Understanding Malaysia's Withholding Tax - What You Need to Know
Malaysia's Withholding Tax (WHT) is a tax that is deducted from payments made to non-residents for services rendered or goods sold in Malaysia. The tax is collected by the payer, who is responsible for withholding the tax and remitting it to the Inland Revenue Board (IRB) of Malaysia. WHT is considered a type of advance payment of income tax and is credited towards the non-resident's final tax liability.
WHT applies to various types of payments including, but not limited to, rental income, technical services, royalties, and commission fees. The tax rate varies depending on the type of payment and the country of residency of the recipient. For example, the WHT on rental income paid to non-residents is 10% while the WHT on technical services rendered by non-residents is 15%.
WHT is an important aspect of Malaysia's tax system and is used to prevent tax evasion and ensure that non-residents are paying the correct amount of tax. In order to comply with WHT regulations, it is important for businesses and individuals in Malaysia to understand the requirements and procedures involved.
Here are five things that you need to know about Malaysia's Withholding Tax:
- Residency Status of the Recipient
The residency status of the recipient is an important factor in determining the WHT rate. Recipients who are residents of Malaysia are subject to different WHT rates than non-residents. Non-residents are also subject to different rates based on the country of their residency.
- Types of Payments Subject to WHT
WHT applies to various types of payments including rental income, technical services, royalties, and commission fees. It is important to note that not all payments made to non-residents are subject to WHT. For example, payments for goods sold are generally not subject to WHT.
- WHT Rates
The WHT rate varies depending on the type of payment and the country of residency of the recipient. The WHT rate for non-residents is typically higher than the rate for residents. For example, the WHT rate on rental income paid to non-residents is 10% while the rate for residents is 5%.
- Obligations of the Payer
The payer is responsible for withholding the WHT and remitting it to the IRB of Malaysia. The payer must also ensure that the correct amount of WHT is deducted and that the correct WHT rate is applied. The payer must also keep accurate records of all WHT payments and provide a statement to the recipient indicating the amount of WHT that was deducted.
- Penalties for Non-Compliance
Non-compliance with WHT regulations can result in significant penalties and fines. The IRB of Malaysia has the authority to impose penalties for failure to withhold the tax or for failure to remit the tax to the IRB. In addition, the payer may also be subject to interest charges for late payment of WHT.
In conclusion, understanding Malaysia's Withholding Tax is important for businesses and individuals in Malaysia. WHT applies to various types of payments made to non-residents and the tax rate varies depending on the type of payment and the country of residency of the recipient. The payer is responsible for withholding the tax and remitting it to the IRB of Malaysia. Non-compliance with WHT regulations can result in significant penalties and fines.