Malaysia Withholding Tax in 2026: Rates, Deadlines and Penalties on Payments to Non-Residents

What each withholding tax covers and how to pay it

Withholding tax collects the non-resident’s Malaysian tax at source, so the obligation falls on the Malaysian payer. Interest paid to a non-resident is subject to 15% under section 109 of the Income Tax Act 1967, although some interest is exempt. Royalties bear 10%. The Inland Revenue Board of Malaysia (LHDN) treats payments for self-serve digital advertising on overseas platforms as royalties, because the advertiser is granted the right to use the platform’s software to build its own campaigns.

Section 109B imposes 10% on special classes of income under section 4A: fees for technical advice, assistance or services connected with the technical management or administration of a scientific, industrial or commercial undertaking; fees for services connected with the use of property or rights, or with installing or operating plant bought from the non-resident; and rent for movable property such as equipment. Since 6 September 2017, an exemption order has taken technical and installation services performed wholly outside Malaysia out of the charge. LHDN applies the tax only to the part of a fee attributable to services performed in Malaysia, but rental of movable property remains taxable wherever the asset is used.

Contract payments to a non-resident contractor for services under a contract project in Malaysia are subject to section 107A: 10% on account of the contractor’s own tax and 3% on account of tax on its employees. These amounts are credits against the contractor’s final liability, not a final tax. Other income under section 4(f), a residual category covering items such as guarantee fees, bears 10% under section 109F.

The deadline is the same for all of these: within one month after paying or crediting the recipient. Each payment is entered online in LHDN’s e-WHT system under the matching form (CP37 for interest and royalties, CP37D for special classes, CP37A for contract payments, CP37F for section 4(f) income), which generates a bill number for payment by FPX, e-TT or bank draft; the forms and supporting documents are kept on file, not sent to LHDN. If you pay late, the amount due is increased by 10%, and the underlying payment is disallowed as a deduction until the withholding tax and the increase are paid.

Treaty rates, local agents and what changed for 2026

According to LHDN, the rate may be lower where the double taxation agreement between Malaysia and the recipient’s country of residence prescribes one, and the treaty rate varies by country and by type of payment. The payer carries the risk, so before applying a reduced rate obtain a certificate of residence from the recipient’s tax authority covering the period of payment, and keep it with the contract and invoices. Without that evidence, withhold at the domestic rate: an underpayment attracts the 10% increase and the deduction problem described above.

A separate rule covers payments inside Malaysia. Since 1 January 2022, section 107D requires a company to withhold 2% from monetary payments to resident individual agents, dealers and distributors who received more than RM100,000 in monetary and non-monetary payments from that company in the preceding year. Credit notes, contra entries and discounts are outside the charge. Under LHDN’s procedure revised in July 2022, the 2% is remitted by the last day of the following month with Form CP107D, which since 1 January 2025 must be submitted online through e-107D on MyTax and paid electronically against a bill number, and the payments are also reported on Form CP58. The agent can offset the amount against their final tax.

For 2026 the rates are unchanged. Budget 2026 contained no withholding tax measures, and the Finance Act 2025, gazetted on 31 December 2025, did not amend sections 107A, 107D, 109, 109B or 109F. The offshore services exemption still applies, and digital advertising is still treated as a royalty. The practical changes are administrative: businesses within e-invoicing must issue self-billed e-invoices for payments to foreign suppliers and to agents, dealers and distributors, and since 5 May 2026 withholding tax adjustments, refunds and requests to remove the 10% increase go through e-Rayuan on MyTax.

A withholding tax checklist for every overseas payment

• Classify each payment before it is made: interest, royalty, section 4A service or rental, contract payment, section 4(f) income, or outside the regime.
• For service fees, record where the work is actually performed and split any fee that covers work both inside and outside Malaysia.
• Collect a current certificate of residence before applying a treaty rate, and withhold at the domestic rate if it has not arrived.
• Remit within one month of paying or crediting, using the correct CP37 form, and keep the payment receipt in the tax file.
• Review commission and incentive payouts at the start of each year to identify agents, dealers and distributors paid more than RM100,000 in the previous year.
• Before finalising the tax computation, add back any payment whose withholding tax has not been paid.

Worked example: withholding tax on RM140,000 paid to Singapore and Hong Kong in 2026

A Malaysian company that pays a Singapore consultant RM100,000 for management consultancy performed in Malaysia and a Hong Kong licensor RM40,000 in royalties on 16 March 2026 withholds RM8,200 at treaty rates (RM14,000 at domestic rates), payable to LHDN by 16 April 2026.

Step	Singapore consultant (section 109B)	Hong Kong licensor (section 109)	Total
Gross amount paid on 16 March 2026	RM100,000	RM40,000	RM140,000
Domestic rate and tax	10% = RM10,000	10% = RM4,000	RM14,000
Treaty rate with a certificate of residence	5% = RM5,000	8% = RM3,200	RM8,200
Net amount paid to the recipient	RM95,000	RM36,800	RM131,800
10% increase if paid after 16 April 2026	RM500	RM320	RM820
Total due to LHDN if late	RM5,500	RM3,520	RM9,020

If the RM8,200 and the RM820 increase were still unpaid when the return is filed, the RM140,000 would be disallowed, adding RM33,600 of tax at the 24% rate. Had 10 of the consultant’s 40 working days been spent in Singapore, only RM75,000 (30/40) would be taxable, and the tax at 5% would be RM3,750.

What changed for Malaysian withholding tax in 2025–2026?

The statutory rates are unchanged; the changes concern how withholding tax is filed, paid and appealed, plus new taxes on individuals that are not withheld. As at October 2026:

Date	Change
1 January 2025	Form CP107D must be submitted online through e-107D and the 2% paid electronically against a bill number
Year of assessment 2025	Individual shareholders pay 2% on dividend income above RM100,000 in their own returns; dividends still bear no withholding tax
31 December 2025	Finance Act 2025 gazetted, with no amendment to sections 107A, 107D, 109, 109B or 109F
1 January 2026	e-invoicing Phase 4 began; businesses in scope issue self-billed e-invoices for foreign suppliers and for agents, dealers and distributors
Year of assessment 2026	Individual partners pay 2% on LLP profit distributions above RM100,000; not withheld
5 May 2026	e-Rayuan for withholding tax opened on MyTax: payment adjustments, removal of the 10% increase, waivers and refunds
25 June 2026	Kuala Lumpur High Court (Akamai) held that a treaty’s royalty definition prevails over the Act’s under section 132; reseller payments were not royalties
9 October 2026	Budget 2027 due to be tabled; any change applies only once legislated

How to calculate and pay Malaysian withholding tax, step by step

Withholding tax is paid through LHDN’s e-WHT system on MyTax: enter the payment, receive a bill number and pay within one month of paying or crediting the non-resident.

1. Classify the payment under section 107A, 109, 109B or 109F and, for services, record the days worked in and outside Malaysia.
2. Use the gross amount, including reimbursed expenses other than hotel accommodation.
3. Apply a treaty rate only if you hold the recipient’s certificate of residence.
4. Log in to e-WHT with your MyTax ID, complete the matching CP37-series form and note the bill number.
5. Pay by FPX through ByrHASiL or MyTax, by e-TT (mainly for payers without a Malaysian bank account) or by bank draft at LHDN’s counter.
6. Keep the form, receipt, contract, invoice and certificate of residence; LHDN asks for them on audit.
7. If you are within e-invoicing, issue the self-billed e-invoice by the end of the month after the earlier of payment or receipt of the invoice.
8. Claim the deduction only where the tax and any increase were paid before the return is filed.

Edge cases: accruals, reimbursements, small payments and digital advertising

Most disputes turn on timing, the gross amount and which section applies.

Situation	Treatment
Royalty or interest accrued at year end but unpaid when the return is due	Not deductible for that year; after paying, apply for relief under section 131A within one year after the end of the year of payment
Journal entry or accrual only	Not crediting: an amount is credited only when it is available to or for the benefit of the non-resident
Reimbursed expenses on a service invoice	Part of the gross amount, except reimbursed hotel accommodation
Frequent small payments	If the tax is no more than RM500 per transaction and such payments recur within six months, payment can be deferred to 30 June (December–May transactions) or 31 December (June–November) on Form CP37S or CP37DS
Overseas agency runs your digital advertising end to end	A section 4A(ii) service, not a royalty, so section 109B applies and the offshore services exemption can cover work done abroad
Work in Malaysia is a contract project or creates a permanent establishment	Section 107A (10% plus 3%) applies instead of section 109B

Common withholding tax mistakes

The costliest errors concern timing and evidence rather than rates.

• Starting the one-month clock from the invoice date instead of the date of paying or crediting.
• Applying a treaty rate without the payee’s certificate of residence on file.
• Withholding on the net fee rather than the gross amount.
• Assuming the offshore services exemption covers royalties, software licences or equipment rental.
• Claiming the deduction while the tax or increase is unpaid, which LHDN can penalise as an incorrect return under section 113(2).
• Treating a self-billed e-invoice as a substitute for withholding tax: the same foreign payment can need both.
• Missing the 2% on local agents once last year’s payments, including non-cash rewards, passed RM100,000; a late 2% cannot be claimed as an expense under paragraph 39(1)(s).

Withholding tax glossary

Key terms as LHDN uses them:

• Payer: the Government, a state government, a local authority, a resident person, or anyone claiming the payment as an expense of a business carried on in Malaysia.
• Section 4(f) income: residual gains such as commissions, guarantee fees and introducer fees, taxed at 10% whether paid in cash or in kind.
• Final tax: withholding that settles the non-resident’s Malaysian tax on that income, as under sections 109B and 109F; section 107A deductions are not final.
• Certificate of residence: confirmation from the payee’s tax authority of its residence, kept by the payer to support a treaty rate.
• e-WHT: LHDN’s online withholding tax system, reached with a MyTax login, that generates the payment bill number.