The amount withheld from income received by a non-resident (payee) and paid to the Malaysian Inland Revenue Board is known as withholding tax or LHDN withholding tax. This amount has to be paid to LHDN. Simply put, if you pay non-local suppliers, you must withhold a set percentage of the invoiced amount and pay LHDN withholding tax, leaving the remainder to be remitted to your foreign vendor.

Withholding tax in Malaysia is not new; it goes back to the Income Tax Act of 1969. It includes payments such as:

• Royalties
• Interests
• Income of non-resident people
• Payments for the use of any item carried, such as rent or other fees
• Contract payments

Each payment will have a separate withholding tax rate, and if Malaysia and the country in which the non-resident is a tax resident have a double tax agreement, the non-resident can benefit from a lower tax rate.

The non-compliance includes the following:

• The payer fails to pay the required amount of withholding tax (regardless of whether it is withheld or not).
• The payer pays tax at the source with a delay (more than one month after the date of payment/crediting to the HP recipient).
• The payer does not pay the tax surcharge imposed on him as a result of late payment or non-payment of withholding tax.

With the exception of non-resident public performers, all withholding tax payments must be made using the appropriate payment forms along with copies of invoices issued by the NR payee and copies of payment documents as proof of the date of payment/credit to the NR payee.

The relevant payment forms, the invoices issued by the non-resident payee, and a copy of the payment documents as proof.