Frequently Asked Questions (FAQ)
Withholding Tax (WHT) in Malaysia is a tax deducted at the source when making certain payments to non-resident individuals or entities. As a payer, you’re required to withhold a specific percentage of the payment and remit it to the Inland Revenue Board of Malaysia (LHDN). This mechanism ensures tax compliance on income earned within Malaysia by foreign entities.
The WHT rate depends on the nature of the payment and the recipient’s country of residence. For digital advertising services provided by companies like Facebook, TikTok, Google, and LinkedIn, which are billed from Ireland and Singapore, an 8% WHT applies under the Double Taxation Agreement (DTA) between Malaysia and these countries.
Each payment to a non-resident requires a separate WHT submission. Combining multiple invoices into a single tax entry is not advisable, as it may complicate the reconciliation process and compliance with LHDN requirements. It’s best to process WHT for each invoice individually to ensure accurate reporting.
The responsibility to withhold and remit WHT lies with the Malaysian resident (individual or entity) making the payment to the non-resident. Failure to withhold and remit the tax can result in penalties and interest charges.
When you make payments to non-resident companies for services utilized in Malaysia, such as advertising on platforms like Facebook, Malaysian tax laws require you to withhold a portion of the payment as tax. This ensures that income earned from Malaysian sources by foreign entities is appropriately taxed, even if they don’t have a physical presence in Malaysia.
Yes, in addition to WHT, Malaysia imposes a 8% Service Tax on imported digital services, including digital advertising. This means that when you purchase digital advertising services from foreign providers, you’re subject to both WHT and Service Tax.
WHT should be remitted to LHDN using the appropriate forms, such as Form CP37. It’s essential to submit the withheld tax within one month following the payment to the non-resident to avoid penalties. Detailed guidelines on the remittance process can be found on LHDN’s official website.
Failing to withhold or remit WHT can lead to penalties, including fines and interest charges. Additionally, the payer may be held personally liable for the amount of tax that should have been withheld. It’s crucial to comply with WHT obligations to avoid such consequences.
Note: Tax regulations are subject to change. It’s advisable to consult with a tax professional or refer to the latest guidelines from the Inland Revenue Board of Malaysia (LHDN) for the most current information.
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