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U-turn on withholding tax for service fees paid to non-residents (Income Tax (Exemption) (No. 9) Ord

The Ministry of Finance has gazetted the latest exemption order referred to as “Income Tax (Exemption) (No. 9) ) Order 2017”.

Under the order - non-residents shall be exempted from paying tax on fees received from these services, if the services are performed outside Malaysia:

(i) amounts paid in consideration of services rendered by a person or his employee in connection with the use of property or rights belonging to, or the installation or operation of any plant, machinery or other apparatus purchased from, such person; and

(ii) amounts paid in consideration of technical advice, assistance or services rendered in connection with technical management or administration of any scientific, industrial or commercial undertaking, venture, project or scheme.

[these are referred as special classes of income under para 4A(i) and (ii) of Income Tax ]

Effective date: 6 September 2017

Comments from StanleyCo

a. This exemption order is a welcome move for the business community as it would bring down cost of doing business and reduce compliance uncertainty in regards payments to non-residents.

b. As a background information, prior to 17 January 2017, fees paid for para 4A(i) and (ii) services are deemed to be derived in Malaysia (thus subjected to tax) if the payer is a Malaysia resident and the service is performed in Malaysia (services performed outside Malaysia is not taxable). In 2017, the government sought to expand the tax net with the amendment of Section 15A which effectively required all Malaysian taxpayers to withhold tax for such fees, regardless of where the services are performed (inside or outside Malaysia). Since the introduction of the rule, the tax fraternity has raised concerns with the Ministry of Finance that the new law is not aligned with international tax practices and the rule is in conflict with some of the double tax treaties that Malaysia has entered into with other countries.

c. Please watch this space closely as we are awaiting Inland Revenue Board of Malaysia’s announcement and clarifications on how the exemption order would be applied.

Please contact StanleyCo if you need assistance

StanleyCo consist of chartered accountants, chartered secretaries and tax agents – we are able to assist you in preparing or compiling unaudited financial statements that would meet the requirements of CCM and Companies Act. Please contact us if you require advice on this matter.

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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