Withholding Tax in Malaysia: Meaning, Rates, Examples & How It Works

When a Malaysian business engages with international expertise—whether by paying a software developer in India, licensing a brand from the UK, or paying interest on a loan from a Singaporean bank—it triggers a specific tax obligation known as Withholding Tax (WHT).

Withholding Tax is not a tax on your business, but a tax on the non-resident recipient. However, the law places the responsibility of collection and remittance squarely on the Malaysian payer. In the fully digital tax landscape of 2026, where LHDN has real-time visibility into cross-border transactions through e-invoicing, managing WHT correctly is essential to avoid heavy penalties and disallowed business expenses.

This guide provides a clear breakdown of the types of payments subject to WHT, the current rates for 2026, and a step-by-step process for compliance.

Key Takeaways

• What It Is: An amount “withheld” from payments made to non-residents and remitted to the Inland Revenue Board (LHDN).
• The Responsibility: The Malaysian business (the payer) is legally responsible for withholding and paying the tax.
• The Deadline: You must remit the tax to LHDN within one month of paying or crediting the non-resident.
• 2026 E-Invoicing Impact: Cross-border payments must now be backed by validated Self-Billed e-invoices, making WHT discrepancies instantly visible to LHDN.
• DTA Relief: Double Taxation Agreements can often reduce the standard WHT rates.
• Non-Compliance Penalty: Failure to withhold results in a 10% penalty on the unpaid tax, and the entire payment becomes non-deductible for your own tax purposes.

Common Types of Payments and WHT Rates (2026)

Under the Income Tax Act 1967, specific categories of income derived from Malaysia by a non-resident are subject to WHT.

Payment Category	Section (ITA 1967)	Standard Rate	Description
Interest	Section 109	15%	Interest on loans or indebtedness.
Royalties	Section 109	10%	Use of patents, copyrights, software, or brand names.
Technical Fees	Section 109B	10%	Services of a technical or professional nature.
Rental of Moveable Property	Section 109B	10%	Rental of machinery, equipment, or vehicles.
Public Entertainers	Section 109A	15%	Payments to artists, musicians, or athletes.
Contract Payments	Section 107A	10% + 3%	10% for the foreign company, 3% for its employees.
Other Income	Section 109F	10%	Gains or profits not falling under the above categories.

The 2026 Standard: Self-Billed e-Invoices for WHT

In 2026, the transition to e-invoicing is complete. Since non-residents cannot issue Malaysian e-invoices, the Malaysian payer must issue a Self-Billed e-Invoice.

1. Trigger: Upon receiving a foreign invoice, log into the MyInvois portal.
2. Creation: Issue a Self-Billed e-invoice using the foreign supplier’s details and your own TIN.
3. Validation: LHDN provides a UUID for this invoice instantly.
4. Correlation: This UUID is the digital anchor that LHDN uses to ensure the corresponding WHT payment is made within one month.

How to Remit WHT: LHDN Forms

You must use the correct form based on the type of payment. These are now filed electronically via MyTax:

• Form CP37: For Interest and Royalties.
• Form CP37D: For Technical Fees, Rental of Moveable Property, and Section 4A income.
• Form CP37A: For Contract Payments (Section 107A).
• Form CP39A: For Public Entertainers.

The Danger of Non-Compliance

LHDN’s AI Risk Profiling now flags missing WHT payments by comparing your “Purchases” (Self-Billed invoices) in the MyInvois portal against your remittance history.

1. Late Payment Penalty: A 10% penalty is automatically added to the unpaid tax amount if not settled within the deadline.
2. Disallowed Deduction: This is the most significant risk. Under Section 39(1)(f), if the WHT is not paid, the entire expense is disallowed for your corporate tax filing.

• Example: Missing a RM1,000 WHT payment on a RM10,000 service could result in you paying an extra RM2,400 (24% corporate tax rate) in taxes because the RM10,000 expense was disallowed.

3. Stoppage at Exit: Directors of companies with significant unpaid WHT may be barred from leaving Malaysia under Section 104.

Using DTAs to Reduce Your Tax Burden

Malaysia has Double Taxation Agreements (DTAs) with over 70 countries. These treaties often reduce WHT rates significantly.

• Common DTA Rates: Technical fees or Royalties may be reduced from 10% to 5% or 8%.
• Mandatory Document: To apply a DTA rate, you must obtain a Certificate of Residence (COR) from the foreign supplier to prove their tax residency.

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Frequently Asked Questions (FAQs)

1. Does WHT apply to physical goods?

No. WHT does not apply to the “straight” purchase of inventory or raw materials. It applies to services, rights (royalties), and interest.

2. What if I pay the non-resident via credit card?

WHT still applies. Even if the payment is automated via a card, the Malaysian business is responsible for calculating, withholding, and remitting the tax to LHDN within one month.

3. Can I remit WHT in foreign currency?

No. WHT must be remitted to LHDN in Malaysian Ringgit (MYR) using the exchange rate provided by LHDN for the date the payment was made.

4. Is software-as-a-service (SaaS) a Royalty or a Service?

In 2026, most cloud-subscriptions are treated as Royalties (10%) if they involve the use of copyright, or Technical Services (10%) if they involve customization. Always check the specific DTA definitions for the supplier’s country.