12 Feb 2023 – Withholding Tax : The introduction

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: 

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:

https://www.hasil.gov.my/en/legislation/withholding-tax