Withholding tax means an amount, representing the tax portion of an income of a non-resident recipient, withheld by the payer in Malaysia, and paid directly to the Inland Revenue Board of Malaysia (“IRB”).
The words used have the following meaning:
“Tax portion of income“: Specific tax rate for specific purpose of such income.
“Non-resident recipient“: In simple term, these are service providers who do not operate within Malaysia.
“Payer“: An individual / body / company carrying on business in Malaysia.
Example: Company N is a foreign company, providing services to a Malaysian company called Company M. The gross amount which billed from Company N is equivalent to RM10,000. Let’s assume the withholding tax rate is 10%.
When Company M makes payment to Company N, RM9,000 will be paid to Company N. The balance of RM1,000 which is 10% on the gross amount (tax portion) is withheld by the Payer (Company M), and will pay directly to the IRB.
Payment of Withholding Tax:
The Payer is liable to make the withholding tax to IRB within one month from the date of payment or crediting to the non-resident recipient.
Penalty for non-compliance:
Failure to make the payment to the IRB within the stipulated time, IRB would impose a penalty of 10% on the unpaid withholding tax. In addition, the Payer would be disallowed for tax deduction for the gross amount of the payment made to Non-resident recipient.
Withholding Tax rates:
Different sources of income to the non-resident recipient will be subjected to different withholding tax rates:
|Types of income paid to non-resident recipients||Tax Rates %|
|Rental of moveable properties||10|
|Technical or management service fees||10|
|Contract payment on – Account of contractor||10|
|Contract payment on – Account of employee||3|
|Other income such as commission, guarantee fee, agency fee, etc||10|
Note: There could be variation in the above withholding tax rates from Double Tax Agreements, depending on the countries involved; and also certain class of incomes are exempted from withholding tax.
The above can be viewed and downloaded from the IRB’s website at the following link: