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Introduc on - What is Withholding Tax

Withholding tax is an amount withheld by the party making payment (payer) on income earned by a non-resident
(payee) and paid to the Inland Revenue Board of Malaysia.
'Payer' refers to an individual/body other than individual carrying on a business in Malaysia. He is required to
withhold tax on payments for services rendered/technical advice/rental or other payments made under any
agreement for the use of any moveable property and paid to a -resident payee.

'Payee' refers to a non-resident individual/body other than individual in Malaysia who receives the above
payments.

Withholding Tax Deduc on (detail)

The Income Tax Act, 1967 provides that where a person (referred herein as "payer") is liable to make payment as
listed below (other than income of non-resident public entertainers) to a non-resident person ( NR payee), he shall
deduct withholding tax at the prescribed rate from such payment and (whether such tax has been deducted or not)
pay that tax to the Director General of Inland Revenue within one month a er such payment has been paid or
credited to the NR payee.

Income Tax Withholding

Payment Type Payment Form
Act 1967 Tax Rate

Contract Payment Sec on 10%, 3% CP 37A

107A (1) (a) (pdf/pd orang/CP37A_Pin4_2014.pdf)
& 107A (1)
(b)

Interest Sec on 109 15% CP 37

(pdf/pd orang/CP37_Pin3_2014.pdf)

Royal Sec on 109 10% CP 37

(pdf/pd orang/CP37_Pin3_2014.pdf)
 Special classes of income: Technical Sec on 10% CP 37D
fees, payment for services, 109B (pdf/pd orang/CP37D_Pin3_2014.pdf)
rent/payment for use of moveable
property

Interest (except exampt interest) Sec on 5% CP 37C

paid by approved financial 109C (pdf/pd orang/CP37C_Pin3_2014.pdf)
ins tu ons

Income of non-resident public Sec on 15% Payment memo issued by Assessment

entertainers 109A Branch

Real Estate Investment Trust (REIT) Sec on CP 37E

(i) Other than a resident company 109D 10% (pdf/pd orang/CP37E_Pin3_2014.pdf)
(ii) Non Resident company. 25%
(iii) Foreign investment ins tu on 10%
effec ve from 01/01/2007

Family Fund/Takaful Family Sec on CP 37E(T)

Fund/Dana Am 109E 8% (pdf/pd orang/CP37E_T_Pin3_2014.pdf)
(i) Individual and other 25%
(ii) Non Resident Company

Income under Sec on 4(f) ITA 1967 Sec on 109F 10% CP 37F
(pdf/pd orang/CP37F_Pin3_2014.pdf)

All withholding tax payments (other than for non-resident public entertainers) must be made with the relevant
payment forms, duly completed, together with copy of invoices issued by the NR payee and copy of payment
documents as proof of date of payment /credi ng to the NR payee.

Type Of Income Subject To Withholding Tax And Withholding Tax Rate On Non-Resident Persons:

Withholding Tax On Non-Resident Persons :

Please ensure that the forms are completed accurately furnishing the Malaysian tax reference number for the
payer, payee as well as the payee's country of origin.

If the payer does not have the reference number of the payee, the payer may request for such number from :

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

sta ng the full name, address of the payee and the nature of payment.

For urgent payment (where the income tax reference number of the payee is not known), the payer may send the
Forms CP 37A/ CP 37/ CP 37D together with the payment, copy of invoice and remi ance slip (telegraphic transfer)
directly to:
Director
Non Resident Branch
Withholding Tax Unit
7th Floor, Block 8
Government Office Complex

Enforcement for Compliance

(Other than for withholding tax on non-resident public entertainers and resident individuals)

The following cons tutes non-compliance:

a. The payer fails to pay withholding tax at the prescribed rate (whether deducted or not).

b. The payer pays withholding tax late (not within the period of one month a er Date of payment / credi ng to
the NR payee).

c. The payer fails to pay increase in tax imposed on him for late payment of withholding tax or for failure to
pay withholding tax.

Enforcement

Where the payer fails to pay or pays withholding withholding tax late (not within the period of one month a er the
date of payment / credi ng to the NR payee), he is imposed an increase in tax of a sum equal to ten percent of the
amount which he fails to pay is imposed.

Example :
Royalty paid to NR payee on 03/08/2006 = RM200,000
Withholding tax received by IRBM on 10/09/2006 later than 02/09/2006) = RM20,000
Increase in tax imposed on payer (20,000 @ 10 %) = RM2,000
Effec ve from 02/09/2006.

Where the payer fails to pay withholding tax and / or increase in tax imposed on him:

No deduc on is given for the payment made to a NR payee against business income in the income tax computa on
of the payer, and Civil suit ac on on the payer to recover withholding tax and / or increase in tax not paid which
remains a debt due to the Government.

Contract Payments to Non-Resident Contractors (Payee)

Contract payments made to non-resident contractors in respect of services under a contract are subject to
withholding tax of:

a. 10 % on the service por on of the contract payments on account of tax payable by the NR payee;

b. 3 % on the service por on of the contract payments on account of tax payable by employees of the NR
payee;

"Services under a contract" means any work or professional services performed or rendered in Malaysia in
connec on with or in rela on to any undertaking, project or scheme carried on in Malaysia; and

The payer must, within one month a er the date of payment / credi ng the contract payment, remit the
withholding tax (whether deducted or not) to the Inland Revenue Board, Malaysia. See "Withholding Tax
Deduc on".

Interest Paid to Non-Resident Persons (Payee)

Interest paid to a NR payee is subject to withholding tax at 15% (or any other rate as prescribed under the Double
Taxa on Agreement between Malaysia and the country where the NR payee is tax resident). This is a final tax.

Interest is deemed derived from Malaysia if:

 a. Responsibility for payment lies with the Government or a State Government;

b. Responsibility for payment lies with a resident of Malaysia;

c. Interest is charged as an outgoing or expense against any income accruing in or derived from Malaysia.

Interest not subject to withholding tax:

a. Interest paid to a NR payee on an approved loan

b. Interest paid to a NR payee by a licensed bank or licensed finance company in Malaysia other than:

i. Such interest accruing to a place of business in Malaysia of the NR payee

ii. Interest on funds required for maintaining net working funds prescribed by Bank Negara.

The payer must, within one month a er the date of payment / credi ng the interest, remit the withholding tax
(whether deducted or not) to the Inland Revenue Board, Malaysia.

Royalty Paid to Non-Resident Persons (Payee)

Royalty is defined as:

Any sums paid as considera on for the use of or the right to use:

1. Copyrights, ar s c or scien fic works, patents, designs or models, plans, secret processes or formulae,
trademarks or tapes for radio or television broadcas ng, mo on picture films, films or video tapes or other
means of reproduc on where such films or tapes have been or are to be used or reproduced in Malaysia or
other like property or rights.

2. Know-how or informa on concerning technical, industrial, commercial or scien fic knowledge, experience

or skill.

3. Income derived from the aliena on of any property, know-how or informa on men oned in above
paragraph of this defini on.

The gross amount of royalty paid to a NR payee is subject to withholding tax at 10% (or any other rate as prescribed
under the Double Taxa on Agreement between Malaysia and the country where the NR payee is tax resident). This
is a final tax.

Royalty deemed derived from Malaysia if:

1. Responsibility for payment lies with the Government or a State Government;

2. Responsibility for payment lies with a resident of Malaysia;

3. The royalty is charged as an outgoing or expense against any income accruing in or derived from Malaysia.

The payer must, within one month a er the date of payment / credi ng the royalty, remit the withholding tax
(whether deducted or not) to the Inland Revenue Board, Malaysia. See "Withholding Tax Deduc on"

Special Classes of Income Paid to Non-Resident Persons

Special classes of income include:

a. payments for services rendered by the NR payee or his employee in connec on with the use of property or
rights belonging to or the installa on or opera on of any plant, machinery or apparatus purchased from the
NR payee.
b. payments for technical advice, assistance or services rendered in connec on with technical management or
administra on of any scien fic, industrial or commercial undertaking, venture, project or scheme or
c. rents or other payments (made under any agreement or arrangement) for the use of any moveable
property.
 Provided that in respect of paragraph (a) and (b), this sec on shall apply to the amount a ributable to services
which are performed in Malaysia.

Payment is deemed derived from Malaysia if:

a. Responsibility for payment lies with the Government or a State Government.

b. Responsibility for payment lies with a resident of Malaysia.
c. Payment is charged as an outgoing or expense in the accounts of a business carried on in Malaysia.

The gross amount of "Special Classes of Income" paid for the above services rendered by a NR payee is subject to
withholding tax at 10% (or any other rate as prescribed in the Double Taxa on Agreement between Malaysia and
the country in which the NR payee is tax resident). This is a final tax.

The payer must, within one month a er the date of payment / credi ng of the payment to the NR payee, remit the
withholding tax (whether deducted or not) to the Inland Revenue Board Malaysia . See "Withholding Tax
Deduc on"

Non-Resident Public Entertainers

"Public Entertainer" means a stage, radio or television ar ste, a musician, athlete or an individual exercising any
profession, voca on or employment of a similar nature.
Remunera on or other income in respect of services performed or rendered in Malaysia by a Non-resident public
entertainer is subject to withholding tax at 15 % on the gross payment.

The present prac ce con nues whereby the sponsor of the non-resident public entertainer is required to pay
withholding tax at 15 % before an entry permit for the non-resident public entertainer can be obtained from the
Immigra on Department

Double Taxa on Agreements and Protocols

Malaysia has concluded about 69 effec ve Double Taxa on Agreements (DTA). For informa on on the varying rates
of withholding tax on interest, royalty and technical fees, see "DTA Agreement Rates
(pdf/pdfam/DTA_WHT_Rates_2017.pdf)".

For refund of withholding tax overpaid by the payer due to the DTA reduced rates, the payee must forward the
applica on for refund to the Director, Non Resident Branch together with the following details:

a. Tax resident cer ficate of the payee from the tax authority of the country where the payee is resident.
b. Evidence to prove that the condi ons s pulated in the DTA are met.
c. Proof of payment of withholding tax.

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✏ Updated : : 2017-05-23 11:41:58

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