sql payroll withholding tax
What is Withholding Tax?

Withholding tax is an amount that is withheld by the payer on income earned by a payee who is not a resident in Malaysia.


What is Withholding Tax ?

  • Withholding tax is an amount that is withheld by the payer on income earned by a payee who is not a resident in Malaysia.
  • The amount is then paid to the Inland Revenue Board of Malaysia (IRBM).
  • Definition : payer – individual that conducts business in Malaysia
  • Definition : payee – non-resident individual in Malaysia that receives the payments
  • Withholding tax is required on payments for services rendered/technical advice/rental or other payments made under any agreements for the use of any movable property and paid to a payee

Withholding Tax Breakdown

How to Calculate Withholding Tax?

  • Based on the Income Tax Act 1967
  • A person (the payer) is accountable to make the payments listed in the table below:
  • Payer will deduct withholding tax at the rate listed regardless if the text has been deducted or not, the payment of tax has to be made to the Director General of Inland Revenue within one month after such payment types has been paid/ credited to the Non-Resident payee
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)
  1. Other than a resident company
  2. Non Resident company
  3. Foreign investment institution effective from 01/01/2007
Section 109D 10%, 25%, 10% CP 37E
Family Fund/Takaful Family Fund/Dana Am
  1. Individual and other
  2. Non Resident Company
Section 109E 8%, 25% CP 37E(T)
Income under Section 4(f) ITA 1967 Section 109F 10% CP 37F
  • All payments must be made with the relevant completed forms, along with a copy of invoices issued by the non-resident payee and copy of payment documents as proof of payment date/crediting date
  • Forms must be completed with the correct Malaysian Tax Reference Number for the payer, payee, as well of payee’s country of origin
  • Reference number for payee can be acquired from:

Director
Non Resident Branch
Customer Services Unit
3rd Floor Left, Block 8
Government Office Complex
Jalan Duta, 50600 Kuala Lumpur,

what happens if i do not pay withdholding tax?

Acts of non-compliance for withholding tax are as follows
  • Payer fails to pay withholding tax at the instructed rate
  • Payer pays withholding tax late (not withing the one month period)
  • Payer fails to pay increase tax imposed for late payment or for failure to pay withholding tax
Enforcement of payment of withholding tax
  • When payer fails to pay the withholding tax or pays it late, an increase in tax is imposed upon him
  • Payer pays withholding tax late (not withing the one month period)
Example:

Interest paid to NR payee on 03/08/2006 = RM20,000

Withholding tax received by IRBM on 10/09/2006 later than 02/09/2006 = RM2000

Increase in tax imposed on payer (2000 @ 10 %) = RM200

Effective from 02/09/2006

Types and Rates of Payment

  • 1) Contract Payments to non-resident Contractors (payee)
  • 10% on the service portion of the contract payments on account of tax payable by the payee
  • 3% of service portion of the contract payments on account of tax payable by employees of the payee
  • 2) Interest Paid to Non-Resident Person (Payee)

Interest paid to NR Payee is subject 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 .

  • 3) Interest is taken from Malaysia if:
  • Responsibility for payment is within the Government or State Government
  • Responsibility of payment is on the Malaysian resident
  • Interest charged as an outgoing expense against any accruing income from Malaysia
  • 4) Interest not subject to withholding tax
  • Interest paid to payee on approved loan
  • Interest paid to payee by a licensed bank or a licensed finance company in Malaysia
  • 5) Royalty Paid to Non-Resident Payee:

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.
  • 6) Non Resident’s Special Classes of Income

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

Payments for:

  • technical advice
  • use of property
  • installation of operation / machinery purchased from the non-resident payee
  • 7) Non -Resident Public Entertainers
  • 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.
  • A 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.
  • 8) Double Taxation Agreement and Protocols
  • 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.

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