Withholding Tax

Withholding tax is imposed on non-residents who has business dealing in Malaysia. Such a non-resident does not have a business presence in malaysia but merely renders services from his home country. In order to ensure an efficient tax collection, the Act has appointed the payer as an agent responsible to collect income taxes from such non-residents, to withhold a portion of the payment and pay to the tax authorities. Such portion of payment is known as "withholding tax".

Withholding tax is only restricted to the following types of payments made to non-resident: a. special classes of income (s4A)

b. interest (s15)

c. royalty (s15)

d. contract payment (s107)

e. public entertainer (s109A)

f. other income in s 4(f) (s15B)

Withholding tax is a tax levied on non-residents. It is levied in accordance with specified rates by reference to the gross income. This would mean that expenses or approved donations incurred by the non-resident would not be taken into consideration when withholding tax is computed. The rate would be as follows:

a. Special classes of income - 10%

b. Interest - 15%

c. Royalty - 10%

d. Contract payment - 10% +3%

e. Public entertainers - 15%

f. Other income in s 4(f) - 10%

The payer is the agent for the non-resident. When the payer: a. made the type of payment to the non-resident; or

b. credit such payment to the non-resident.

he shall within one month adter paying or crediting such payment render an account and pay the amount of withholding tax to the DG (tax authorities). Withholding tax liability is due and payable to IRB on the earrlier of "credinting" or "payment" to the non-resident.