Withholding Tax (WHT) is an important tax mechanism in Malaysia, where businesses must deduct tax when making payments to non-resident individuals or foreign entities for certain services, royalties, and interest. However, Malaysia provides several exemptions and reductions under its Withholding Tax regime, mainly through Double Taxation Agreements (DTAs), statutory exemptions, and special incentives.
At Amaze Advisory, we help businesses identify applicable exemptions and ensure compliance with Malaysia’s tax regulations.
1. Withholding Tax Exemptions under Double Taxation Agreements (DTAs)
Common DTA Withholding Tax Reductions
| Type of Payment | Standard WHT Rate | Reduced Rate under DTA |
|---|---|---|
| Royalties | 10% | 5% – 8% (depends on treaty) |
| Technical Fees | 10% | 5% – 8% (depends on treaty) |
| Interest | 15% | 0% – 10% (depends on treaty) |
| Dividens | 0% | No WHT in Malaysia |
Key Steps to Claim DTA Exemptions:
- The foreign recipient must be a tax resident of a treaty country.
- Tax Residency Certificate (TRC) from the foreign tax authority must be submitted.
- Application for DTA relief must be made to the Malaysian Inland Revenue Board (LHDN) before the payment is made.
2. Exemptions on Specific Payments
(i) Exemption on Interest Payments
- Foreign investors lending to Malaysian companies may qualify for WHT exemptions on interest payments under specific conditions.
- Interest paid to foreign financial institutions may also be exempted based on specific regulations.
(ii) Exemption on Software Payments
- Software payments to foreign companies are exempt from WHT if they are classified as a business transaction rather than a royalty payment.
- The exemption applies when software is purchased for resale or commercial distribution (not for licensing use).
(iii) Exemption on Certain Offshore Services
- WHT is not applicable if services provided by a foreign entity are performed entirely outside Malaysia.
- This applies to technical services, management consulting, and professional fees where no work is physically carried out in Malaysia.
Example:
- If a foreign consultant performs work remotely from Singapore, no WHT is applicable.
- If the consultant visits Malaysia to perform the service, WHT must be deducted.
Need assistance on WHT exemptions? Amaze Advisory ensures correct tax classification to optimize exemptions!
3. Withholding Tax Exemptions for Specific Sectors & Incentives
The Malaysian government offers special exemptions for certain industries and investments, particularly under the Income Tax Act 1967 and special incentive schemes.
(i) Exemptions for MSC Malaysia Status Companies
- Companies with MSC Malaysia Status (Multimedia Super Corridor) may be exempt from WHT on foreign technical services.
- This benefits businesses in the technology, software, and IT sectors.
(ii) Exemptions for Foreign Investors in Sukuk & Bonds
- WHT is fully exempt on interest payments made to foreign investors investing in Malaysian sukuk and Islamic bonds.
(iii) Exemptions for Infrastructure & Development Projects
- Certain foreign service providers engaged in government-approved projects may qualify for WHT exemptions or reductions.
- Applies to construction, oil & gas, and energy sectors.
Need assistance in structuring WHT-exempt transactions? Amaze Advisory ensures compliance while maximizing tax savings!
How to Apply for Withholding Tax Exemptions?
Step 1: Determine Eligibility
- Identify if the payment qualifies under DTA, statutory exemptions, or special incentives.
Step 2: Submit Required Documentation
- Certificate of Residence (COR) for DTA exemptions.
- Declaration of services performed outside Malaysia for offshore service exemptions.
- Approval letters from relevant authorities for industry-specific incentives.
Step 3: Apply for Exemption or Reduced Rate
- File an application with LHDN (Malaysian Inland Revenue Board) before making payment to a foreign entity.
- Obtain official confirmation from LHDN for approval of exemptions.
Conclusion: Maximizing Withholding Tax Exemptions for Your Business
Withholding Tax (WHT) can significantly impact business costs, but Malaysia offers several exemptions and DTA relief mechanisms to reduce or eliminate tax liabilities.
At Amaze Advisory, we help businesses:
- Identify applicable WHT exemptions.
- Prepare DTA applications and exemption requests.
- Ensure full compliance with Malaysian tax laws.
Get Started with Amaze Advisory Today!
Phone: +6013-284 7678 / +6013-323 7678
Website: www.amazeadvisory.com
