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Amendments to withholding tax regulations passed

Finance Act 2017 has been passed and gazetted. Some of the changes that could affect withholding tax requirements are highlighted here.

Effective from 17 Jan 2017,

a. Malaysian resident entities are required to withhold 10% (withholding tax) from all amounts paid or credited to non-residents in consideration for services, irrespective of where services are performed. Tax treaties may provide relief. Please read our earlier post on 20 Dec 2016 for more information;

b. The definition of “royalty” shall now include, among others, any consideration paid for the use of or the right to use software. In other words, withholding tax of 10% could apply when a Malaysian resident entity make payment for software cost to a non-resident supplier. Tax treaties may provide relief. The definition of royalty could be found in the Finance Act 2017; and

c. The definition of “public entertainer” shall now include a lecturer and speaker or individual who uses his intellectual, artistic, musical, personal or physical skill or character in, carrying out any activity in connection with any purpose. Payments to non-resident public entertainers are subjected to 15% withholding tax pursuant to S. 109A of the ITA. Please read the complete definition of public entertainer in the Finance Act 2017.

Further comments:

i. Failure to comply with withholding tax requirements would result in penalty from the Inland Revenue Board of Malaysia (IRBM), and the expenses in question will not be allowed as a deduction for tax purposes.

ii. The present practice by IRBM continues whereby the sponsor of the non-resident public entertainer is required to pay withholding tax at 15 % before an entry permit for the non-resident public entertainer can be obtained from the Immigration Department.

iii. IRBM has clarified in a dialogue with the accounting and tax professional bodies, that hiring a speaker for an event meant for a specific group of people only would be subjected to 10% withholding tax under technical fee (special classes of income). However, if the speaker is a public entertainer pursuant to the new definition, S. 109A would come in where 15% withholding tax rate shall apply.

Please go through the changes in the Finance Act 2017

The Finance Act 2017 could be downloaded here:

Let’s talk: StanleyCo is a Licensed Tax Agent and GST Agent, please contact us if you need assistance with the topic above.

Disclaimer: Every effort has been made to provide accurate information. However, the information and regulations contained in this article are subject to changes and amendments by the relevant authority at any time. As such, the information in this article may not be current.

And the information provided in this article is general commentary only and shall not be considered as advice or recommendation. As all tax situations are specific to their facts and will differ from the situations in this article - if you have specific tax questions you should consult a licensed tax agent.

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