Payments to resident agents, dealers and distributors are subject to 2% Withholding Tax

Section 107D was inserted to the Income Tax Act subsequent to the Budget 2022 announced by the Prime Minister.

Pursuant to this new section:

a. A company is required to withhold 2% of gross payments (in cash or in-kind) made to a resident individual who is acting as the company’s agent, dealer or distributor.

b. The withheld tax must be remitted to the Inland Revenue Board (IRB) within 30 days of paying (or crediting) the payment.

c. This withholding tax requirement is applicable if the total sum of payments (monetary or in-kind) received by the person from the company in the immediately preceding year of assessment exceeds RM100,000.

d. If the company has failed to withhold the tax or remit the tax withheld within the stipulated timeline, the company will have to bear the 2% withholding tax and be subject to a 10% late-payment penalty. And, until these debts are paid to the IRB, the company will not be able to claim tax deductions in respect of such payments (the expenses will be treated as non-deductible).

e. Agent, dealer or distributor means any individual resident who is authorized by a company to act as its agent, dealer or distributor, and who receives payments, whether in monetary form or in-kind, from the company arising from sales, transactions or schemes carried out by him as its agent, dealer or distributor.

These requirements come into operation on 1 April 2022. <Pursuant to the Press Media of LHDN dated 12 Jan 2022, these requirements are now postponed to 1 April 2022>.

The tax withheld will be utilised to offset against the tax payable by the agent, dealer or distributor. Commentary: In the past, there were certain agents, dealers and distributors who have not reported their commission income accurately or completely. This new measurement is to close the gap and ensure tax arising from larger sum of commissions or payments to agents, dealers and distributors are being collected in advance.

Section 107D - Income Tax Act
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