Malaysian authorities uncovered that almost 90% of shadow economy tax evasion cases involved foreigners using local proxies for company ownership, including homeless and underprivileged individuals, to sidestep taxes in 2025 [1, 2, 3, 4]. Syarein Abu Samah, director of the Inland Revenue Board (IRB) Foreign Taxpayer Branch, said, "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" [3].

These companies are registered under the names of local Malaysians while actual operations and profits are controlled by foreigners. Although foreigners contribute to Malaysia’s income tax, a minority evade obligations through under-reporting income, unrecorded transactions, using proxies, or third-party accounts such as Alibaba users, IRB officials reported [1, 2, 3, 4]. Syarein added, "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" [1].

All foreigners earning income via employment, business, or other activities must comply with Malaysian tax laws [1, 2, 3, 4]. Employers are responsible for registering foreign workers as taxpayers and for making Monthly Tax Deduction payments if income crosses taxable thresholds. Syarein cautioned employers, "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" [3].

The Foreign Taxpayer Branch under the IRB was officially established at the end of 2024 and began operations on January 1, 2025, to manage tax matters involving foreign individuals and companies [1, 3, 4]. According to the 2025 Department of Statistics Malaysia, there are about 3.38 million legal foreign workers in Malaysia, while the total foreign population including undocumented migrants is estimated between 4 to 6 million [2, 3, 4].

Bank Negara Malaysia estimated foreign-related capital outflows reached RM 61 billion annually in 2025 [2, 4]. To combat illegal outward remittances, authorities are working with Bank Negara and the Royal Malaysia Police and implementing an electronic invoicing system aimed at tracing transaction sources more effectively [2, 4].

Efforts continue into 2026 to monitor tax compliance among foreigners and crack down on shadow economy practices involving proxy ownership and undeclared income.