Section 107D of the Income Tax Act of 1967 (ITA) was introduced on January 1, 2022, to compel companies making monetary payments to agents, dealers, or distributors originating from sales, transactions, or schemes to withhold tax at a rate of 2% on the gross amount.
This pertains to payments to agents, dealers or distributors who are individuals and tax residents of Malaysia who have received more than RM100,000 (in monetary and/or non-monetary form) from the stated company in the prior year.
The Inland Revenue Board (IRB) released a media release on 12 January 2022, indicating that for concerned taxpayers to make the required preparations and notify their agents, dealers, or distributors, the remittances of the WHT as mentioned above to the IRB can be deferred until 31 March 2022.
The IRB further noted that a FAQ document on the aforementioned subject would be issued in due course.
FAQs document in Bahasa Malaysia
Following the foregoing, the IRB has released on its website a FAQs document in Bahasa Malaysia, titled "Soalan Lazim Berkaitan Potongan Cukai 2% Terhadap Pembayaran Oleh Syarikat Pembayar Kepada Ejen, Pengedar Atau Pengagih Di Bawah Bajet 2022", dated 28 February 2022
Remittance of Withholding Tax on Payments to Agents, Dealers and Distributors
Under s 107D(1), within thirty days of the date on which the sum was paid or credited to the agents, dealers, or distributors, the amount of tax that was withheld is required to be remitted to the IRBM.
If a company does to comply with the remittance obligations outlined in section 107D of the ITA, the company may be subject to an increase in tax equal to 10% of the amount that was supposed to be remitted.
In addition, a tax deduction won't be allowed for the expenses if the Withholding Tax payment has yet to be remitted to the IRBM.
Notification of Amendment of Operation
The Malaysian Inland Revenue Board (HASiL) issued a notification on its official Facebook on July 9, 2022, stating that beginning in July 2022, the payment date of the 2% withholding tax that the paying company withholds from the agent, distributor, or dealer will be subject to the following amendments:
The company that is paying must deduct a withholding tax equal to 2% of the total amount of each transaction on a cumulative monthly basis; and
The 2% withholding tax amount is due to the Director of Revenue (DGIR) by the last day of the following month.
It is more practical and convenient to make payments and deductions than before. Although it arrives pretty late, it is still preferable to having nothing at all.