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

(Updated on 9 July 2022) 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 that is making monetary payments to a resident individual arising from sales, transactions or schemes carried out by that resident individual as the authorised agent, dealer or a distributor of the company, is required to withhold 2% as withholding tax, with effect from 1 January 2022.

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.

The tax withheld will be utilised to offset against the tax payable by the agent, dealer or distributor. Updates:

1. The remittance of tax withheld pursuant to this requirement is being postponed to 1 April 2022. Please refer to Press Media of LHDN dated 12 Jan 2022.

2. FAQs (Soalan Lazim) in relation to the implementation of the 2% withholding tax was issued on 28 February 2022 to provide information on how this new requirement would be implemented.

3. Remittance for tax withheld should be accumulated and be paid in accordance to the month in which the fees were paid (Media Release by LHDN dated 9 July 2022).

2% Tax Withheld According to the Month

Remittance to LHDN must be made by

1 - 31 July 2022

31 Aug 2022

1 - 31 Aug 2022

30 Sept 2022

1 - 31 Sept 2022

31 Oct 2022

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.

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