FAQs - WHT on payments made to agents, dealers and distributors

Frequently Asked Questions (FAQs) pertaining to withholding tax (WHT) on payments made to agents, dealers and distributors

Effective from 1 January 2022, Section 107D was introduced into the Income Tax Act 1967 (ITA) to provide that companies making payments in monetary form to agents, dealers or distributors arising from sales, transactions or schemes carried out, will be required to withhold tax at a rate of 2% on the gross amount. This applies on payments to agents, dealers or distributors who are individuals and tax-residents of Malaysia, and who have received more than RM100,000 (in monetary and/or non-monetary form) from the said company in the immediate-preceding year of assessment (YA).

As highlighted in an earlier alert, on 12 January 2022, the Inland Revenue Board (IRB) issued a media release stating that to ensure that impacted taxpayers are able to make the necessary preparations and notify their agents, dealers or distributors accordingly, the remittances of the above-mentioned WHT to the IRB can be deferred until 31 March 2022 (see Tax Alert No. 2/2022). Taxpayers will be allowed to remit the WHT in relation to payments for the months of January until March 2022 from 1 April 2022, without being subject to any tax increase. The IRB had also stated that an FAQs document in relation to the above-mentioned matter would be issued in due course.

Following the above, the IRB has since published on its website an 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. Some of the key points are outlined below.

• Item A.6

The FAQs clarify that payments by way of credit notes, contra and discounts are not subject to the 2% WHT.

• Item B.2

The FAQs clarify that “agents, dealers or distributors” include sole proprietors.

• Item B.3

The FAQs clarify that payments made to an individual partner of a partnership would be subject to the 2% WHT. Payments made to partnerships are excluded. 

• Items C.4 and C.5

As highlighted earlier, the 2% WHT applies to agents, dealers or distributors who are individual residents and who have received more than RM100,000 (in monetary and/or non-monetary form) from the company making the payments, in the immediate-preceding YA.

The FAQs affirm that the RM100,000 threshold is to be determined every YA (i.e., the determination is not a once-off exercise to be made upon introduction of Section 107D). In addition, the FAQs also clarify that for the purpose of determining the threshold, it is irrelevant whether the individual is a resident or non-resident in the immediate-preceding YA.

• Item D.3

The FAQs state that remittance of the 2% WHT is to be made together with the Form CP107D which is available on the IRB’s website. 

• Item D.7

The FAQs clarify that the 2% WHT will need to be reported in the Form CP58 (i.e., Statement of Monetary and Non-Monetary Incentive Payment to an Agent, Dealer or Distributor pursuant to Section 83A of the ITA).

• Item D.9

The FAQs clarify that the 2% WHT will apply even in cases where the agent, dealer or distributor is subject to CP500 tax instalment payments.

• Item E.3

As highlighted earlier, taxpayers will be allowed to remit the WHT in relation to payments for the months of January until March 2022 from 1 April 2022, without being subject to any tax increase.

The FAQs clarify that for payments made to agents, dealers or distributors:

-        Between 1 January 2022 and 2 March 2022, the 2% WHT will need to be remitted to the IRB by 1 April 2022

-        On or after 3 March 2022, the 2% WHT will need to be remitted to the IRB within 30 days from the date of payment to the agent, dealer or distributor