TUTORIAL 3 – WITHHOLDING TAX

Quick Notes

1. Determine the type of income received by non-resident

a. Interest 15%
b. Royalty 10%
c. Contract payment 10%+3%

Contract for 1 million (service portion) so WHT RM100,000

Corporate tax liability RM150,000
CTL>WHT - Tax due = RM50,000 (still owe the government)

Contract for 1 million(service portion) so WHT RM100,000

Corporate tax liability RM80,000
CTL<WHT - Tax refund = RM20,000 (still owe the government)

d. Special classes of income 10%

e. Public entertainer 15%
f. Other income 4f 10%

2. Determine the rate of WHT

3. Identify the relevant date, it should be based on the accounting period of the
company, the, the date of payment to non-resident, the date of remittance to
the IRB – due to compliance and you want to calculate the penalty.
4. Explanation of the treatment for the income paid to the non-resident covering
the discussion on whether
a. Those payment can be treated as allowable and non-allowable
expenses
b. How much the deduction if there is penalty involve
Question 1

In accordance with an agreement with a Korean company, a royalty of RM1 million

was payable on 31 January 2019. The amount was paid to the Korean company on
17 February 2019. However CSB did not remit the withholding tax to the IRB until 31
July 2019 when the tax consultant noticed the requirement of WHT payment. The
company accounting period was prepared to 30 June every year.

Required:
Explain, with reasons, whether the royalty is subject to withholding tax and if
applicable, state the rate of withholding tax together with the treatment of penalty if
any. Explain also the implication of non-compliance.

_______Royalty______ payment made by ____CSB_______ to ____Korean_____

company is ____subject___ __ to withholding tax at the rate of
_____10%______. The WHT due is RM ____100k ______ and shall be remitted to
the IRB not later than ____one month from the payment (16 March
2019)______.

Since ______CSB_______ fail to remit to the IRB the withholding tax due, penalty
of 10% from ___100k_______ will be imposed until the amount is submitted to the
IRB. The total amount of WHT tax due and penalty is RM 140k________________.
(17 March 2019-16 April 2019) – 1 st mth of non compliance 10%
100k+10K
(17 April 2019-16 May 2019) – 2 nd mth of non compliance 10%
(110k+10k)
(17 May 2019-16 Jun 2019) – 3rd mth of non compliance 10%
(120k+10k)
(17 Jun 2019-16 July 2019) – 4th mth of non compliance 10% (130+10k)
(17 March 2019- (31 July paid) 16 April 2019) – 5th mth of non compliance

Since CBS_________ did not submit the payment before the end of YA until 30 June
2019 the royalty payment to the non resident cannot be treated as allowable income
for YA 2019 until the full payment is made to the IRB. Once the company has
complied with the WHT requirement the computation of tax in 2019 can be revised
by seek an approval from the DGIR. However the full amount of royalty expenses
can be deducted will be
Question 2

Commission paid to a non-resident for manage to find potential land for factory
building. The full payment of RM2,500 was paid on 1 December 2017 without
withhold any amount to the Inland Revenue Board (IRB). However after the
company noticed the non-compliance issue, RM413 was remitted to the IRB on 1
February 2018. The company accounting period was prepared for 30 September
every year.

Required:
Explain, with reasons, whether the commission received by the non-resident is
subject to withholding tax and if applicable, state the rate of withholding tax.

Question 3

The Ministry of Education located in Putrajaya awarded a contract to a German

company to install a solar system in Malaysian schools located in the rural areas. The
three year project will start in July 2018 and is expected to be completed in June
2020. Both parties have agreed on the following arrangements:
1. The Ministry of Education agreed to pay the German company a payment of RM10
million including RM2 million for the cost of plant and equipment. 8 mil subject to
10%+3% wht contract payment 2 mill not subject
2. The German company will appoint its German counterpart to undertake the
design. The design fees are RM200,000 and the services will be performed in
Germany. Not subject
3. The German company will also engage a Malaysian company to participate in the
project and the German company will pay the Malaysian company RM300,000. Nt
subject as payment to resident
4. For the purposes of its business transactions, the German company will open an
account with a Malaysian bank. The company would earned interest from this
account. Not applicable
5. The German company will engage few engineers from German as well as from
Malaysia. The engineers are engaged on a contract basis until the project is
completed.
6. The company rents a small office for which it pays a rent of RM10,000 per month
to a Malaysian landlord. Will be computed in arriving net income of the company.

Required:
Explain the withholding tax implications imposed on the Ministry of Education and
the German company with respect to each of the above arrangements.
Question 4

Encik Tham, a tax resident in Hong Kong, borrows money from Encik Ali, a tax
resident of Brunei. Encik Tham invests the money in his company in Johor Bharu.
Interest in respect of the money borrowed is paid from Hong Kong to Encik Ali in
Brunei. Encik Tham charged the interest payment as an expense in the accounts of
his business in Johor Bharu.
Required:
(i) Explain, with reasons, whether the interest payment is subject to withholding tax,
and where applicable, state the rate of withholding tax. Yes as interest is deemed
to be derived from Malaysia thus subject to 15% of wht

(ii) State when the withholding tax is payable to the Inland Revenue Board.
Within one month after the payment was made to En Ali.
(iii) State the consequences if the withholding tax provisions under the Income Tax
Act are not complied with. 10% penalty will be imposed on any amount of
WHT due to the IRB. The interest amount paid to En Ali will be treated as
non allowable expenses until the wht are complied with.

Question 5
Cell Sdn Bhd (CSB), a resident company in Malaysia is a hardware and software
provider. The company had entered into an agreement with Telcom Pte Ltd (TPL),
an Australian company. TPL would provide personnel to work with CSB in Malaysia
to supply and implement an Integrated Cash Management System in a Malaysian
bank. It was agreed that CSB would pay monthly fees which included
reimbursements such as air tickets, local accommodation, food and other related
expenses.

Required:
Explain, with reasons, whether the monthly fees is subject to withholding tax and if
applicable, state the rate of withholding tax.

Question 6

Cecile Child, a famous French cook was in Malaysia to appear in few cooking shows
organized by Chef One Entertainment Sdn Bhd (Chef One). Chef One issue payment
of RM230,000 which included reimbursements of air fare and hotel charges of
RM24,000. Prior to the shows, on 5 February 2016 Cecile Child had received an
advance payment of RM25,000 deposited directly to her account in Paris. The
remaining payment will be settle once she completed the show.

Required:
State, with reasons whether withholding tax is applicable to each of the above
payments. Where applicable, state the rate of withholding which applies. (Ignore the
provisions of double taxation agreements).

Question 7
During Year 1, UniBeuty Sdn Bhd has paid the French company RM45,000 for
technical advice on the construction of building the factory. In Year 2, the company
paid another RM50,000 for technical supervision on setting up the plant and
machinery. Discuss the withholding tax treatment on all payments to the French
company. Ignore any DTA between the countries.

Question 8

Pandan Bhd signed an agreement with Colombage Ltd, a Sri Lankan company for
the construction of a building in Perak. Colombage Ltd. set up a project
management office at Ipoh, Perak. The total value of the contract amounted to
RM15 million. The costs are divided to two parts to include service portion (2/3) and
cost of materials (1/3).

Required:
(i) Explain the withholding tax obligation of Pandan Bhd. under Section 107A of the
income Tax Act, 1967 with regard to these payments and determine the amount to
be withheld (if any) by ignoring any double taxation agreement between countries.

(ii) Calculate the tax liability of Colombage Ltd. Assuming that the construction
project was started in the year of assessment 2015 and completed in year of
assessment 2016. Assume chargeable income is RM500,000

(iii) For the purpose of the completion of the project, Colombage Ltd. paid
RM150,000 to another Sri Lankan company for the hire of equipment. State whether
or not this payment has implication under Malaysian tax law and if so, what are
they.

Question 9

The Ministry of Works, Malaysia enters into a contract with PakarJalan Sdn Bhd (a
resident contractor) to build a bridge. The total value of the contract is RM5 million.
The cost of materials is RM3 million and the service portion is RM2 million (before
adjustment). PakarJalan Sdn Bhd leases some equipment from ExpressWay Ltd.
(non-resident contractor) for RM100,000 per annum.

PakarJalan Sdn Bhd is a partnership consists of two partners, Aizam (a resident) and
Ilhan (a non-resident). The profit sharing ratio is 70% to Aizam and 30% to Ilhan.

Required:
a) Advise PakarJalan Sdn Bhd on the applicability of withholding tax for each of the
above payments.

b) Calculate the amount of withholding tax for PakarJalan Sdn Bhd.

c) State the consequences of not complying with the withholding tax provisions
applicable on payments to non-residents.
Question 10
Prime Machine Ltd is an incorporated company, resident in the Philippines and was
awarded a contract by the Malaysian Government to construct an Intelligent System
Network. The following amounts were paid to the company in 2021:
I. RM 22 million for the royalty payment on the usage of the construction plan
II. RM3 million for shipment of the plant and equipment to Malaysia
III. RM500,000 for rental of equipment
IV. RM1.5 million for work performed by employees in Philippines
Required:
Explain, with reasons, whether each of the above payments were subjected to
withholding tax and state the rate of tax, where applicable.