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WITHHOLDING TAX

Tax authority in Malaysia like other countries in

the world has imposed withholding tax in
taxation system. Although this concept has been
introduced a long time ago, many of us did not
understand especially to the peoples who do not
have basic knowledge on taxation. The word
withholding tax itself has made peoples get
confused. They do not understand whether they
are involved with this concept. What many
people does not know, withholding taxes is
basically involved with non-resident. It is a
mechanism to collect income tax from certain
groups of non-residents. Nevertheless, as a
resident, we also will be involved with this

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concept. Therefore, we need to understand the
mechanism of withholding tax. In order to make
it clear with the concept, we should know the
keyword within it. The keyword of withholding is
the word “hold” which means grasp or seize.
Thus, applying in tax system, withholding tax is
a process where a resident person needs to
withhold some portions of amounts paid to nonresident at prescribed rate. The amount will be
treated as a tax on non-resident. Thus, as a
resident, we have a legal duty to withhold tax
when we make payments to non-residents.
Consequently, we have become tax collection
agent for the tax authorities.

egulations: Generally, withholding tax is related on special classes of income which
stipulated under Section 4A of Income Tax Act 1967. However, there are also other types
of income that are chargeable under withholding taxes. The other types of income
include royalty, interest, contract payments and remuneration that paid to the nonresident. Regarding Section 4A of Income Tax Act 1967, special classes of income can be divided
into three categories:

remuneration and royalties made by resident person to non-resident. These include the contract payments. It is involving the payment made by resident to non-resident for the technical advice. assistance or services. INSTALLATI ON FEES 10% WHT TECHNICAL SERVICE FEES 10% WHT O Fees for services that related to installation or operation of any plant machinery or other machinery purchased carried out in Malaysia. it is also income derived from Malaysia if the company treated the payment as expenses in their accounts. It is a final tax. It is a final tax. Other than that. It is involving the rental payment made by resident to non-resident for the use of any movable property under any agreement or arrangement.SECTION 4A (i) SECTION 4A (ii) SECTION 4A (iii)        It is involving the payment made by resident to non-resident for the services carried out. . The services purposely for technical management or administration of any scientific. An example of payment is technical service fees. assistance or services carried out. State Government. industrial or commercial venture or scheme. W ithholding Tax Rate: The gross amount paid for the three types of special classes of income is said to be derived from Malaysia if the payment was made by the Government. Fees for the technical advice. The amount of withholding tax imposed to the types of payment made by resident to nonresident can be summarized as below. MANAGEME NT FEES 10% WHT RENTAL PAYMENT 10% WHT Fees for services carried out in Malaysia that related to management of any business in Malaysia. local authority or person who is resident in Malaysia. The services include the installation or operation of any plant machinery or other equipment purchased from non-resident. ther Incomes Subject to Withholding Tax: Besides special classes of income under Section 4A of Income Tax Act 1967. interest. It is a final tax. Payment for use of movable property made under any agreement or arrangement. there are other incomes that subject to withholding tax. Services are related to technical management or administration of any scientific or commercial scheme carried out in Malaysia. It is a final tax. Examples of payment are installation fees or management fees. The income received by non-resident under paragraphs 4A(i) and 4A(ii) is consider derived from Malaysia if the services are carried out in Malaysia.

Malaysian Taxation Principle and Practices. 16th edition. Employees INTEREST  15%  PUBLIC ENTERTAINER /SPORTSPERSO N   Payment of interest to non-resident except for interest paid or credited that related to a business carried on in Malaysia. formulae. Income Tax Act 1967 . Withholding tax is not a final tax and will be refunded after finalize by tax authority on return form submitted by contractor and employees. trademarks. Remuneration or other income paid to a non-resident public entertainer such as stage. C onsequences: The tax authorities in Malaysia will impose several punishments if the payer does not comply with the regulation of withholding tax. Withholding tax rate is 10 percent and it is a final tax. It also includes use of know-how. sportsperson or other. information related to technical. commercial. industrial. Withholding tax of 13 percent which 10 percent tax imposed to the contractor and 3 percent to the employees of the contractors. 1/2014. The consequences on the payer are including all the three below. Inland Revenue Board Malaysia (2014. Public Ruling No. musician. January).CONTRACT PAYMENT 10% Contractor    3% Payments made for services related to a contract carried out in Malaysia. Published by Info World Malaysia. plans. 15% ROYALTIES  10%   Royalty payment for the use of scientific works. motion picture films that have been used or reproduced in Malaysia. or scientific knowledge. Withholding tax rate is 10 percent and it is a final tax. experience or skill. patents. Withholding Taxes On Special Classes of Income. Withholding tax rate is 15 percent. tapes for radio or television board casting. Withholding tax and penalty amount consider as a debt to government REFERENCES Choong Kwai Fatt (2010). designs. radio or television artiste. 10% penalty on unpaid withholding taxes Amount paid to nonresident cannot be claim by payer as expenses in their account.