KUALA LUMPUR, May 20, 2026 — The Inland Revenue Board (LHDN) has uncovered a widespread tactic where foreigners register companies under the names of Malaysian locals — including homeless persons — to evade taxes through shadow economy activities.
LHDN Foreign Taxpayer Branch director Syarein Abu Samah revealed that joint investigations with the Royal Malaysia Police (PDRM) last year showed approximately 90% of shadow economy cases involved the use of local nominees or 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,” Syarein said. “In reality, these locals are merely nominees. More interestingly, the company owners involved are from underprivileged groups.”
This modus operandi allows foreign operators to conceal their involvement, under-report earnings, or engage in unrecorded transactions, contributing to tax leakage in Malaysia’s informal economy.
The revelations come amid LHDN’s intensified efforts to strengthen compliance among foreign and non-resident taxpayers. The agency established the dedicated Foreign Taxpayer Branch (CPCA) in January 2025 to better handle cases involving foreign taxpayers, non-residents, and withholding taxes.
Syarein noted that while most taxpayers comply with regulations, a small number continue to exploit loopholes in the shadow economy. He urged employers not to assume foreign workers are outside the tax system solely based on their citizenship.
LHDN continues to collaborate with enforcement agencies to clamp down on such practices, with potential penalties for tax evasion under the Income Tax Act 1967.
The full BERNAMA report is available here.
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