Withholding tax Malaysia is tax that a Malaysian business must deduct from certain payments to a non-resident, then pay to LHDN (the Inland Revenue Board). If your company pays a foreign supplier, you may be the one who has to handle this tax.
Many SME owners learn about it only after the foreign invoice is paid. This guide explains in simple words which payments are covered, the rates, the deadline, and what happens if you miss it.
Key Takeaways
- You, the payer, deduct the tax and pay it to LHDN. The foreign party receives the net amount.
- Common rates: 15% on interest, 10% on royalty, and 10% on special classes of income such as management advice and rent of moveable property.
- Pay LHDN within one month after you pay or credit the non-resident.
- If you do not pay, LHDN adds 10% of the tax not paid, and the expense may be disallowed.
- A tax treaty may give a lower rate, but you need written proof of residence from the foreign party.
What Is Withholding Tax and Who Must Deduct It
A non-resident does not file a Malaysian tax return like a local company. So LHDN collects the tax at the point of payment. You deduct the tax from the amount, send the tax to LHDN, and pay the balance to the foreign party.
The duty sits with the payer. According to the LHDN website, this includes the Government, a local authority, a resident person, or anyone who claims the payment as a business expense in Malaysia.
Which Payments and What Rates
The table below shows the main types of payment and the rates on the LHDN Withholding Tax page. The rate is a percentage of the gross amount.
| Payment to non-resident | Section | Rate | Form |
|---|---|---|---|
| Interest | 109 | 15% | CP37 |
| Royalty | 109 | 10% | CP37 |
| Special classes of income: services about use of property or rights, advice or management services, rent of moveable property | 109B (from 4A) | 10% | CP37D |
| Other income under section 4(f) | 109F | 10% | CP37F |
| Non-resident public entertainers | 109A | 15% | CP154 |
| Contract payments, service portion | 107A | 10% for the contractor, plus 3% for the contractor's employees | CP37A |
LHDN Public Ruling No. 10/2019 adds two useful points. First, reimbursements usually form part of the gross amount, except hotel accommodation. Second, services done fully outside Malaysia on or after 6 September 2017 are exempt from section 109B tax. Always check your case with LHDN.
Deadline and How to Pay
| Item | Rule |
|---|---|
| Deadline | Within one month after you pay or credit the non-resident |
| Weekend or public holiday | Next working day |
| Form for section 109B | CP37D |
| Payment channel | e-WHT on MyTax |
| No Malaysian bank account | e-TT, using a virtual account number |
Crediting is more than a book entry. The money must be available to the foreign party, which can include contra entries.
Worked example. Your company pays a foreign consultant RM20,000 for management advice on 10 November 2026. The rate is 10%, so the tax is RM2,000. You pay RM18,000 to the consultant and RM2,000 to LHDN by 10 December 2026. If you do not pay LHDN, the increase is 10% of RM2,000, which is RM200. The total owed is RM2,200.
If you agree to bear the tax for the foreign party, the tax is worked out on the gross amount. You also cannot claim that tax as an expense.
What Happens If You Do Not Pay
- LHDN adds 10% of the tax not paid, and the total becomes a debt to the Government.
- The payment can be disallowed as a business expense under section 39(1)(j) of the Income Tax Act 1967.
- If you later pay the tax and the increase, the expense may be allowed.
- A tax return that claims the expense without paying the tax can attract a penalty under section 113(2).
Lower Rates Under Tax Treaties
Malaysia has Double Taxation Agreements (DTA) with many countries. A DTA can give a lower rate than the ones above. To use it, the foreign party must give you written confirmation that it is a tax resident of the treaty country. Keep this letter with your CP37D records.
Withholding Tax Checklist
- List every foreign supplier before you pay.
- Check if the payment is royalty, interest, services or rent.
- Ask for written residence proof if you want a treaty rate.
- Deduct the tax and pay the net amount.
- Pay LHDN within one month and keep the form and bank slip.
Conclusion
Withholding tax is easy to miss but costly to ignore. Plan it before you pay any foreign party. See our guide on Double Taxation Agreements and our list of tax deductions for businesses.
Official Sources
Last updated: 11 November 2026. This article is general information, not tax or legal advice. Rules can change, so check with the agency before you act.
Frequently Asked Questions
The payer must deduct it. This is normally a business in Malaysia, a resident person, the Government, a local authority, or anyone who claims the payment as a business expense in Malaysia.
Pay within one month after you pay or credit the non-resident. If the last day falls on a weekend or public holiday, it moves to the next working day.
For special classes of income under section 109B, LHDN adds 10% of the tax not paid. The expense may also be disallowed in your tax computation.
It can. A Double Taxation Agreement may give a lower rate, but the foreign party must give you written confirmation that it is a tax resident of the treaty country.
Withholding Tax Malaysia: Paying Non-Residents, Rates and Deadline