Withholding tax is a type of income tax payable by a non-resident on certain categories of income derived from Malaysia. The law requires the person making payment to the non-resident to withhold tax at source and remit it to Malaysian Inland Revenue.
Typically you will need to deduct non-resident withholding tax ( NRWT ) if you are paying interest, or royalties to people who aren’t Malaysia tax residents.
Section 4A of the Malaysian Income Tax Act 1967 outlines two categories of income that are regarded as taxable special income if derived from Malaysia. They are amounts paid for:
- i) services rendered by a non resident or his employee in connection with the use of property or rights belonging to, or the installation or operation of any plant, machinery or other apparatus purchased from such person; and
- ii) technical advice, assistance or service rendered in connection with technical management or administration of any scientific, industrial or commercial undertaking, venture, project or scheme.
( hereinafter “ the Special Services” )
Effective from 6 September 2017 the Income Tax ( Exemption ) ( No 9) Order 2017 ( “ the Exemption Order”) exempts NRWT on any income earned on Special Services if such services are rendered and performed overseas by the non resident.
The Exemption Order reverses the law that came into force nine months ago in January that treats all Special Services taxable as NRWT.
However, the Exemption Order only exempts NRWT for the Special Services that are performed outside the country. Other categories of income such as royalties and commissions paid to non-resident remain subject to NRWT no matter where the services are rendered or performed.