Malaysia Foreign Worker Levy Explained 2026

Are you feeling the squeeze of rising operational costs in Malaysia? If you’re an employer in 2026, you’re likely facing the most significant transformation in labor policy in over a decade. Under the 13th Malaysia Plan (13MP), the government has officially pivoted from simple labor importation to a technology-first economy.

The center of this shift? The Multi-Tier Levy Mechanism (MTLM). For businesses, learning these all 2026 updates isn’t just about obedience—it’s about financial existence.

The 2026 Multi-Tier Levy System: A Cost-Heavy Future

The MTLM is now real and active. It is the key part of Malaysia’s labor plan in 2026. This system makes companies pay more if they use too many foreign workers. It drives companies to use machines and hire more common people.

• The Multi-Tier Levy Mechanism (MTLM) works like this: In the past, the tax was the same for everyone. Now it is progressive. This means the more foreign workers you have compared to local staff, the higher the levy per worker.
• There is a dependency ratio ceiling for each sector. For example, in manufacturing, if foreign workers go over a certain percent (like 15% or based on rules), you enter a higher tier and pay more.
• The government takes some money from these levies and puts it into a Trust Fund for Automation. Companies that buy machines or improve technology can ask for grants from this fund. This helps pay for new tools and reduces the need for many workers.
• The 13th Malaysia Plan (13MP) Reforms have a clear goal. The government wants to bring down the total number of foreign workers to only 10% of all workers in Malaysia by 2030. Later, it may go to 5% by 2035. This plan helps create better jobs and higher pay for Malaysians.

These changes mean employers must think carefully about hiring. Relying too much on foreign workers will cost more money each year.

2026 Standard Sector Rates & Baseline Fees

Even with tiers, every company starts with baseline levy rates. These are for the Visit Pass (Temporary Employment) or PL(KS). You use these rates to plan your budget.

• Peninsular Malaysia Baseline Rates Manufacturing & Construction: RM 1,850 per year. Services: RM 1,850 per year. Plantation & Agriculture: RM 640 per year. There is also a small processing fee of RM 125 for most cases.
• East Malaysia Variations In Sabah and Sarawak, rates are a bit lower to help local growth. For example, manufacturing may be around RM 1,010 in Sabah. Other sectors like services, plantation, and agriculture also have lower fees compared to Peninsular Malaysia.
• The “10-Year Extension” Cliff Foreign workers can normally work up to 10 years. After that, if you want to extend, the levy jumps very high. In some cases, it can go up to a large amount like RM 6,000 or more per year. In 2026, the government is stricter about “succession plans.” This means you must show plans to train locals to take over the job before extending long-term workers.
• New Expatriate Salary Thresholds From June 1, 2026, the minimum salary for some Category III Employment Passes is now RM 5,000. For manufacturing, it may be RM 7,000. This rule makes sure higher-skilled jobs pay better and helps control who can come as expatriates.

These baseline rates are just the start. The real cost depends on your company’s foreign worker ratio under MTLM.

Compliance & The Digital Ecosystem: NIISe 2026

The Malaysian Immigration Department (JIM) has finished rolling out the National Integrated Immigration System (NIISe). This is a big digital change. No more old paper work. Everything is online and fast.

• NIISe Real-Time Tracking NIISe connects to your payroll and SOCSO systems. If you do not pay the levy on time, the system flags the work permit. It can cancel the permit automatically. This makes compliance very important.
• MyFutureJobs Acknowledgment Before you ask for a foreign worker quota, you must show proof. You need a letter from the system that says you advertised the job to locals for at least 30 days. This helps give jobs to Malaysians first.
• One-Stop Foreign Worker Management Centre (OSC) All applications for quotas, levy payments, and permit renewals now go through one place. This centre makes things clearer and faster for employers.
• Workplace Fair Wage Judgement In 2026, court decisions make it clear. Your responsibility (levy, insurance, etc.) starts the moment the worker arrives in Malaysia. You cannot avoid costs after they enter the country.

These digital tools help the government watch everything closely. Employers must learn to use them well to avoid problems.

Financial & Legal Responsibilities for Employers

Not following rules in 2026 brings big penalties. The government is very strict now.

• Employer Levy Responsibility It is illegal to take the levy from the worker’s salary. Under the “Employer Pay” rule, you must pay the full amount yourself.
• Security Bond (RM 250 – RM 1,500) You must give a deposit or bank guarantee. The amount changes by nationality. For example, RM 750 for workers from India or Pakistan, and RM 250 for those from Indonesia.
• FOMEMA Medical Examination Workers must do this health check every two years. In 2026, the tests include new checks for health risks in the region.
• Check Out Memo (COM) When a worker’s contract ends, you must file a COM. This tells the government the worker is leaving legally. If you do not do this, you may lose your security bond.

2026 Strategy Tip: The “Special Window” The Ministry of Home Affairs opened a Special Quota Application Window from January 19 to March 31, 2026. This is a very important time. Apply for your labor needs now before stricter MTLM checks start later in the year.

FAQ: Common 2026 Levy Questions

Ready to future-proof your hiring?

The 2026 labor changes need both following rules and using digital tools. Train your HR team on the NIISe portal and how MTLM tiers work. Do this before important deadlines like March.

These rules help Malaysia grow stronger with more local jobs and technology. But they add costs for employers who depend a lot on foreign workers. Plan early, use automation where possible, and hire locals to keep costs down.

Would you like me to draft a simple “2026 Levy Cost Calculator” template or a “Step-by-Step Guide to the NIISe Registration Process” for your company?

Disclaimer: This article is for information and education only. Please check the latest details from official sources like the Malaysian Immigration Department (JIM) or the Ministry of Human Resources (KESUMA) before you make any decisions on money or hiring.