Govt in about-turn on withholding tax, grants exemption to overseas firms

PETALING JAYA: The government has decided not to tax the income of businesses and enterprises providing technical services and assistance to companies here from outside of Malaysia, just a couple of months shy of the first anniversary of its implementation.

The government has released a statutory order signed off by the Minister of Finance exempting non-resident technical service and assistance providers overseas from the withholding tax, in exercising his powers to accord exemptions under the Income Tax Act 1967.

The rule which came into operation on Sept 6, 2017, states that payments made in consideration of services rendered for the use of property or rights belonging to, or the installation or operation of any plant, machinery or other apparatus; and technical advice, assistance or services rendered with technical management or administration of any scientific, industrial or commercial undertaking, venture, project or scheme, be exempted from the withholding tax, capped at 10%.

Prior to the order, companies using overseas expertise would have needed to set aside a 10% portion of the payment for services to be remitted to the Inland Revenue Board. A key concern was that the move would have led to an increase in the cost of doing business.

The news comes about months after Second Finance Minister Datuk Seri Johari Abdul Ghani announced that a collaborative working group of experts would be set up to gather views from the industry in addressing mounting concerns among business communities in the application of withholding tax.

The move represents an about-turn from the Finance Act 2017 gazetted in January this year, which revived the law scrapped in 2001, allowing for the taxation of non-residents which provide services from out of Malaysia. Prior to that only non-residents providing services within Malaysia were taxed.

The law, which caught the business community by surprise, raised concerns over increased cost of business due to the economic burden of the tax which may have fallen on the payer and reduced the ease of doing business with the tedious work of checking applicable double tax treaties.