Payment to Overseas/ Foreigner is also required to pay tax??!! 😰

Businesses/ companies in Malaysia with purchased transaction(s) / acquisition from “Non-resident Company / individual” are required to pay tax (WHT) * due to :-

Finance Act 2017 gazetted recently to expand the withholding tax (WHT) particularly on the services and royalties. 

No.
Payment Type subject to WHT
(non-exhaustive list)
Withholding Tax Rate
Income Tax Act 1967 (ITA)
i
Royalty
10%
Section 109
ii
Special classes of income : Technical fees, payment for services, rent/payment for use of moveable property
(1) Services rendered by Non-resident in overseas are subject to WHT due to the removal of proviso for  deemed derivation rules which were amended under Finance Act 2017 

(2) Subsequently, Income Tax (Exemption) (No. 9) Order 2017 (P.U.(A) 323/2017) provides that services falls under Section 4A(i) and 4A(ii) of the Income Tax Act 1967 (with effect from 6 Sept 2017) are not subject to WHT if the services are performed outside Malaysia by  non-resident.
10%
Section 109B
iii
Income under Section 4(f)
10%
Section 109F
iv
Contract payments
(Contractor’s account 10% + employees’ account 3%)
10% +  3%
Section 107A (1) (a) & 107A (1) (b)
v
Interest
15%
Section 109
vi
Income of non-resident Public Entertainers 
15%
Section 109A

*WHT is also known as retention tax (in layman’s term) which is a mechanism to collect income tax from non-residents.

The payer (party making payment i.e. the businesses/ companies) is required to withhold certain percentage of the payment for the income earned/ gained by a payee (Non-resident) when making payment to the payee (Non-resident) and subsequently to pay the same amount withheld to the Inland Revenue Board (IRB) of Malaysia within the prescribed period (i.e. as required by the Malaysian Income Tax Act 1967). 

IMPORTANT !
  1. All businesses/ companies must deduct and remit withholding tax (i.e. ranging from 10% to 15% depending on natures of transactions) to the IRB within one month after paying or crediting the payment to the Non-Resident suppliers / service providers concerning the “acquisition from / payment to overseas suppliers / services providers (Non-resident)” for royalty / interest / rent or use of moveable property/ services and etc. defined under ITA.
  2. Failure to comply with WHT will result in “10% WHT penalty”. In addition, the business/ companies are not allowed to claim the expenses as tax deductible expenses (i.e. this will result the company to pay higher tax) unless the company has remitted the WHT
  3. All businesses/ companies must pay WHT prior to claiming that expenses / capital allowance incurred for qualifying asset in the income tax return (i.e. Form B / Form C). Failure to pay WHT but claiming the above-mentioned in the tax return will result in 100% tax audit penalty on the additional tax payable.
  4. WHT borne by the payer (i.e. businesses/ companies) is non-tax deductible expenses
  5. If the payer (i.e. businesses/ companies) fails to remit the WHT and penalties to IRB, WHT and penalties not remitted by the payer to the IRB will become a debt due to the Government 

Expanded WHT that may affect your business/ company:-

1. WHT – Royalty has been redefined to include software and etc.
The use of, or the right to use in respect of, any copyrights, software, artistic or scientific works, patents, designs or models, plans, secret processes or formulae, trademarks or other like property or rights.

In addition, the royalty also includes the use of, or the right to use, know-how or information concerning technical, industrial, commercial or scientific knowledge, experience or skill.

Example 1:
Acquiring from or payment to overseas supplier or Non-resident Company/ individual for the use of their software/ App is subject to WHT. 

2. WHT – Service fee / Technical fee paid 
Services rendered /performed (in Malaysia and outside Malaysia (i.e. Overseas)) by the Overseas supplier or Non-Resident Company/ individual to the “business/ company in Malaysia” are subject to WHT.

Example 2:
Acquiring from or payment to overseas supplier or Non-resident Company/ individual to use their service such as marketing service/ advertising in their website/ App / Ads service is subject to WHT

3. WHT - Public Entertainers has been redefined 
a) a compere, model, circus performer, lecturer, speaker, sportsperson, an artiste or individual exercising any profession, vocation or  employment of a similar nature; or

b) an individual who uses his intellectual, artistic, musical, personal or physical skill or character

Example 3:
Acquiring from or payment to overseas supplier or Non-resident lecturer / speaker to use their service such as training / talk/ briefing / seminar/ workshop/ round table discussion is subject to WHT.


Why there is a withholding tax (WHT)?

As most of the Non-residents do not have business operation/ establishment/ presence in Malaysia, WHT will avoid the Non-resident never pay Malaysian Income Tax while earning income from Malaysia. 

To comply with the WHT mentioned above, please liaise with the nearest IRB branch or click: LHDN website concerning the WHT for further information.


Let Us Help You To Ease Your Mind

If our service is required to fill up and submit the WHT form, our fee is RM530* nett (inclusive of GST). If the WHT advisory service is required, our fee starts from RM2,000 (With GST RM2,120)  depending on the complexity of the case and the time costs involved.

* separate fee will be quoted concerning public entertainer which requires more time to liaise with the IRB due to the IRB standard procedures on the documents involved and number of visit to the IRB office.


Contact person
Ms Mun
Company
NBC & Foo Tax Consultants Sdn Bhd
Email
tax@nbc.com.my  
Telephone
03 – 7729 7018 / 017- 943 7018

Disclaimer: All information above are presented for reference purposes & you are advised to contact the IRB for further information or your company’s appointed tax agent for more details. Please do not hesitate to contact us if you require our assistance  / advice on the WHT matter.