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What is Withholding Tax in Malaysia?

Under Section 109 and Section 109B of the Malaysian Income Tax Act 1967, when an SME in Malaysia makes payments to non-resident foreign companies or overseas freelancers for royalties, technical fees, or services rendered in Malaysia, Withholding Tax (WHT) must be deducted and paid to LHDN.

Common Software & Cloud Scenarios

• Overseas SaaS & Software Licenses: Software payments involving intellectual property rights or source code access are classified as royalties and subject to a 10% withholding tax rate (subject to Double Taxation Agreements).
• Foreign Digital Advertising (Meta / Google): When contracted with non-resident entities, review the invoicing entity—Google Malaysia and Meta local billing handle local tax compliance, whereas offshore entities require WHT assessment.
• Payment Deadline: Withholding tax must be remitted to the LHDN Non-Resident Branch within 1 month of paying or crediting the non-resident party.

Penalties for Non-Compliance

Failure to withhold tax results in a 10% penalty on unpaid tax, and critically, the entire expense will be disallowed as a deductible business expense in your corporate tax filing.