(Latest update) Withholding Tax on Payments to Agents

(Latest update) 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

Key salient points from IRB Response to Chartered Tax Institute of Malaysia Comments on 15/4/2022

1. LLPs are excluded from the definition of a payer company.

2. The definition of “Cash” includes transactions via payment vouchers, prepaid credit and e-wallets.

3. The WHT is applicable on the amount before any contra transactions are made. Hence, the earlier comment in the FAQ that credit notes are excluded from the WHT.

4. Section 107D is applicable to agents who receive the commissions based on the achievement of sales or services rendered for the payer company.

5. The WHT is not applicable to the payer company’s staff who are agents if the commission is subjected and the commission is reported in the Form EA.

6. Out-of-pocket expenses incurred by the agents have to be specifically identified in advance. If the expenses arise from sales, transactions or schemes carried out, then the WHT is applicable to the out-of-pocket expenses.

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. Withholding Tax on Payments to Agents dated on 17.03.2022

https://bit.ly/3L3JzOB

2. 2% withholding tax on commission dated on 30.12.2021

https://bit.ly/3hRrk20

3. 预算案 2022 dated 19.11.2021

https://bit.ly/3tKU7dM

4. Budget 2022 - SME edition dated on 18.11.2021

https://bit.ly/3IWhAiR

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