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.
Type of income subject to withholding tax:-
| Contract Payment | Section 107A (1) (a) & 107A (1) (b) | 10%, 3% |
| Interest | Section 109 | 15% |
| Royalty | Section 109 | 10% |
| Special classes of income: Technical fees, payment for services, rent/payment for use of moveable property | Section 109B | 10% |
| Interest (except exempt interest) paid by approved financial institutions | Section 109C | 5% |
| Income of non-resident public entertainers | Section 109A | 15% |
| Real Estate Investment Trust (REIT) (i) Other than a resident company (ii) Non Resident company. (iii) Foreign investment institution effective from 01/01/2007 |
Section 109D | 10% 25% 10% |
| Family Fund/Takaful Family Fund/Dana Am (i) Individual and other (ii) Non Resident Company |
Section 109E | 8% 25% |
| Income under Section 4(f) ITA 1967 | Section 109F | 10% |
Enforcement
Where the payer fails to pay or pays withholding withholding tax late (not within the period of one month after the date of payment / crediting 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.
Refund Of Withholding Tax
For refund of withholding tax overpaid by the payer due to the DTA reduced rates, the payee must forward the application for refund to the Director, Non Resident Branch together with the following details:
Tax resident certificate of the payee from the tax authority of the country where the payee is resident.
Evidence to prove that the conditions stipulated in the DTA are met.
Proof of payment of withholding tax.
Withholding Tax Compliance for Malaysian Companies Engaged in Cross-Border Payments
For Malaysian companies making payments to non-resident recipients, compliance with withholding tax obligations is a crucial part of corporate maintenance. Under the Income Tax Act 1967, payments such as interest, royalties, technical fees, and contract payments to foreign entities are subject to withholding tax, with rates typically ranging from 10% to 15%, depending on the nature of the payment and applicable Double Taxation Agreements (DTAs).
Companies must accurately determine the withholding tax rate, assess treaty benefits, and ensure timely remittance to the Inland Revenue Board (LHDN) to avoid penalties. Proper classification of payment types and maintaining thorough documentation is essential. This compliance process forms part of the broader tax and financial reporting responsibilities required to maintain a company in good standing in Malaysia.