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Malaysia: Withholding tax on special classes of income

Malaysia: Withholding tax on special classes of income

The Malaysian Inland Revenue Board in December 2019 issued guidance—Public Ruling No. 10/2019, Withholding tax on special classes of income—that replaces guidance from 2018 and incorporates certain changes that were made effective by reason of Finance Act 2018.


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Withholding tax changes listed by Public Ruling No. 10/2019 include:

  • Tax treatment when no payment or crediting is made to a non-resident payee—no tax deduction is allowed for an expense that has not been paid or credited to the non-resident payee regardless of whether the withholding tax has been remitted to the Malaysian Inland Revenue Board. This change would affect companies that have not paid or credited the amounts to their non-resident payees, but have remitted the related withholding tax in advance. In such instances, a revision to the tax computation and return may need to be considered before the expiration of the one-year period following the year when the payment or crediting was made.

  • Tax treatment on late payment charges (interest)—when late-payment charges are paid to a non-resident, the taxpayer must determine whether or not such payments are considered to be interest income to the non-resident. Absent an income tax treaty for the avoidance of double taxation between Malaysia and the country of residence of the non-resident, or when there is no mention as to whether late-payment charges are regarded as interest income in the applicable income tax treaty, Malaysian domestic tax laws prevail. Accordingly, such late-payment charges are treated as “other income” under paragraph 4(f) of the Income Tax Act, 1967 and would be subject to withholding tax at the general rate of 10% under section 109F (instead of the previous treatment as income under paragraph 4(c) of the Act and subject to withholding under section 109). 

Read a 2020 report prepared by the KPMG member firm in Malaysia

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