Chapter 9 –

WITHHOLDING TAX
(old textbook)

1
 WITHHOLDING TAX
 Withholding tax is an amount withheld by the party
making payment (payer) on income earned by a non-
resident (payee) and paid to the Inland Revenue Board
of Malaysia.
 Imposed on non-residents who has business dealings in M’sia.
 Imposed on residents/non-residents individual & non-resident
companies & institutional investors before distributing REIT
distribution

2  Withholding tax is applicable on special classes of income,

interest, royalty, contract payment, technical fee, public
entertainer, other income, paid to non-resident
 Cost material & equipment are excluded, only the service
portion that the withholding tax is chargeable
 Rate of WITHHOLDING TAX

Special classes of income s4 A 10%

NON-RESIDENT

Interest 15%
Royalty 10%
Contract payment 10% + 3%
Public entertainer 15%
Other income s4(f) 10%
Pre-55 years old withdrawal 8%
3 from private retirement scheme
(PRS)

Remark: Other than CONTRACT PAYMENT, WTH tax is a FINAL TAX (meaning
that non-residents need not account for further Malaysian tax
 CONTRACT PAYMENT
(WTH not FINAL tax, need to compute income tax
payable and offset WTH)

YA2022 RM
Section 4(a) Construction business
Gross income 1,000,000
Less: Revenue expenses wholly & exclusively incurred (400,000)
Adjusted income 600,000
Less: Capital allowances (100,000)
Statutory income 500,000
Less: Approved donation (up to 10% Aggregate Income) (10,000)
Chargeable Income 490,000
4

Income tax payable @24% 117,600

Less: 10% WTH tax deducted from contract payment (112,600)
NET INCOME TAX PAYABLE 5,000
 WTH Tax - Royalty
 See Choong (2022) old book pg 475 e.g 24.1;

5
 WTH Tax – Royalty (Penalty)
 Choong (2022) old book pg 476 e.g 24.3

6
 WTH Tax – Royalty (Penalty)
 Choong (2022) old book pg 476 e.g 24.4

7
 WTH Tax – Exempted
 Choong (2022) old book pg 478

8
 WTH on digital advertisement
9
10
Deductibility of WTH
 WTH Tax – Interest
 Choong (2022) old book pg 480 e.g 24.7;

11
 WTH Tax – Interest (Penalty)
 Choong (2022) old book pg 480 e.g 24.8

12
 WTH Tax – Interest
 Choong (2022) old book pg 482 e.g 24.9

13
 WTH Tax – Special Classes of Income
 Choong (2022) old book pg 488 e.g 24.13

14
 WTH Tax – Special Classes of Income
 Choong (2022) old book pg 488 e.g 24.14

15
 WTH Tax – Special Classes of Income
 Choong (2022) old book pg 489 e.g 24.15

16
 WTH Tax – Special Classes of Income
 Choong (2022) old book pg 490 e.g 24.19

17
 WTH Tax – Special Classes of Income
 Choong (2022) old book pg 490 e.g 24.19

18
 WTH Tax – Special Classes of Income
 Choong (2022) old book pg 491 e.g 24.20

19
 WTH Tax – Special Classes of Income
 Choong (2022) old book pg 492 e.g 24.21

20
 WTH Tax – Special Classes of Income
 Choong (2022) old book pg 492 e.g 24.21

21
 WTH Tax – Contract Payment
22

 10%+ 3% withholding tax

 10% withheld for NR contractor’s tax
liabilities on service portion
 3% is for tax of employees of the NR
contractor on service portion,
refundable
 Non-resident contractor is allowed to set
off 10% WTH tax against his income tax
payable
 WTH Tax – Contract Payment
23
 WTH Tax – Contract Payment (Penalty)
 Choong (2022) old book pg 497 e.g 24.24

24
 WTH Tax – Contract Payment
25  Choong (2022) old book pg 498 e.g 24.25
 WTH Tax – Contract Payment
26  Choong (2022) old book pg 498 e.g 24.25
 WTH Tax – Contract Payment
27  Choong (2022) old book pg 498 e.g 24.25
28 Example of WTH Tax on Contract Payment****
 R Sdn Bhd is a Malaysian resident company carries on
construction of condominiums in Malaysia. It was recently
awarded a contract by the government to construct a bridge.
Due to the complexity of the construction, R Sdn Bhd engaged B
Ltd, a company resident in the UK and M Ltd, a company
resident in Germany.
 B Ltd will be responsible to design the bridge. This design will be
carried out wholly in the UK. It will not be necessary for B Ltd to
send its engineers to Malaysia. B Ltd does not have any branch
in Malaysia as well.
 M Ltd would be responsible for the supply of equipment, valued
at RM5 million and the provision of project management and
supervisory services, amounted to RM7 million. Employees of M
Ltd will need to be seconded to Malaysia for the duration of the
project, which is expected to complete in 2 years.
 With this new project, all three of these companies would like to
seek your professional advices from the perspectives of.
 company tax, permanent establishment and withholding tax
29 Example of WTH Tax on Contract Payment****

i. Advise B Ltd on the liability to Malaysian income tax on

the contract awarded by R Construction Sdn Bhd.
ii. Advise M Ltd on the liability to Malaysian income tax on
the contract awarded by R Sdn Bhd. Discuss if
permanent establishment exists in this case.
iii. Advise B Ltd and M Ltd on the withholding tax payable.
iv. Advise B Ltd and M Ltd on the conditions for the
withholding tax to be refundable.
v. What are the requirement for R Sdn Bhd in respect of
the payments due to B Ltd and M Ltd?
vi. What are the implications if RajJunk Construction Sdn
Bhd do not comply with the requirements?
 Answer
i. B Ltd is a non-resident, income derived form the provision of design services
30 for the condo is NOT chargeable to income tax under section 4A(ii) of
Income Tax Act 1967 as the services are rendered offshore.
ii. M Ltd establish Permanent Establishment (PE) in Malaysia and subject to
Malaysian tax
 Under the definition of PE, a building site or construction, installation or
assembly project which exists for > 6 mths. Since M Ltd is carrying out the
construction for 2 years, it has PE in Malaysia
 The profit arising from the contract would be regarded as business income
chargeable to income under Section 4(a) of the Income Tax Act. The net
profit after relevant adjustments will be subject to corporate income tax rate
of 24% for YA2021.
iii. NO withholding tax on payment for the design by B Ltd as it is performed out
of Malaysia.
 NO withholding tax on payment for the supply of equipment by M Ltd valued
at RM5million.
 The gross amount due to M Ltd for supervisory services amounting to
RM7million would be subject to withholding tax under Section 107A :
 10% on account of the tax liability of M Ltd for any year of assessment
 3% on account of the tax liability of the employees M Ltd based in Malaysia
for any year of assessment
31 Answer

iv. Refund: To the extent that the 10% WHT suffered by M Ltd
on the gross service portion of the contract
exceeds the income tax on the chargeable
income of its business assessed by IRB, the excess
would be refunded to the company
 Refund The 3% WHT will be refunded To M Ltd when
IRB is satisfied that the employees have fulfilled their
tax obligations or suitable arrangements have been
made to account for the tax payable by the
employees under a scheme of monthly tax
deduction, PCB.
v. R Sdn Bhd is required to deduct 13% (10% + 3%) from the
service portion of the contract payment due to M Ltd.
32 Answer

vi. Non-compliance
The WHT must be submitted to IRB within 1 month of
paying M Ltd.
 Failure to do so would render the WHT tax as a debt
to government
 The gross amount will be disallowed, have to add
back. Penalty 100% on additional tax
 Penalty is 10% on the unpaid tax
 If subsequently RajJunk construction Sdn Bhd pays
the WHT and penalty, the gross amount paid to non-
resident would be allowed as a tax deduction.
33 TUTORIAL


- ACCA TX Dec 2022 BQ4(b)
-
 ACCA TX Mar 2020 MCQ - Q8, Q12

- ACCA TX Dec 2019 MCQ – Q2

- ACCA TX June 2019 MCQ – Q4, Q11, BQ4

- ACCA TX Dec 2018 MCQ – Q3
 ACCA TX June 2018 BQ4(c)
~

- ACCA F6 Dec 2017 Q4 (b)
-
 ACCA F6 Dec 2014 Q4(a)