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No More Confusion: Payment to Deceased Agent is No Longer Subject to 2% Withholding Tax
When an agent, distributor, or dealer passes away, businesses often wonder: Do we still need to withhold tax on payments made to them? The good news is things have become much simpler now.
What Changed?
Starting from 1 August 2025, under Section 107D of the Income Tax Act, payments made to a deceased individual (EPP – agent, distributor, or dealer) will no longer be subject to the 2% withholding tax.
This is because the law defines “individual” as a living person, not someone who has passed away. In other words, from his date onwards,payments to deceased agents are exempt from the 2% withholding requirements.
How Should the Income Be Handled?
If a deceased agent still has income receivable after their passing, the responsibility falls on their estate’s representative (executor, administrator, beneficiary, or legal representative) to handle it properly:
- Notify LHDN (Inland Revenue Board) and open a “Deceased Person’s Estate (TP)” tax file.
- Submit Form CP57 (Notification of Deceased Taxpayer) together with:
▪ Death certificate
▪ Probate or Letter of Administration
After that, all income receivable under the deceased individual’s name will be declared and taxed under the TP file.
Key Reminders
- Payments made to deceased agents on or after 1 August 2025 are no longer subject to 2% withholding tax.
- The estate’s representative must set up the TP tax file to ensure compliance.
- Companies and beneficiaries should prepare and submit the required documents early to avoid delays or penalties.
FAQ
Q1: From when does the 2% withholding tax exemption take effect?
It takes effect from 1 August 2025. Any payments made to deceased agents on or after this date are no longer subject to withholding.
Q2: What if the agent passed away before 1 August 2025, but the payment is made after that date?
The exemption applies based on the payment date. If the payment is made after 1 August 2025, no 2% withholding tax is required.
Q3: Who is responsible for declaring the deceased agent’s income?
The responsibility lies with executor, administrator, or legal heir. They must open a “TP file” for the deceased estate and declare income under that file.
Q4: Does the company still need to submit CP107D forms?
For payments to deceased agents, CP107D is no longer required. However, payments to living agents are still subject to the 2% withholding requirement, and CP107D must be submitted accordingly.
Q5: What documents must the estate representative prepare?
They must provide:
- Form CP57 (notification of death)
- Death certificate
- Probate/ Letter of Administration
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