Withholding Tax in Malaysia

What is withholding tax in Malaysia (WHT)?

Withholding tax (WHT) in Malaysia is a tax mechanism where the payer deducts a specified percentage from certain payments—such as royalties, technical service fees, or interest—made to non-residents or, in some cases, residents, and remits it directly to the Inland Revenue Board of Malaysia (IRBM).

Quinn Lu

Senior Associate, International Business Advisory

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This “pay-as-you-earn” system ensures tax is collected at the source, particularly from foreign entities earning income in Malaysia who may not file local tax returns.

For instance, if a Malaysian company pays RM 10,000 in royalties to a foreign firm, it must withhold 10 percent (RM 1,000) as tax and remit it to IRBM, disbursing the remaining RM 9,000 to the recipient—thereby securing efficient tax collection and compliance.

The withholding tax system involves three key parties:

Payer: Any resident person or entity conducting business in Malaysia, or the Government of Malaysia, responsible for deducting and remitting the tax
Payee: The recipient of income, typically a non-resident individual or entity, though certain domestic payments also attract WHT
IRBM (Inland Revenue Board of Malaysia): The tax authority that receives and administers withholding tax payments, also known as LHDN (Lembaga Hasil Dalam Negeri)

Legal basis

Malaysia's withholding tax framework is established under the Income Tax Act 1967 (ITA), with key provisions including:

Section 107A: Contract payments to non-resident contractors.
Section 109: Interest and royalty payments to non-residents.
Section 109A: Income of non-resident public entertainers.
Section 109B: Special classes of income, including technical fees, services, and rental of movable property.
Section 109C: Interest paid by approved financial institutions.
Section 109D: Real Estate Investment Trust (REIT) distributions.
Section 109E: Family funds and Takaful funds.
Section 109F: Income under Section 4(f) of the ITA.
Section 107D: Payments to resident agents, dealers, and distributors (introduced in 2022).

Why Withholding Tax matters?

Withholding tax serves multiple purposes in Malaysia's tax ecosystem:

It ensures the government collects taxes on income derived from Malaysian sources, even when recipients are based abroad.
By placing the burden on the payer, it simplifies enforcement and reduces non-compliance.
It eliminates the need to pursue non-residents for tax obligations.
It creates an audit trail for cross-border transactions.

For business investors, understanding Malaysia’s withholding tax framework is more than just a compliance issue—it’s a strategic advantage.

Knowing which payments trigger withholding tax (e.g., royalties, interest, or service fees) helps investors structure transactions efficiently, reducing unexpected tax leakages and optimizing after-tax returns.
For foreign investors, withholding tax directly impacts how much profit can be repatriated from Malaysia. Awareness of applicable tax treaties can minimize double taxation and enhance overall investment yield.
Proper withholding tax compliance protects businesses from penalties and preserves their credibility with regulatory authorities, an essential factor for long-term investment stability and partnership opportunities.
Malaysia’s consistent enforcement of withholding tax demonstrates a mature and transparent tax administration, giving investors confidence in the predictability of the business environment.

Also Read Dividends, Royalties, or Fees: Profit Repatriation in Malaysia

When does withholding tax apply?

Withholding tax in Malaysia predominantly applies to payments made to non-residents for income derived from Malaysian sources.

Payment type	Condition	Applicable parties	Rate ( %)	Remarks
Cross-Border Payments (General Rule)	Payment made to a non-resident for income derived from Malaysia	Non-resident recipients	Typically 10–15 %, subject to DTA relief	Applies to royalties, interest, services, rentals, etc. DTA provisions may lower or exempt rates.
Royalty Income	Payments for use of intellectual property or know-how	Non-resident licensors	10 % (or DTA rate)	Includes use of patents, trademarks, designs, copyrights, or industrial know-how. Example: software licence fees.
Interest Payments	Interest paid to non-residents on loans, deposits, or debt instruments	Non-resident lenders	15 % (may reduce under DTA)	DTA may reduce to 10 % or exempt (e.g., Malaysia–Singapore DTA).
Contract Payments to Non-Residents	Services performed in Malaysia by non-resident contractors	Non-resident contractors	13 % total (10 % contractor + 3 % employee)	Applies to construction, installation, technical, or consultancy services rendered locally.
Technical / Management / Administrative Services	Services rendered in Malaysia (technical, management, or IT-related)	Non-resident service providers	10 %	Since Dec 2018, covers all services performed in Malaysia, not only technical or management ones.
Rental of Movable Property	Payments for use or rental of movable assets owned by a non-resident	Non-resident lessors	10 %	Includes leasing ships, aircraft, machinery, or oil rigs. Treated similarly to service income.
Miscellaneous Income (Section 4(f))	Payments not covered under Sections 4(a)–(e), e.g. guarantee or assistance fees	Non-resident recipients	10 % (final tax)	Final tax — the non-resident payee need not file a return in Malaysia.
Domestic Withholding – Agents, Dealers, and Distributors	Payments to resident individuals (agents, dealers, distributors) earning > RM100,000 in the prior year	Resident individuals	2 %	Effective Jan 2022. Enhances local tax compliance on commission-type income.
Domestic Withholding – Certain Interest Payments	Specific interest paid to resident recipients by approved financial institutions	Resident recipients	5 %	Limited to certain regulated financial payments; not typical cross-border WHT.
DTA / Exemption Application	Where a Double Taxation Agreement or statutory exemption applies	Non-residents	May be reduced or 0 %	Investors can use DTAs to prevent double taxation and improve post-tax returns.

What is the withholding tax rate in Malaysia?

Malaysia's withholding tax rates vary depending on the payment type and recipient status. The table below provides a comprehensive reference:

Payment Type	WHT Rate	Payment Form
Contract payments (services in Malaysia)	10 % + 3 %	CP37A
Interest to non-residents	15 %	CP37
Royalties to non-residents	10 %	CP37
Special classes of income (technical fees, services, rental of movable property)	10 %	CP37D
Interest by approved financial institutions	5 %	CP37C
Non-resident public entertainers	15 %	Payment memo
REIT distributions	10 % / 25 %	CP37E
Family Fund/Takaful distributions	8 % / 25 %	CP37E(T)
Income under Section 4(f)	10 %	CP37F
Payments to resident agents/dealers/distributors	2 %	CP107D

Double Taxation Agreement (DTA) effect and reduced rates

Malaysia has signed over 70 Double Taxation Agreements (DTAs) with countries worldwide. These treaties often provide reduced withholding tax rates compared to domestic rates. To claim DTA benefits, the foreign recipient must:

Be a tax resident of a treaty country.
Obtain a Tax Residency Certificate (TRC) from their home country's tax authority.
Submit the TRC and DTA application to IRBM before the payment is made.

No.	Country	Dividends	Interest ( %)	Royalties ( %)	Technical Fees ( %)	Key Notes / Remarks
Domestic Rate (Malaysia)	—	NIL	15	10	10	Baseline rates under the Income Tax Act (ITA) 1967. DTAs may offer reduced rates.
1	Albania	NIL	10	10	10	—
2	Australia	NIL	15	10	NIL	Technical fees exempt.
3	Austria	NIL	15	10	10	—
4	Bahrain	NIL	5	8	10	—
5	Bangladesh	NIL	15	10	10	—
6	Belgium	NIL	15 / 10⁽ᶦᵛ⁾	10	10	10 % interest rate applies only for industrial undertakings.
7	Bosnia and Herzegovina	NIL	10	8	10	—
8	Brunei	NIL	10	10	10	—
9	Cambodia	NIL	10	10	10	—
10	Canada	NIL	15	10	10	—
11	Chile	NIL	15	10	5	Reduced technical fee rate.
12	China	NIL	10	10	10	—
13	Croatia	NIL	10	10	10	—
14	Czech Republic	NIL	12	10	10	—
15	Denmark	NIL	15	10	10	—
16	Egypt	NIL	15	10	10	—
17	Fiji	NIL	15	10	10	—
18	Finland	NIL	15	10	10	—
19	France	NIL	15	10	10	—
20	Germany	NIL	10	7	7	Lower rates under DTA.
21	Hong Kong	NIL	10	8	5	Highly competitive rates.
22	Hungary	NIL	15	10	10	—
23	India	NIL	10	10	10	—
24	Indonesia	NIL	10	10	10	—
25	Iran	NIL	15	10	10	—
26	Ireland	NIL	10	8	10	—
27	Italy	NIL	15	10	10	—
28	Japan	NIL	10	10	10	—
29	Jordan	NIL	15	10	10	—
30	Kazakhstan	NIL	10	10	10	—
31	Korea Republic	NIL	15	10	10	—
32	Kuwait	NIL	10	10	10	—
33	Kyrgyz Republic	NIL	10	10	10	—
34	Laos	NIL	10	10	10	—
35	Lebanon	NIL	10	8	10	—
36	Luxembourg	NIL	10	8	8	—
37	Malta	NIL	15	10	10	—
38	Mauritius	NIL	15	10	10	—
39	Mongolia	NIL	10	10	10	—
40	Morocco	NIL	10	10	10	—
41	Myanmar	NIL	10	10	10	—
42	Namibia	NIL	10	5	5	Lower royalties and fees.
43	Netherlands	NIL	10	8	8	—
44	New Zealand	NIL	15	10	10	—
45	Norway	NIL	15	10	10	—
46	Pakistan	NIL	15	10	10	—
47	Papua New Guinea	NIL	15	10	10	—
48	Philippines	NIL	15	10	10	—
49	Poland	NIL	10	8	8	—
50	Qatar	NIL	5	8	8	—
51	Romania	NIL	15	10	10	—
52	Russia	NIL	15	10	10	—
53	San Marino	NIL	10	10	10	—
54	Saudi Arabia	NIL	5	8	8	—
55	Seychelles	NIL	10	10	10	—
56	Singapore	NIL	10	8	5	Commonly used DTA for regional investors.
57	Slovak Republic	NIL	10	10	5	—
58	South Africa	NIL	10	5	5	Favorable for cross-border projects.
59	Spain	NIL	10	7	5	—
60	Sri Lanka	NIL	10	10	10	—
61	Sudan	NIL	10	10	10	—
62	Sweden	NIL	10	8	8	—
63	Switzerland	NIL	10	10	10	—
64	Syria	NIL	10	10	10	—
65	Thailand	NIL	15	10	10	—
66	Türkiye	NIL	15	10	10	—
67	Turkmenistan	NIL	10	10	NIL	Technical fees exempt.
68	Ukraine	NIL	10	8	8	—
69	United Arab Emirates	NIL	5	10	10	—
70	United Kingdom	NIL	10	8	8	—
71	Uzbekistan	NIL	10	10	10	—
72	Venezuela	NIL	15	10	10	—
73	Vietnam	NIL	10	10	10	—
74	Zimbabwe	NIL	10	10	10	—
Additional DTAs (Non-Comprehensive)	—	—	—	—	—	—
75	Argentina	NIL	15	10	10	—
76	United States of America	NIL	15	10	10	All rates as per ITA (not fully comprehensive DTA).
77	Chinese Taipei	NIL	10	10	7.5	Agreement for avoidance of double taxation on income.
Note: · The applicable rate is the lower of the DTA rate or Malaysia’s domestic rate (ITA 1967). · Dividends paid by Malaysian resident companies are exempt* from withholding tax.* · For Belgium, the 10 % interest rate* applies only when the Malaysian payer is an enterprise engaged in an industrial activity.*

Penalties for late or non-payment

10 percent penalty rule (Section 113(2))

Failure to remit withholding tax within the stipulated one-month period triggers an automatic 10 percent penalty on the unpaid tax amount.

Example: If a company fails to remit RM10,000 in withholding tax on time, IRBM will impose a penalty of RM 1,000 (10 % of RM10,000), bringing the total liability to RM11,000.

Under Section 113(2) of the Income Tax Act 1967, penalties can be even more severe if the IRBM determines the non-payment was intentional or involved under-reporting. In such cases, penalties can reach 100 percent to 200 percent of the tax undercharged.

Possible audit or disallowance of expenses

Non-compliance with withholding tax obligations carries serious consequences beyond monetary penalties:

The underlying expense paid to the non-resident will be disallowed as a tax deduction in the payer's tax computation, effectively increasing the payer's taxable income.
If the payment relates to qualifying capital expenditure, no capital allowances will be granted.
IRBM can recover unpaid withholding tax and penalties from the payer as a debt due to the Malaysian Government.
Non-compliance increases the likelihood of a comprehensive tax audit, which may uncover other irregularities.

FAQs: Withholding Tax in Malaysia

What is the WHT rate for foreign consultants in Malaysia?

Foreign consultants providing services in Malaysia are subject to 10 percent withholding tax under Section 109B. If the services are provided outside Malaysia, withholding tax generally does not apply (with exceptions during specific periods). DTA provisions may reduce the rate to 5-8 percent for consultants from treaty countries.

How do I know if my payment is subject to WHT?

A payment is subject to withholding tax if:

The recipient is a non-resident (individual or entity).
The income is derived from Malaysia (services performed in Malaysia, or Malaysian source).
The payment type falls under Sections 107A, 109, 109A, 109B, 109C, 109D, 109E, or 109F.
No specific exemption applies.

For payments to resident agents/dealers/distributors, Section 107D applies if total payments in the preceding year exceeded RM 100,000.

Can withholding tax be refunded?

Yes. Withholding tax can be refunded if:

Overpayment occurred (e.g., standard rate applied instead of reduced DTA rate).
Non-resident payee applies for refund (not the payer).
Required documentation submitted:
- Tax Residency Certificate from home country.
- Evidence of meeting DTA conditions.
- Proof of WHT payment.

Refund processing typically takes 30 working days for e-Filing submissions or 90 working days for manual submissions.

What happens if I don't pay withholding tax?

Non-payment or late payment results in:

10 percent automatic penalty on unpaid tax.
Expense disallowance in the payer's tax computation.
Denial of capital allowances related to the payment.
Recovery action by IRBM as government debt.
Potential tax audit and additional penalties (up to 200 % for intentional evasion).

What is 1 percent and 2 percent withholding tax?

The 2 percent withholding tax refers to Section 107D, introduced in 2022, which applies to payments by companies to resident individual agents, dealers, or distributors who received more than RM 100,000 in the preceding year. This is distinct from the 10-15 percent rates for non-resident payments.

There is no 1 percent withholding tax rate in Malaysia's current system. The lowest standard rate is 2 percent (for agents/dealers) or 5 percent (for certain interest payments under Section 109C).

How to avoid 30 percent withholding tax?

The 30 percent rate is not a Malaysian withholding tax rate but refers to:

Non-residents working in Malaysia for less than 182 days are taxed at a flat 30 percent on employment income (not withholding tax).
Non-US persons earning US-source income (e.g., Amazon royalties) face 30 percent US withholding tax, which can be reduced by obtaining a US Employer Identification Number (EIN).

To avoid or reduce Malaysian withholding tax:

Claim DTA benefits and submit Tax Residency Certificate and DTA application before payment.
Structure payments carefully to ensure services are performed outside Malaysia (if permissible).
Use Labuan entities for eligible transactions under the Labuan framework.

How to avoid 15 percent withholding tax?

The 15 percent withholding tax applies to:

Interest payments to non-residents (Section 109).
Non-resident public entertainer income (Section 109A).

To reduce or avoid:

Apply DTA reduced rates: Many DTAs reduce interest withholding to 0-10 percent.
Use tax-exempt instruments: Certain government-approved bonds or securities may be exempt.
Restructure financing: Use equity instead of debt, or route through DTA-advantaged jurisdictions (subject to anti-avoidance rules).

Important: Any tax planning must comply with Malaysia's General Anti-Avoidance Rule (GAAR) and substance requirements.