Introduction to Withholding Tax
As the name goes, 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.
The above sounds very confusing. Let’s dissect the paragraph into smaller parts to get a better understanding:-
- Tax portion of income: There is a specific tax rate for specific purpose of such income.
- Non-resident recipient: In simplicity form, these are service providers who do not operate within Malaysia.
- Payer: An individual/body carrying on business in Malaysia.
| Example: Company N is a foreign company, providing services to a Malaysian company called Company M. The billing amount from Company N is equivalent to RM100,000. Let’s assume the tax rate is 10%.When Company M makes payment to Company N, RM90,000 will be paid to Company N. The balance of 10% (tax portion) is withheld by the payer (Company M), and will pay directly to the Inlang Revenue Board of Malaysia. |
Payment of Withholding Tax
The Payer is liable to make the payment to Inland Revenue Board within 30 days from the date the payment is made to the non-resident recipient, or invoice is received from the non-resident recipient.
Failure to make the payment to the Inland Revenue Board within the stipulated time, penalty will be 10% on the amount of the unpaid tax.
Tax rates
Different sources of income to the non-resident recipient will be subjected to different rates:
| Types of income to non-resident companies |
Rate % |
| Royalties |
10 |
| Rental of moveable properties |
10 |
| Technical or management service fees |
10 |
| Interest |
15 |
| 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 changes in tax rates from Double Tax Agreements, depending on the countries involved.
