Malaysia: FAQs on withholding tax on payments to resident individual agents, dealers and distributors

FAQs to provide further clarification on the application of the newly introduced withholding tax provision

Withholding tax on payments to resident individual agents, dealers and distributors

The Malaysian Inland Revenue Board (MIRB) issued a set of “frequently asked questions” (FAQs) to provide further clarification on the application of the newly introduced withholding tax provision of Section 107D of the Income Tax Act, 1967.

Background

Under section 107D, effective from 1 January 2022, payments made by companies in monetary form to their authorized agents, dealers and distributors (ADDs) arising from sales, transactions or schemes carried out by them, are subjected to a 2% withholding tax. The withholding tax is only applicable when ADDs are resident individuals who have received payments (in monetary form or otherwise) of more than RM100,000 from the same company in the preceding basis year for a year of assessment. 

FAQs

The FAQs include the following notable points with respect to the applicability of section 170D:

  • The withholding tax is not applicable on payment in the form of credit note and discount given to ADDs and contra-transaction with ADDs.
  • The scope of “individual” includes sole proprietors and individual partners in a partnership. Payment to a partnership (not the individual partner) or limited liability partnership does not fall within the scope.
  • In determining the applicability of section 107D, the residency status of the ADDs in the immediate preceding year is irrelevant.
  • The preceding year RM100,000 threshold value is to be tested each year (not on a one-off basis) in order to determine whether withholding tax will apply for payment made in the current year.
  • The withholding tax is still applicable on the ADDs, even though they are subject to tax instalment payments under instalment scheme CP500.
  • The 2% withholding tax will be treated as an advance tax and be deducted in arriving at the “balance of tax to be paid,” upon submission of the income tax return form by the relevant ADDs.

The applicable withholding tax must be remitted to the MIRB within 30 days after paying or crediting the ADDs.  However, a deferment has been granted by the MIRB previously. Read TaxNewsFlash

The MIRB has provided further clarification in the FAQs on the application of the deferment.

The FAQs also provide guidance on remittance of the withholding tax and the associated forms.

Read a February 2022 report prepared by the KPMG member firm in Malaysia

 

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