LHDN reveals foreigners use homeless locals as company proxies to evade taxes, with 90% of shadow economy cases involving nominees.
KUALA LUMPUR: Registering companies under the names of local Malaysians, including homeless individuals, to register companies has been identified as one of the tactics employed by certain foreigners to evade taxes through shadow economy activities.
Inland Revenue Board (LHDN) Foreign Taxpayer Branch director Syarein Abu Samah said investigations conducted jointly with the Royal Malaysia Police (PDRM) last year found that about 90% of shadow economy cases involved the use of proxies for company ownership.
The companies were registered under the names of locals, while the actual operations were run by foreigners to mislead the authorities, he added.
“In reality, these locals are merely nominees. More interestingly, the company owners involved are from underprivileged groups. For example, they are homeless individuals with no homes,” he said as a guest on Bernama TV’s Ruang Bicara programme titled Reality and Tax Responsibilities of Foreign Nationals at Wisma Bernama here.
He pointed out that the perception that the majority of foreigners do not pay taxes is inaccurate, as they also contributed to the country’s income tax collection.
“Nevertheless, there are still a handful of parties who fail to declare income, under-report earnings, or deliberately evade taxes through the shadow economy, including through unrecorded transactions, the use of proxies, and third-party accounts known as Alibaba users,” he explained.
He stressed that all foreigners generating income in Malaysia, whether through employment, business, or other activities, are subject to the country’s tax laws.
Commenting on the role of employers, Syarein said they are responsible for ensuring foreign workers are registered as taxpayers in Malaysia and for making Monthly Tax Deduction payments if the workers’ income exceeds the taxable threshold.
“Employers must ensure they are registered as taxpayers in Malaysia to ensure their records and tax compliance are properly managed. In this context, employers cannot assume that the workers they hire are outside the tax system simply because they are not Malaysian citizens,” he said.
The government agreed at the end of 2024 to establish the Foreign Taxpayer Branch under LHDN, which officially began operations on Jan 1 last year to manage taxation issues involving foreign individuals and foreign companies conducting business in Malaysia, he added.
Syarein said based on Department of Statistics Malaysia data for 2025, there are approximately 3.38 million legal foreign workers in Malaysia, while the total number of foreigners, including undocumented migrants, is estimated at between four and six million people.
Meanwhile, Bank Negara Malaysia estimated that annual outflows involving foreigners reached approximately RM61 billion in 2025.
He also shared that LHDN is leveraging the implementation of e-Invoicing to help detect transactions and income recipients more accurately, while also collaborating with BNM and PDRM to trace suspicious transactions, including money transfers through illegal channels.
