Withholding Tax

Withholding tax is an amount of tax that is being withheld by the payer on the income earned by a non-resident payee. The amount of tax is paid to the Inland Revenue Board of Malaysia (IRBM).

  • Who is the payer?   Person who conducting business in Malaysia.
  • Who is the payee?   Non-resident employee that received payment of income.
Withholding tax is required for payments on services, rental and other use of movable property that has been given to a payee.

How is Withholding Tax Calculated?

  • Calculation is based on Income Tax Act 1967.
  • Withholding tax will be deducted based on the rate listed in the table regardless if the tax has already been deducted or not.
  • Payment of the tax needs to be made to the Director General of Inland Revenue within 1 month after the payment has been made to the payee.
  • The payer has to make the payments based on the table below:
Payment Type Income Tax Act 1967 Withholding Tax Rate Payment Form
Contract Payment Section 107A (1) (a) & 107A (1) (b) 10%, 3% CP 37A
Interest Section 109 15% CP 37
Royalty Section 109 10% CP 37
Special classes of income: Technical fees, payment for services, rent/payment for use of moveable property Section 109B 10% CP 37D
Interest (except exampt interest) paid by approved financial institutions Section 109C 5% CP 37C
Income of non-resident public entertainers Section 109A 15% Payment memo issued by Assessment Branch
Real Estate Investment Trust (REIT)
  • Other than a resident company
  • Non Resident company
  • Foreign investment institution effective from 01/01/2007
Section 109D 10%, 25%, 10% CP 37E
Family Fund/Takaful Family Fund/Dana Am
  • Individual and other
  • Non Resident Company
Section 109E 8%, 25% CP 37E(T)
Income under Section 4(f) ITA 1967 Section 109F 10% CP 37F
Important Notes:
  • All payments must be made along with the completed forms, a copy of the invoices issued by the non-resident payee, and a copy of the receipt as proof of payment.
  • Forms must be accurately filled with the correct Malaysian tax reference number for the payer, payee, and the payee’s country of origin.
  • You can get the payer’s reference number from:
  • Director
    Non Resident Branch
    Customer Services Unit
    3rd Floor Left, Block 8
    Goverment Office Complex
    Jalan Duta, 50600 Kuala Lumpur

Consequences for failure to pay Withholding Tax

Examples of non-compliance Action Taken
  • Payer fails to pay the correct amount of withholding tax at the instructed rate
  • Payer pays the tax after the 1 month holding period
  • Payer does not pay the imposed tax increment as penalty for late payment or failing to pay the withholding tax

A tax increase is imposed on payers that fail to pay taxes on time or fail to pay the tax at all.

An increase of 10% is imposed.

Example:
Interest paid to NR payee on 03/10/2007 = RM10,000
Withholding tax received by IRBM on 10/09/2006 later than 02/11/2007 = RM1000
Increase in tax imposed on payer (1000 @ 10 %) = RM100

Types & Rates of Payments

  • 10% tax rate is implemented on the service portion as the tax payable by the payee
  • 3% tax rate is implemented on the service portion of the contract payments on account of tax payable by employees of the payee

Interest paid to Non-residential payee is subjected to withholding tax at 15%. Or any other amount as instructed under the Double Taxation Agreement between Malaysia and the payee’s country of origin.

  • Responsibility for payment is within the control of Government or State Government
  • Responsibility of payment is on the Malaysian resident
  • Interest charged as an outgoing expense against any accruing income from Malaysia
  • Interest paid to payee on approved loan
  • Interest paid to payee by a licensed bank or a licensed finance company in Malaysia

Definition – Royalty : Payments made for the rights to use:

  • Copyrights
  • artistic/scientific work,
  • patents, designs, models,
  • plans, secret processes or formulae, trademarks or
  • tapes for radio or television broadcasting, motion picture films, films or video tapes or other means of reproduction where such films or tapes have been or are to be used or reproduced in Malaysia or other like property or rights.
  • Information concerning technical, industrial, commercial or scientific knowledge, experience or skill.
  • Income gained from the alienation of any property, information mentioned in above paragraph of this definition.

Payment for services provided by non-resident payee or his employee:

Payments for:

  • technical advice
  • property usage
  • installation of operation / purchase of machinery from the non-resident payee
  • Definition : Public Entertainers – stage, radio, television artist , musician, athlete, or any individual exercising any profession of a similar nature.
  • Withholding tax at 15% for non-residents in Malaysia for these services performed.
  • The 15% withholding tax is required by the sponsor of a non-resident public entertainer before an entry permit can be obtained from the immigration Dept.
  • Malaysia has 69 effective Double Taxation Agreements (DTA).
  • For withholding tax refund, due to DTA, payee must forward application for refund to the Director, Non Resident Branch together with the following details:
    • Tax resident certificate of the payee from the tax authority of the country where the payee is resident.
    • Evidence to prove that the conditions stipulated in the DTA are met.
    • Proof of payment of withholding tax.

SQL Account Highlight Features

SQL Account is accounting software that suitable for more than 100 industries, for accounting firms, shipping, construction, manufacturing, distribution, motor vehicle dealers, and many more.
The right accounting software can increase business opportunities and mobilize growth for your company.
More than 230,000 companies have chosen SQL Account as their business software.
Start using SQL Account today and achieve new heights in your business.

24-Hours Access

With SQL Cloud, you can access your company accounts anytime anywhere. No installation or setup is required.

Customizable & Scalable

Customize your unique business workflow with SQL, automate the procedures, increase the efficiency & profit margin!

Smart Reporting

With more than 2500 comprehensive reports ready, you can make precise decision for your business.

Batch Email

Email statement to your customer individually in just one click. SQL batch email functions send encrypted statement to your customers safely.

Automated Accounting Transactions

What you need to do is select which customer & what products, SQL will handle all the double entries automatically.

Profit Estimator Calculator

Check your profit margin before sending out a quotation. With just one click, you can check all the cost at one glance, make sure you are not operating on a loss.