Is your Malaysian company ready for the New Expatriate Policy Revisions from 1 June 2026?

Recently, MDEC has conducted in-depth briefings in Malaysia with over 900 participants. In this article, we summarised some of the information shared.

In summary, Malaysian companies hiring expatriates can expect the following disruption: (1) change of contract duration and salary for expatriates; (2) termination of expatriate who do not meet salary thresholds; (3) departure of expatriates who are unable to keep dependents in Malaysia (4) cancellation and change of pass for expatriates (5) higher thresholds of justifications to hire expatriates with detailed succession plans (6) overall, shorter contracts for expatriates in Malaysia.

1. What are the new salary thresholds? 

The table below summarises the revised expatriate policy for Employers hiring expatriates from 1 June 2026.

2. How will the new policy be implemented after 1 June 2026?  

The implementation date of 1 June 2026 will apply to all new applications and renewals. Any change of categories will involve a cancellation of pass and application of a new pass category. 

For example, 

If an expatriate is currently earning RM5,500 monthly and is holding the Employment Pass 2 under the current policy, the employer will need to transition this expatriate to the Employment Pass 3 under the revised policy, provided the salary remains below RM9,999. 

Action needed: 

The employer will have to cancel the existing Employment Pass 2, and apply for a new Employment Pass 3 for the said expatriate. According to MDEC, the Expatriate will not be required to leave Malaysia during this transition. 

3. New or Renewed applications submitted before 1 June 2026 (by 31 May 2026) 

If the employer submits a new application for an expatriate before 1 June 2026 (this means any submission of a new application by 31 May 2026), provided the application is approved, the current policy will apply rather than the revised policy. The expatriate will be able to hold the work permit under the old policy until the expiry of the permit. 

The same rules apply to renewals, however, employers would not be allowed to apply for renewals until within 3 months of the current pass’s expiry. 

For example,  

If the expatriate's work permit is expiring in May 2026, then the pass may be renewed before 1 June 2026 to avoid impacts of the revised policy. However, if the expatriate’s work permit is only expiring in December 2026, then the expatriate’s pass renewal will be impacted by the revised policy.  

Action needed: 

Employers hiring expatriates should renew any expatriate permits expediently before 1 June 2026, if they are eligible for renewals. For expatriates who are not eligible for renewals before 1 June 2026, the company should prepare for continuity, which may include bumping up salaries to keep expatriates on existing passes, or prepare to cancel existing passes to apply for a new employment pass category. 

4. Succession plans for Employment Pass 2 and Employment Pass 3 roles 

One of the key changes under the revised policy is the need to submit succession plans alongside Employment Pass 3 and Employment Pass 3 roles. There are no specific templates provided for the succession plan, but the focus is on demonstrating knowledge transfer under workforce localisation. Certain exceptions apply for partial localisation if foreign language skills are required. 

At present, succession plans are not required for Employment Pass I holders, as the EP1 is typically held by key decision makers. 

5. Introduction of new contractual limits to contracts 

Under the revised policy, there will now be strict contractual limits for expatriates. 

For example, 

5 years for Employment Pass 1 

2 years for Employment Pass 2 

1 year for Employment Pass 3 

Action needed: 

There will be contractual impacts to contract durations for new applications or renewals submitted under the revised policy. This will significantly impact expatriate job security in Malaysia. Employers will need to prepare new contracts for expatriate to meet this contractual limit requirement when submitting new or renewal applications. 

In practice, this means that Employment Pass 3 must be renewed every year (as before). Employment Pass 2 can only be issued for a maximum duration of two (2) years. The Employment Pass 5 can only be issued for a maximum duration of five (5) years per application cycle. 

6. What happens if the company is unable to increase salaries to keep expatriates? 

For expatriates earning RM5,000 monthly and above, a change of pass will most likely be required. There will be disruption, but it will not significantly impact the employer’s ability to retain the expatriate. 

However, for expatriates who remain earning below RM5,000 after 1 June 2026, it is likely that these expatriates will not be able to obtain an employment pass in Malaysia. 

There will be contractual impacts. Companies will need to consult their lawyers on the termination of employment contracts due to policy adjustments to expatriate salaries, especially if the contracts are not yet due. 

7. Can current Employment Pass 2 holders who are downgraded to the Employment Pass 3 remain with dependents in Malaysia? 

Current Employment Pass 2 holders will be impacted greatly if downgraded to an Employment Pass 3. Under the current policy, employment pass 2 holders are able to maintain dependents under an MD company. However, come 1 June 2026, if existing Employment Pass 2 holders are downgraded to the Employment Pass 3, the dependent policy only applies if they are hired by non-MD companies. The reality is that many of these existing Employment Pass 2 holders will most likely remain with their existing MD companies.

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