Withholding tax: Special classes of income
Section 4A(ii) has been subject to much debate as to whether a
service that is subject to withholding tax under s 109B of the Income Tax Act (ITA) 1967 needs
to be in technical in nature or not. What made a service “technical” was also the
subject of much dispute.
Section 4A(ii) of the ITA 1967 provides the following:
“… the income of a
person not resident in Malaysia for the basis year for a year of assessment in
respect of …
(ii) amounts paid in consideration of
technical advice, assistance or services rendered in connection with technical
management or administration of any scientific, industrial or commercial
undertaking, venture, project or scheme …
which is derived
from Malaysia is chargeable to tax under this Act.”
The
Finance Bill 2018 proposed that s 4A(ii) be amended to state as follows:
“… the income of a
person not resident in Malaysia for the basis year for a year of assessment in
respect of …
(ii) amounts paid in consideration of any advice given, or assistance or services
rendered in connection with any scientific, industrial or commercial
undertaking, venture, project or scheme…
which is derived
from Malaysia is chargeable to tax under this Act.”
This widens
the scope of withholding tax under s 109B by:
- including non-technical services, and
- not limiting the scope to technical management or administration of any scientific, industrial or commercial undertaking, venture, project or scheme.
However, the
gazetted Finance Act 2018 provided that s 4A(ii) is amended to state as
follows:
“… the income of a
person not resident in Malaysia for the basis year for a year of assessment in
respect of …
(ii) amounts paid in consideration of any advice given, or assistance or services
rendered in connection with the management or administration of any
scientific, industrial or commercial undertaking, venture, project or scheme…
which is derived
from Malaysia is chargeable to tax under this Act.”
The final
changes made to reduce the impact that arose from the initial change – the
scope, while widened to include non-technical services, it is limited to the
management or administration of any scientific, industrial or commercial
undertaking, venture, project or scheme.
Pursuant
to the above, s 15A, 109B and Schedule 1 of the ITA 1967 were amended to
reflect the new scope.
Wolters
Kluwer’s Withholding Tax on Cross Border Transactions workshop aims to provide finance and accounting leaders, this
programme aims to provide clarity withholding tax concepts, calculations and
best practices on reporting. It covers the changes made to withholding tax
rules due to Budget 2019 and issuance of a new public ruling on the special
classes of income tax.
The workshop aims to provide you with:- A comprehensive and detailed analysis of key withholding tax issues and pitfalls to avoid
- An understanding on how to improve withholding tax compliance
- Practical tips on how to correctly determine withholding tax payments
- Knowledge on minimising withholding tax exposure and avoiding costly tax penalties.
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