contributions for both employees and employers are mid-range (10-12%). However the salary to which these rates apply is capped so the maximum contribution per month is approximately $400.

Treaties

Malaysia does not have International Social Security treaties which eliminate a double social security charge. However because of the voluntary nature of the EPF for inbounds to Malaysia, double charging rarely arises.

Exemptions

Individuals who are not domiciled in Malaysia (ie non Malaysian citizens) can elect not to contribute to the EPF. In practice, few non Malaysians participate in the scheme.

Administration

The EPF is operated through Malaysian payroll so generally creates no administrative burden for individuals. Foreign companies hiring Malaysian nationals have to pay EPF is they are registered in Malaysia.

Benefits

The central benefit of the EPF is a lump sum withdrawal of accrued savings upon reaching retirement age. Withdrawals can also be made for house purchase, incapacity and educational reasons. The EPF does not provide the benefit cover of a comprehensive social security system.

Other

EPF contributions are tax deductible for individuals.

Because EPF participation is voluntary for foreign local hires in Malaysia, moving to Malaysia on a local contract can eliminate both the ‘home’ and the host social security liabilities.

Foreign nationals permanently departing Malaysia (and Malaysians permanently departing and renouncing their citizenship) can withdraw their accrued EPF contributions even if they haven’t reached retirement age.

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