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What Is Withholding Tax in Malaysia?
Withholding Tax (WHT) is a tax deducted at source by the payer on income earned by a payee (resident or non-resident) from Malaysia. The withheld amount is then remitted to the Inland Revenue Board of Malaysia (IRBM).
WHT plays a key role in Malaysia’s tax system by ensuring taxes are collected on certain payments at the source.
Businesses must understand their WHT obligations when making relevant payments. Non-compliance can lead to serious issues, including cash flow disruptions and tax penalties.
This article explains why following WHT rules is crucial and what can happen if you don’t.
Key Takeaways
- Common transactions that are subject to withholding tax (WHT)
- Applicable WHT rates for each type of payment in Malaysia
- Important deadlines for WHT payments to the IRBM
- Penalties for late payments and non-compliance discovered during tax audits
- Filing and payment process for WHT forms
- Benefits of reduced or exempted WHT rates under tax treaties
Understanding WHT in Malaysia
Income derived from Malaysia is generally taxable. Certain payments made to residents or non-residents may be subject to WHT. In such cases, the payer must withhold tax at the prescribed rate and remit it to the IRBM within the required timeframe after payment is made or credited.
| Types of Income | WHT Rate | Due Date of Withheld Amount to be Remitted to IRBM |
| Interest payments to non-resident | 15% | Within 1 month after paying or crediting the payment to a non-resident |
| Royalty Payments to non-resident | 10% | Within 1 month after paying or crediting the payment to a non-resident |
| Payments of special classes of income to non-residents** | 10% | Within 1 month after paying or crediting the payment to a non-resident |
| Payments of other income (eg commission) deroved from Malaysia to non-resident | 10% | Within 1 month after paying or crediting the payment to a non-resident |
| Contract payments to non-resident | 10% + 3% | Within 1 month after paying or crediting the payment to a non-resident |
| Payment to resident individual Agents, Dealers or Distributors (ADDs) who have received a total sum of payment of >RM100,000 in the immediately preceding year of assessment | 2% | Not later than the end of the following calendar month after paying or crediting to the ADDs |
**Special classes of Income include:
- Services related to the use of property or operation/installation of machinery purchased from a non-resident.
- Advisory or management services for scientific, industrial or commercial projects.
- Rent or payments under agreements for the use of moveable property.
Note:
Failure to comply with WHT rules can result in a 10% penalty on the unpaid tax, payable to the IRBM.
Potential Consequences on the Non-Compliance of Withholding Tax
Typically, payers may face the following non-compliance when it comes to WHT:
| Type of Non-Compliance | Impact | Consequences |
| Payer fails to remit WHT on the expenses to IRBM | The relevant payment made to the payee is not deductible | The payer will pay more taxes as the deductible underlying expense is not eligible for tax deduction |
| Payer remits WHT on the expenses to the IRBM but exceeds the stipulated deadline | The payment made to payee is deductible provided that the relevant late payment penalty is also remitted to the IRBM | The payer needs to make an additional cash payment to IRBM to allow the deductible underlying expense to be claimed for tax deduction |
| Payer claims deduction on the expense that is subject to WHT but does not remit the relevant WHT to the IRBM | Incorrect tax return | IRBM will impose a hefty penalty on incorrect tax return which heavily impacts the cash flow of the payer |
In summary, understanding WHT obligations and the risks of non-compliance is crucial. Payers should plan ahead, apply the rules correctly, and take proactive steps to reduce or avoid penalties helping to manage costs and maintain smooth operations.
Consequences of Non-Compliance with WHT Rules
Below are common scenarios that highlight the potential risks of failing to comply with withholding tax (WHT) requirements:
Scenario 1: Failure to Remit WHT to the IRBM
Scenario 2: Late Payment of WHT
Scenario 3: Claiming a Tax Deduction before WHT is remitted
In the following section, we will discuss the potential consequences of failing to comply with WHT requirements in these scenarios.
Background Example
Company: ABC Sdn Bhd (ABC)
Business Activity: Advertising products and services on platforms like Facebook and Instagram.
Payment Type: Royalty fees paid to non-resident companies for the right to advertise on these platforms, which are subject to WHT.
Assumptions:
- ABC’s financial year ends in December
- ABC incurred a net adjusted loss of RM100,000
- Annual royalty payments total RM1,000,000
- Applicable corporate tax rate: 24%
| Scenario 1: Failure to Remit WHT | If ABC fails to remit the required WHT to the IRBM before filing its tax return, the RM1,000,000 royalty payment will be disallowed as a tax deduction. As a result, ABC’s position shifts from a tax-adjusted loss of RM500,000 to a taxable income of RM500,000, creating a tax liability of RM120,000 (RM500,000 × 24%). ➡️ Despite being in a loss-making position, ABC must still pay RM120,000 in tax due to the disallowed deduction. |
| Scenario 2: Late Payment of WHT | To retain the tax deduction on the RM1,000,000 royalty fees, ABC must remit the WHT plus a 10% late payment penalty before filing its tax return. WHT: RM100,000 Penalty: RM10,000 Total Payment: RM110,000 ➡️ Paying late increases costs and cash outflow. |
| Scenario 3: Claiming a Tax Deduction before Remitting WHT | If ABC claims the RM1,000,000 deduction before remitting WHT (with the intention to pay later), it risks: The deduction being disallowed until WHT is actually paid. Filing an incorrect tax return, leading to understated tax liability. A penalty under Section 113(2) of the Income Tax Act (ITA). The penalty in this case: RM240,000 (RM1,000,000 × 24%). ➡️ Prematurely claiming the deduction can result in a hefty penalty—even higher than the tax itself. |
Summary of Consequences
| Scenario 1: (No WHT Paid) | Scenario 2: (WHT Paid Before Tax Submission) | Scenario 3: (Deduction Claimed WHT Paid Later) | |
| Net Loss Before Tax | (RM500,000) | (RM500,000) | (RM500,000) |
| Non-Deductible Royalty Fee | RM1,000,000 | – | – |
| Adjusted Income (Loss) | RM500,000 | (RM500,000) | (RM500,000) |
| Chargeable Income | RM500,000 | – | – |
| Tax Payable @ 24% | RM120,000 | – | – |
| Unabsorbed Business Loss Carry Forward | – | (RM500,000) | (RM500,000) |
| WHT Paid (RM1,000,000 x 10%) | – | RM100,000 | RM100,000 |
| 10% Late Payment Penalty | – | RM10,000 | RM10,000 |
| Penalty for Incorrect Tax Return (RM1,000,000 x 24%) | – | – | RM240,000 |
| Total Cash Outflow | RM120,000 | RM110,000 | RM350,000 |
Non-compliance with WHT regulations can have a serious impact on your business’s cash flow. Leading to unexpected tax liabilities, costly penalties, and unnecessary expenses. By ensuring timely WHT payments, you not only avoid these financial setbacks but also stay compliant and stress-free.
WHT Filing Process: Forms & Payment
Since WHT directly affects your business finances, it’s crucial to understand the correct forms to submit and the right payment timelines for different types of payments made to payees.
Being familiar with these requirements and the administrative process helps you stay aligned with tax regulations and avoid unnecessary complications with the Inland Revenue Board of Malaysia (IRBM).
Forms to Submit for WHT Payments to IRBM:
| Type of Income | WHT Forms to be Filled |
| Interest payment to non-resident | CP37 |
| Royalty payments to non-resident | CP37 |
| Payment of special classes of income to non-resident | CP37D |
| Payments of other income derived from Malaysia to non-resident | CP37F |
| Contract payments to non-resident | CP37A |
| Payment to resident individual ADDs | CP107D |
To reduce the administrative burden on payers, the IRBM allows deferment of WHT payments for recurring small-value transactions made to non-residents. This applies specifically to payments related to interest, royalties, and special classes of income.
For such transactions, the following forms must be submitted:
- Form CP37S – For interest and royalty payment
- Form CP37DS – For special classes of income
These forms can be easily completed via e-Filing on the MyTax portal, and WHT payments can be made online through FPX (ByrHASiL) or Electronic Telegraphic Transfer (e-TT).
Reduction or Exemption of Withholding Tax (WHT) Rates
Malaysia currently has effective Double Taxation Agreement (DTAs) with around 74 countries. These tax treaties allow preferential WHT rates or exemptions for payments made to non-residents depending on the treaty terms and the country of residence of the recipient.
To take advantage of these benefits, it is crucial for payers to:
- Understand the qualifying conditions under each applicable DTA; and
- Apply the correct preferential rate or exemption where eligible.
By doing so, businesses can reduce WHT costs and gain a competitive edge when engaging non-resident service providers, consultants or partners.
Conclusion: Why WHT Compliance Matters
Understanding and applying WHT rules correctly isn’t just about avoiding penalties–it’s a smart business move.
✔️ Maximize expense claims
✔️ Reduce your tax burden
✔️ Stay fully compliant with Malaysian tax laws
✔️ Leverage tax treaties to save more
💼 Let Boss Boleh Handle It for You
Managing WHT requirements can be tedious and time-consuming — especially when juggling business operations. With Boss Boleh Company Secretary, you’re supported by a team that knows the ins and outs of:
- WHT filing and payment processes
- Proper form submission and timelines
- DTA eligibility for preferential WHT rates
- Accurate and efficient online payment methods
📌 Save time, stay compliant and gain peace of mind knowing your WHT matters are handled professionally.
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