Finance Act 2017 has been gazetted on 16th January 2017.  The changes which was announced during Budget 2017 on withholding tax has finally come into effect.

 

What is withholding tax (WHT)?

Withholding tax is only applicable to non-residents who render services to Malaysian companies. In other words, the tax authority wants to collect income tax from non-resident (NR) who are deriving Malaysian income.

WHT has to be remitted by the payer to the tax authority within 1 month of the amount paid or credited to the non-resident. In this case, the payer is the Malaysian companies.  Non-compliance with the provisions of WHT would give rise to penalties for the payer.

WHT will be applicable on the following:

Changes in WHT:

  • Effective 16 January 2017, services performed outside Malaysia also subject to WHT. The fees include technical fees, non-technical fees, management fees, reimbursements and disbursements.
  • Redefinition of “Royalty”. The definition of royalty has been widen to include payment for software or other like property or rights.  It also covers payments in the telecommunication and media sectors in respect of transmission by satellite or cable, fibre optic or similar technology, or radiofrequency spectrum. Payments for royalty include total of partial forbearance.
  • The meaning of “public entertainer” has been redefined to include: model, lecturer, speaker, etc. Payers need to confirm whether they are making payment to public entertainer or payment for services as both have different WHT’s implications.

Companies making payments to non-residents should be extra careful to take into considerations the implications of the changes in WHT. Penalty for late payment for WHT is 10% and Inland Revenue has the power to impose a penalty for incorrect returns under S113(2) of the Income Tax Act if a tax deduction on the expenses is claimed and the WHT and penalty are not paid by the due date for submission of the tax return relates to such expenses.

 

Disclaimer: The information above are general information purposes only. Your use of any of the information is at your own risk. Professional advice should be sought for practical application.