Guide to the Withholding Tax on Foreign Service Providers in Malaysia

Withholding Tax on Foreign Service Providers in Malaysia

The significant growth for e-commerce players in the Malaysian market is noticeable and has been accelerated by the COVID-19 pandemic lockdown. This change isn’t limited only to e-commerce players but also to the traditional businesses that embraced technology for their operations and marketing. 

What is Withholding Tax (WHT) in Malaysia?

Malaysia's withholding tax is an amount withheld by an income payer earned by a non-resident (payee). This amount has to be paid to LHDN. In simpler terms, if you are paying non-local (foreign) vendors, you need to withhold a certain % of the invoiced amount and pay to LHDN as a form of tax, and the remaining balance to be paid to your foreign vendor.

Does the WHT in Malaysia cover services rendered outside the country?

Prior to 2017, the WHT in Malaysia is only applicable for services rendered in Malaysia by non-local vendors. However, with effect from 17 January 2017, LHDN expands the scope to cover services rendered outside of Malaysia. This immediately affected many services provided by foreign providers such as Facebook, Google Ads, Stripe, GoDaddy, etc. and the fee paid to overseas service providers. For this publication, we will focus on two types of payments under the WHT in Malaysia: 

Royalty Income under paragraph 4(d) of the ITA;

Special classes of Income under paragraph 4A of the ITA  

Read more about the Withholding Tax on Foreign Service Providers in Malaysia at this WeCorporate blog.


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