WITHHOLDING TAX (WHT)

&
DOUBLE TAXATION AGREEMENT
(DTA) Part of income tax, not go
directly to Irb but

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

Ability to:
 Identify the type of payments which is subject to
withholding tax.
 Identify the rate and compute withholding tax
 Understand the effect of non compliance to the
withholding tax requirements.
 Identify the relevant provisions for withholding tax in the
ITA 1967
 WHAT IS WITHHOLDING TAX?

 Withholding tax (WHT) is imposed on non-residents (NR) who has

business dealings in Malaysia
 The NR does not have business presence in Malaysia but merely
render service from his home country (trading with Malaysia)
 Withholding tax is an amount withheld by the Resident party making
payment (payer) on income earned by a non-resident (NR payee)
 The NR payee will receive the net payment after deducting the WHT.
 The Resident payer acts as an agent and responsible to withhold the
WHT and pay the WHT to IRB.

NR 6 payments
Net payment to
Receive less than 1
Resident
Payer
WHT to
IRB
 WHAT IS WITHHOLDING TAX?

 'Payer' refers to RESIDENT individual/partnership/company carrying on a

business in Malaysia.
 'Payee' refers to a NON-RESIDENT individual/body who receives the above
payments.

REMITTANCE / PAYMENT OF WHT TO IRB

 Resident payer must remit WHT held to IRB within ONE month upon
paying or crediting to the non-resident payee/ recipient.

** Date of payment / Credited to the bank Acc of payee/ Date of a contra

entry .
Eg:
Royalty paid by resident payer to Non Resident payee on 02/08/2019 = RM200,000
Withholding tax = (10% X RM200,000 = RM20,000)
Due date to submit WHT of RM20,000 to IRB = 2/9/2019 (1 month from date of payment ie
2/8/2019)
 WHAT IS WITHHOLDING TAX?

 'Payer' refers to RESIDENT individual/partnership/company carrying on a

business in Malaysia.
 'Payee' refers to a NON-RESIDENT individual/body who receives the above
payments.

REMITTANCE / PAYMENT OF WHT TO IRB

 Resident payer must remit WHT held to IRB within ONE month upon paying or
crediting to the non-resident payee/ recipient.

** Date of payment / Credited to the bank Acc of payee/ Date of a contra entry .
Example :

Royalty paid to NR payee on 03/08/2022 = RM200,000

WHT 10% X 200,000 = 20,000
Withholding tax of RM20,000 received by IRBM on 10/09/2022 later than 02/09/2022) Penalty of
10% imposed on R payer (20,000 @ 10 %) = RM2,000
Effective from 02/09/2022. wht
 Kne ingt template
ni,dlm exam xda SCOPE OF WHT
WHT is imposed on the following types of payments made by a R to a NR
 
Source of Income Chargeable Charging WHT WHT Remarks
person Section Section Rate

1 Special classes of income NR person S 4A S 109B 10% Final Tax

(wef 6/9/2017 only for  
work/services performed / rendered Tax im
in Malaysia) pa
 
2 Business Income/ Contract NR Contractor/ S 4(a) S 107A 10% Not a final
payment of non-resident Consultant/ and tax
contractor 3%
 
3 Interest income NR person S 4(c) S 109 15% Final Tax
 
4 Royalty income NR person S 4(d) S 109 10% Final Tax
 
5 Remuneration of Public Entertainer NR person S 4(a) S 109A 15% Final Tax
S 4(b)
 
6 Other income - Gains or profits NR person S 4(f) S 109F 10% Final Tax
falling under Section 4(f)
 Criteria required to impose WHT
The NR would only be liable to WHT if all the followings criteria present:

1. The recipient is a NR

2. Income has to be one the income in the specified scope.

3. Such incometo NR has to be deemed derived from Malaysia

4. The income is not attributable to a business carried on by the NR in

Malaysia (not applicable to contract payment);

5. The income is not exempted by Sch 6 of the Act or DTA between Malaysia and
the NR’s home country (treaty country).
 SPECIAL CLASSES OF INCOME – s4A

paragraph 4A(i) paragraph 4A(ii) paragraph

4A(iii)
amounts paid in amounts paid to a non-resident rent or other
consideration of servicesperson in consideration of any payments made
rendered by the non- technical advice given or assistance or under any
resident person or his services rendered in connection with agreement or
employee in connection management or administration of any arrangement to a
with: scientific, industrial or commercial non resident
 the use of property or undertaking, venture, project or person for the
rights belonging to scheme use of any
him; After sales moveable
service property
 the installation or
operation of any plant, Rental
machinery or other
movable
apparatus
o purchased from him property

Any cost P&M

not subject for
WHT
 Income deemed to be derived from Malaysia

The gross income in respect of the amounts paid under special

classes of income, royalty and interest shall be deemed to be derived
from Malaysia if:

(a) the responsibility for the payment lies with the Government, a
State Government or a local authority;

(b) the responsibility for the payment lies with a person who is
resident in Malaysia for that basis year; or

(c) the payment is charged as an outgoing or expense in the accounts

of a business carried on in Malaysia.
 Income deemed to be derived from Malaysia

 However, with effect from 6.9.2017 the Minister of Finance exempts a non
resident(NR) in Malaysia from the payment of WHT which are performed by
the NR outside Malaysia in respect of income derived from Malaysia in
relation to –
(a) services referred to in paragraph 4A(i) of the ITA; or
(b) technical advice, assistance or services referred to in paragraph 4A(ii) of the
ITA

 Only services / technical advice, assistance performed by NR in Malaysia are

subject to WHT.

 In a case where the contract requires performance of services both within and
outside Malaysia, the proportion of contract value that is attributable to services
performed in Malaysia must be ascertained in a manner that is fair and
justifiable. Apportionment of the contract value should be based on the value of
services performed in Malaysia. It is important that the contract value be
apportioned on these bases according to the facts of each case as only the portion
of contract value that is attributable to services performed in Malaysia is subject
to withholding tax under section 109B of the ITA
 Income deemed to be derived from Malaysia

Reimbursements
 Reimbursements refer to out-of-pocket expenses incurred by the payee
(a) in the course of rendering services to the payer, or
(b) in respect of the use of any moveable property,
and are subsequently reimbursed by the payer. Such expenses include the cost of
airfare, travelling, accommodation, telephone and photocopying charges.

 Reimbursements are considered as being part of the contract value for services
rendered or for rent or payments made for the use of moveable property. As such,
it is income of the payee under section 4A of the ITA and is subject to withholding
tax at the rate of 10% on the gross amount under section 109B of the ITA.

 Reimbursements on hotel accommodation are not included in the

computation of gross income falling under section 4A of the ITA for the purposes
of withholding tax. This exclusion is aimed at reducing the cost of services
provided by non-residents. Hotel accommodation means accommodation in a
hotel, apartment hotel, service apartment, motel or hostel in or outside Malaysia.
 Income deemed to be derived from Malaysia

Disbursements
 Disbursements are out-of-pocket expenses incurred by the payer and paid to a
third party on behalf of the payee -
(a) in connection with services rendered by the payee, or
(b) in respect of the use of any moveable property.
 Disbursements are considered as being part of the contract value for services
rendered or for rent or payments made for the use of any moveable property. As
such, it is income to the payee under section 4A of the ITA and is subject to
withholding tax at the rate of 10% on the gross amount under section 109B of the
ITA.
 Disbursements on hotel accommodation in or outside Malaysia are not
included in the computation of gross income falling under section 4A of
the ITA for the purposes of withholding tax. The purpose of this exclusion is
similar to that of reimbursement, i.e. is to reduce the cost of services provided by
non-residents.
13 Services Both Within And Outside Malaysia
Eg:
Syarikat Maju Sdn Bhd, a Malaysian company signed an agreement with Excel
Ltd, a non-resident company, to provide a report addressing the industry structure,
market conditions and technology value for the Multimedia Super Corridor Grant
Scheme. The consultant from Excel Ltd was in Malaysia for 6 days for
preliminary discussion on the project. The total number of days spent on the
whole project was 42 days from October to November 2017. The total fees paid
for the project was RM20,000. The report was later completed overseas.

The proportion of the project value attributable to the services performed in

Malaysia is computed on time cost.

Total fees for the project RM20,000

Number of days spent on the whole project 42 days
Number of days spent in Malaysia 6 days
Time cost in Malaysia RM2,857.14 (6/42 X 20,000)
The fees of RM2,857.14 is subject to a withholding tax of 10% under section
109B of the ITA
 Highly cost project a
CONTRACT PAYMENT – wht S107A this is not final tax, k
tgk dulu if let say da
WHT,tax ni akn agai
the corp tax
 Contract payments made to non-resident contractors in respect of services
under a contract are subject to withholding tax of:
o 10 % on the service portion of the contract payments on account of tax
payable by the NR payee; Means klao soalan silence,kne
amek 13%
o 3 % on the service portion 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 connection with or in relation to any
undertaking, project or scheme carried on in Malaysia.
 WHT will not be charged against cost of materials and equipment – only
apply to service portion
 NR contractor has to furnish his annual return in the following year and pay
actual income tax payable ( not a final tax )
 The 10% WHT would be allowed to set off against the actual income tax
payable and the NR can claim for tax refund on any excess or tax overpaid
 ROYALTY – wht S109
15
 Defined in sec 2 of Finance Act 2017 (w.e.f 17.1.2017) as any sums paid as
consideration for the use of, or the right to use/ the right to reproduce under
3 categories:
Category A Category B Category C
Patent, trademark or The right to use or The right to use know
copyrights reproduce: how, information
• Tapes for radio or tv concerning technical,
broadcasting industrial, commercial or
scientific knowledge,
experience or skills
Artistic or scientific • Motion picture films,
works films, video tapes

Designs or models, plans • Visual image or

sounds transmitted by
satellite, cable, fibre
Secret processes optic
 INTEREST -wht s109
 S 4(c) income (Not defined in the Act)
 Often described as compensation for late payment
 Court case – interest was defined as payment by reference to time for
the use of money. There must be a sum of money, known as the
principal, and this sum must be due to the person who is entitled to or
received the interest (eg: LOAN)
 In order for the interest income to be deemed derived from Malaysia,
the reason for such borrowings is crucial: -LOAN dari NR companies
o It has to be paid by Resident payer and
 The money borrowed must be laid out on assets and the assets
must be used for the production of Malysian derived income.
or
 The debt is secured by property/ asset situated in Malaysia.-used
the property as collateral
 INTEREST - wht s109
 Interest which is 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.
c. Attributable to a business carried on by the NR in Malaysia
d. WHT does not apply to guarantee fees connected with loan or commission
paid for letter of credit
 REMUNERATION of PUBLIC
ENTERTAINERS
- wht s109A
 "Public Entertainer" means a stage, radio or television artiste, a musician,
model, circus performer, lecturer, speaker.
 Individual works behind the scenes in an arts-related activity eg
cinematographers, directors, producers are NOT public entertainers.
 Individual in sports-related activity such as horse trainers, coaches also do
NOT fall within the definition of public entertainers.
 OTHER INCOME – wht s109F

 Any gains or profit s falling under Section 4(f) received by NR payee is

subject to withholding tax at 10 % on the gross payment.

Eg: Commission received by a Singapore resident (not property agent) from

a Malaysian resident for getting a tenant for the Malaysian resident who has
an apartment in Singapore.
 PENALTIES FOR NON-COMPLIANCE
 Applicable to all WHT
 10% penalty on the unpaid or outstanding WHT
 The total sum due (WHT + penalty) shall be a debt due to the
Government from the resident payer.
If x byr sebulan
Consequences;
 If the WHT and penalty is not remitted to IRB by the FYE of the
resident payer, which is a company, the gross payment will become non-
deductible in arriving at the adjusted income. (to compute the corporate
tax)
Example 17
Golden Sdn Bhd failed to deduct and remit WHT of RM5,000 due and payable
on 30.4.2019, on a payment of RM50,000 chargeable to tax under section 4A of
the ITA to Bright Spark Ltd (a company based in China). That sum which
Golden Sdn Bhd failed to pay shall be increased by penalty of RM500 (10% X
RM5,000). The total sum of RM5,500 shall be a debt due to the Government.
 EXEMPTION OF WHT
• approved royalties by MOF under s 127 of ITA 1967
ROYALTY
• approves industrial royalties (DTA)

• approved loan by MOF under para 27 sch 6 of ITA 1967

• bank interest received by NR (Para 33 Sch 6)

• Interest credited for securities issued by govt; sukuk or

debentures approved or authorized by Securities
Commission (para 33A Sch 6)

INTEREST
• Islamic securities (Para 33B, Sch 6)

• Interest or discount on securities and bonds (para 35, Sch

6)
• Interest received from Labuan offshore bank

• Interest income from Pengurusan Danaharta Nasional

Berhad
 DOUBLE TAXATION AGREEMENT
CONCEPT OF DUAL RESIDENCE

 Refer to situation where a company is treated as a tax resident in

more than 1 country
 This issue will be overcome through double taxation
arrangements with Malaysia.
 Double Taxation Agreement (DTA) is an agreement between two
countries seeking to avoid double taxation by defining the taxing
rights of each country with regard to cross border flows of
income and providing for tax credits or exemptions to eliminate
double taxation.
 Taxes on various payments to NR based on DTA (Refer to B11,
MIA)
 OBJECTIVES OF DTA
1. Reduce burden of double taxation on the same income
2. Facilitate world trade
 Inbound and outbound investment (trading in or trading with the foreign
country)
 Scope of taxation clearly defined
3. Promote transfer of technology
 Lower WHT rate or exemption on royalty and technical fees
4. Prevent international tax evasion and avoidance
 Exchange of information between countries to eliminate artificial tax
avoidance or evasion
 involve international audit on multinational company.
5. Provide double tax relief – determined by reference to the country of residence
in 3 ways:
 Exemption of income arising from the country to a resident of other country
 Tax credit against a person’s tax in his home country for tax suffered in
other country
 Tax deduction against total income in the home country
 Inbound and outbound investment (trading in or trading with the foreign
country)
 CONCEPT OF PERMANENT ESTABLISHMENT P
T
(PE)
PE is the factor to consider in determining which country will have
the authority to impose tax on a particular business activity. It is
normal that a contracting state will only impose tax on business
income if it is attributable to a PE.
Malaysia ada x authority x
org tu nk dikenakan tax
1. PERMANENT ESTABLISHMENT (PE):
 A fixed place of business in which the business is wholly or partially
carried on in Malaysia such as:
o a place of management
o a branch Branch only NO
o an office subsidiary
o appointment of agent to find customers and conclude contracts
o a factory
o a workshop
o a mine, oil or gas well, quarry or any other place of extraction of natural
resources including timber or forest produce
o a building site or construction, installation or assembly project which
exists for more than 6 months
o a farm or plantation.
 CONCEPT OF PERMANENT ESTABLISHMENT (PE)
Refer to Income
2. Trading in – existence of PE . Tx
 A business is carried on in Malaysia, therefore the business income is
taxable in Malaysia.
 When a foreign enterprise is carrying on the business through a PE in
Malaysia, where profits are earned, such profit would be taxed in Malaysia,
leaving the country of the foreign enterprise to grant relief on double
taxation.
Refer to WHT
3. Trading with- no PE exist
 Absence of PE due to no branch/office or factory being set up in Malaysia,
therefore, the business income is not taxable in Malaysia.
 Where, the foreign enterprise does not establish a PE in Malaysia, the
business profit may be exempted from taxation in Malaysia. However,
withholding tax issue should be considered in situations where PE is not
present.
 EXAMPLE OF PE (KENA ADA SALES)
LeMoulin Plc, a foreign enterprise plans to sell its products in Malaysia and is
considering one of the following options:
Options Statu PE OR NO PE

• Set up a show room in M’sia and employ
promoters to promote product in
Malaysia
• Appoint Lucky Trader in M’sia, who will
on behalf of LeMoulin Plc take orders
from customers in M’sia
• The fixed place (show room) is merely for promotion – not
constitute a PE
• Lucky Trader is an agent for LeMoulin (principal). Since
the agent can take orders from customers, it has the
authority to conclude contract on behalf of principal – PE

• Set up a warehouse in M’sia for storage
of LeMoulin Plc’s goods
• Appoint Joe-Li Agency as the sole agency
in M’sIa – will acquire and import
products for sale in M’sia
• The fixed place (warehouse) is merely for storage – not
constitute a PE
• Joe Li Agency is an independent agent since it will acquire
and import the products for sale from LeMoulin – not
constitute a PE

• Set up a branch in M’sia to promote and
sell the products in M’sia
• Incorporate a subsidiary in M’sia to
promote and sell the products in M’sia
• Set up a warehouse in M’sia where retail
sales will also be held
• A fixed place of business such as branch constitute a PE
• Subsidiary is not a PE of foreign enterprise
• The fixed place (warehouse) is merely for storage. But since
retail sales will also be held at the warehouse – sales are
concluded in M’sia. Hence, the warehouse constitute a PE