Withholding Tax on Payments to Agents

Withholding Tax on Payments to Agents

With effect from Jan. 1, 2022, a 2% withholding tax (WHT) will be imposed on monetary payments made by companies to their authorized agents, dealers or distributors, arising from sales, transactions or schemes carried out by the Agents.

A new Section 107D of the Income Tax Act 1967 (ITA) was introduced under the Finance Bill 2021 following the Budget 2022 announcement on 29 October 2021.

The WHT is applicable on in-scope payments made to resident agents, dealers or distributors who are individual residents and who have received more than RM100,000 of such payments in monetary form and/or non-monetary form from the same company in the immediately preceding year of assessment (YA)

The tax withheld is to be remitted to the lRBM within 30 days from date of payment or crediting the payment to the agent, dealer or distributor.

Companies which fail to comply with this requirement will be subject to an increase in tax equivalent to 10% of the outstanding WHT and the underlying gross expenses which are subject to the WHT would be denied a tax deduction

Deferment of remittance of withholding tax

To ensure that all companies which are liable to make payment are able to make appropriate preparations and notifications to their agents, dealers and distributors, that payer companies are allowed to defer the "remittance" of the WHT until 31 March 2022 where payer companies are allowed to remit the WHT related to payments for the months of January until March 2022 from 1 April 2022 without being subject to any increase in tax.

Key salient points from the IRBM FAQ:-

• The WHT is not applicable on payment by way of credit note, contra-transaction and discount given to an agent, dealer or distributor.

• The payer company is required to apply the WHT even though the agent, dealer or distributor is subject to CP500 tax instalment payment.

• The category of individual includes sole proprietor and individual partner in a partnership. However, it excludes payment made to a partnership or a Limited Liability Partnership.

• The threshold amount of RM100,000 in the preceding year is to be determined each year. In determining the applicability of section 107D, the residency status of the agents, dealer or distributor in the immediate preceding year is irrelevant

• The preceding year RM100,000 threshold value is to be tested each year (not on a one-off basis) in order to determine whether withholding tax will apply for payment made in the current year.

• The agent, dealer or distributor must have an income tax reference number.

• The 2% WHT amount is to be reported in Form CP58.

• The 2% WHT will be considered as part of the payment for the balance of tax to be paid, upon submission of the income tax return form for the relevant YA by the agent, dealer or distributor.

• The WHT shall be remitted to the IRBM within 30 days after paying or crediting such payments to the agent, dealer or distributor. Remittance is to be made together with Form CP107D.

• If there is a failure to make the WHT payment to the IRBM within the stipulated time, a penalty of 10% would be imposed on the unpaid withholding tax. In addition, the tax deduction for the gross amount of the payment made to agent, dealer or distributor will be disallowed.

• Where a company is making payments to several agents, the company may complete the details of payment for each agents in the appendix [Lampiran CP107D(1)], which is to be attached together with the WHT remittance form [CP107D]. Each appendix could cater up to 20 recipients.

• The amended Form CP58 will include section to report the WHT deducted.

• The WHT remittance form and appendix as well as the updated Form CP58 have yet been released by the IRBM.

• The WHT can be made at the IRBM Service/Payment Counters.

Source

IRBM has issued a Frequently Asked Questions (FAQ) dated 28 February 2022 (only available in Bahasa Malaysia) on the application of the above Section 107D.

https://phl.hasil.gov.my/pdf/pdfam/Soalan_Lazim_Seksyen_107D_ACP_1967.pdf

Reference :

Read our past posting on withholding tax on payment to agents in our blog

1. 2% withholding tax on commission dated on 30.12.2021

https://bit.ly/3hRrk20

2. 预算案 2022 dated 19.11.2021

https://bit.ly/3tKU7dM

3. Budget 2022 - SME edition dated on 18.11.2021

https://bit.ly/3IWhAiR

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