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10% - special classes of income, royalty, other income

10% + 3% - Contract payment
15% - interest, public entertainer

Payment less W.Tax

Expense Income
(from Malaysia)

PAYER Payee (NR)

CO. A Co. B

Service … perform in Malaysia

Responsibility for
W.Tax … pay to IRB

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 SUMMARY OF INCOME SUBJECT TO WT PROVISIONS

Type of Income Section of ITA Tax Rate

Contract payment S107 A 10% + 3% Interim tax

Special classes of S109 B 10% Final tax

Income (S4A)

Royalty S109 10% Final tax

Interest S109 15% Final tax

Public Entertainer S109 A 15% Final tax

Other income (4(f) 10% Final tax

CHECKLIST:
The following factors are to be considered before a
payment is subject to WT:
the recipient of the payment is a non-resident (NR)
a type of income as mentioned above
the income must be derived from Malaysia
Not exempted under Sch 6 ITA or any Double Taxation
Agreements
The income is not attributable to a biz carried on by
the NR in Malaysia (not appliable to contract payment)

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 The WT compliance by the payer is in
additions to his own tax obligations or
responsibilities.

There will be consequences to the payer

for failing to comply with the WT
provisions.

SPECIAL CLASSES OF INCOME

E-Jaya Sdn Bhd, a tax resident company in Malaysia made

payment in relation to the project:

Q: RM500,000 was paid to Malaysia Installation Sdn Bhd

(a Malaysian tax resident) for the installation of the equipment
supplied by Yundai Corp.

A: Since the co. is a tax resident co., NO WT would apply on

the RM500,000.

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 SPECIAL CLASSES OF INCOME
E-Jaya Sdn Bhd, a tax resident company in Malaysia made
payment in relation to the project:

Q: RM2 million to Design Inc., a French company for the

provision of architectural design services which was done
entirely in Malaysia. (service)

A: The payment of RM2 million for the provision of the

architectural services (technical services) for work wholly
done in Malaysia to a non-resident in France would be subject
to a 10% WT under Section 109B.

ROYALTY INCOME

Q: A payer who is a tax resident made a royalty payment of RM60,000 to

IC Bhd, a non tax resident company for transfer of technical know-how
and assistance.

WT apply?

A: The royalty payment would be subject to WT because

1) It is paid to a NON tax resident.
2) Royalty is a type of payment subject to WT (10%)
3) It is income derived from Malaysia
because the payer is a tax resident co. / used the royalty in the
production of Malaysian derive income.

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 EXAMPLE
Wise Sdn. Bhd. (WSB) paid a royalty payment
of RM100,000 to a non tax resident company.
WSB must withhold a 10% tax (royalty: 10%
final tax) on the gross amount which is
RM10,000 and remit the amount to the IRB
within one month of the payment/crediting
the fee to WSB. The net balance of 90% will
be received by the non-resident co.

INTEREST INCOME

E-Jaya Sdn Bhd, a tax resident company in Malaysia made

payment in relation to the project:

Q: Interest of RM300,000 to Maybank (a Malaysian tax

resident bank) on a loan given to finance the
construction of a shopping complex in Putrajaya.

A: Since the bank. is a tax resident co., NO WT would

apply on the interest payment.

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 INTEREST INCOME

Advise OSB on the following:

Q: Interest payments of RM9,000 paid to E Ltd, a non tax

resident company for advancing a loan. The loan was used to
purchase some machinery for business purposes.

A: The interest payment LWL2

to E Ltd would be subject to WT as E
Ltd is a non tax resident and
the interest is deemed derived from Malaysia since the
responsibility for payment of interest lies with OSB, a tax
resident and the money borrowed was used to purchase assets
for the production of gross income.

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CONTRACT PAYMENT
Advise OSB on the following:

Q: Contract payment of RM3,000,000 to a non tax resident

contractor in respect of a LRT project undertaken in Malaysia.
RM500,000 was for the supply of equipment and the balance
relates to the service portion of the contract.

A: The supply of equipment of RM500,000 are excluded from

withholding tax while the service portion of RM2.5million is
subject to 10% + 3% WT (advance tax), under Section 107A of
ITA since it is a payment to non resident contractor for services
rendered under the LRT project which is performed in
Malaysia.
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Slide 11

LWL2 It is paid to a NON tax resident.

Interst is a type of payment subject to WT (15%)
It is income derived from Malaysia
because the payer is a tax resident co. AND the money borrowed
was used to purchase assets for the production of Malaysian derive
income.
LIEW WEI LEE, 14/2/2021
 CONTRACT PAYMENT

A:
The 10% of WT on the service portion is in respect of the non-
resident contractor (NRC): WT=RM250,000
And
The 3% of WT on the service portion is in respect of the NRC’s
employees: WT=RM75,000

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CONTRACT PAYMENT
E-Jaya Sdn Bhd, a tax resident company in Malaysia made
payment in relation to the project:

Q: RM20 million to Yundai Corp, a South Korean company for

work carried out in construction of a bridge. Out of the RM 20
million, RM5 million is for the technical services performed in
Malaysia and the balance is for the supply of materials and
equipment.

A: Yundai Corp would be NR contractor and therefore WT

would apply under Section 107A on the service portion of
contract payments paid or credited to the contractor WT of
10%+3% would apply on RM5 million and no WT on the RM15
million (non service portion).

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 Basically, interest income is deemed to be received
in Malaysia if any one of the following is fulfilled:-

(a) Where the Government or a State Government or

local authority is responsible for payment of the
interest; or
(b)(i) Where responsibility for the payment of interest
in the basis period lies with a resident person;
and

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(b)(ii)Where the interest paid on money

borrowed for financing assets used in the
production of gross income or on the debt
that secured by any property or assets
situated in Malaysia; or

(c) Where the interest is charged as expenses

against any income accrued in or derived
from Malaysia.

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 Basically, royalty income is deemed to be received
in Malaysia if any one of the following is fulfilled:-
(a) Where the Government or a State Government or
local authority is responsible for payment of the
interest; or
(b)(i) Where responsibility for the payment of royalty
in the basis period lies with a resident person; or
(c) Where the royalty is charged as expenses against
any income accrued in or derived from
Malaysia.

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