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Updated Frequently Asked Questions (FAQs) pertaining to withholding tax (WHT) on payments made to agents, dealers and distributors (ADDs)
The Inland Revenue Board (IRB) has published on its website the updated version of its FAQs document in relation to Section 107D of the Income Tax Act 1967, which provides that companies making payments in monetary form to ADDs arising from sales, transactions or schemes will be required to withhold tax at a rate of 2% on the gross amount. The FAQs document is in Bahasa Malaysia, titled “Soalan Lazim Berkaitan Potongan Cukai 2% Terhadap Pembayaran Oleh Syarikat Pembayar Kepada Ejen, Pengedar Atau Pengagih Di Bawah Bajet 2022”, and the updated version is dated 21 October 2022.
The only change to the FAQs document is to Item A.6, which relates to credit notes. The updated Item A.6 clarifies that to determine whether the payments made to ADDs are subject to the 2% WHT, it is necessary to consider the substance of the payment, and not its label. Therefore, if a credit note is in substance a commission payment in monetary form to ADDs, the payments should be subject to the 2% WHT under Section 107D.
Previously, the FAQs provided that payments by way of credit notes, contra and discounts are not subject to the 2% WHT (see Tax Alert No. 5/2022).