When must I withhold tax on payments to non-residents in Malaysia, and at what rates?
Withhold when you pay certain income to a non-resident: 10% plus 3% on contract payments (s.107A), 15% on interest and 10% on royalties (s.109), and 10% on technical fees, service fees and rental of movable property (s.109B). A tax treaty can reduce the rate.
Malaysian payers must deduct tax from listed payments and remit it to LHDN.
Rates on LHDN's withholding tax page:
| Payment | Section | Rate |
|---|---|---|
| Contract payments to non-residents | s.107A | 10% plus 3% (CP37A) |
| Interest | s.109 | 15% |
| Royalties | s.109 | 10% |
| Special classes of income (technical fees, services, rental of movable property) | s.109B | 10% |
| Non-resident public entertainers | s.109A | 15% |
LHDN also lists payments to resident agents, dealers and distributors (s.107D) among its categories.
Treaties: where Malaysia has a double taxation agreement with the payee's country, the treaty rate may be lower; the lower of treaty and domestic rate applies.
Dividends: dividends paid by Malaysian resident companies are not subject to withholding tax.
Services performed outside Malaysia: the Income Tax (Exemption) (No. 9) Order 2017 [P.U.(A) 323/2017], effective from 6 September 2017, exempts non-residents on services under s.4A(i) and (ii) that are rendered and performed wholly outside Malaysia, and states that s.109B withholding does not apply to that income. Services performed in Malaysia remain taxable.
Why it matters: failure to withhold can lead to penalties and a denied deduction.
Legal basis
- Income Tax Act 1967, s.107A
- Income Tax Act 1967, s.109
- Income Tax Act 1967, s.109B
Sources
Applies to YA 2026 · Last reviewed 29 October 2026
General information for business owners, not legal, tax or professional advice. Rules change, so check the sources or ask a licensed professional before you act.
Related questions
- Do I need to withhold tax when I pay an overseas freelancer, consultant or software provider?It depends on what the payment is and where the work is done. Services rendered and performed wholly outside Malaysia are exempt by order, so s.109B withholding does not apply. Services performed in Malaysia, royalties and rental of movable property are generally subject to 10% (contract payments 10% plus 3%). A treaty may also apply.
- Can a company with foreign shareholders still get the SME tax rate in Malaysia?Only if foreign ownership stays at 20% or below. The SME rates also need paid-up ordinary capital of RM2.5 million or less and gross business income of RM50 million or less. If more than 20% of the ordinary capital is held, directly or indirectly, by foreign companies or non-citizen individuals at the start of the basis period, all income is taxed at 24%.
- When do I pay my company income tax: instalments or after filing?Most companies pay through monthly CP204 instalments (due on the 15th of each month) and settle any balance by the Form C deadline, seven months after year end. Companies exempt from estimates pay everything by the Form C due date.
- What is PCB or MTD and what must I deduct from employees' salaries?PCB (also called MTD) is the monthly tax an employer deducts from an employee's pay and pays to LHDN. LHDN requires the amount to come from its MTD schedule or computerised method and to be remitted by the 15th of the following month.
- Which business expenses can a Malaysian company deduct for tax?An expense is deductible if it is incurred in producing business income, and it is revenue rather than capital in nature. Typical examples are salaries, rent, utilities, interest on business loans, and professional fees. Capital items get capital allowances instead.