Withholding Tax on Services Performed Outside Malaysia: When WHT Applies to Non-Residents

Winnie's question said it all: "For admin services performed outside Malaysia, will there be withholding tax or SST?" It is the question that trips up a lot of Malaysian SMEs, and the answer is not what most people expect.

The instinct is this: work done abroad, no Malaysian tax. The reality: Malaysia taxes based on where the income originates, not where the laptop is.

The Core Rule: Income Source, Not Work Location

Under Malaysia's Income Tax Act 1967, WHT applies to payments made by Malaysian residents to non-residents for specified income types. The trigger is the source of the income. A Malaysian payer means Malaysian-sourced income.

The relevant sections for service payments:

• Section 107A covers contract work physically performed in Malaysia by a non-resident contractor. Rates: 10% (tax) + 3% (employee levy). Common for construction, installation, or on-site technical work.
• Section 109B covers professional, technical, management, or consultancy services rendered to a Malaysian resident, regardless of where the work is done. Rate: 10%. This is the most common provision for remote cross-border service arrangements.
• Section 109 covers royalties, interest, and other specified income paid to non-residents.

The practical implication: if a Kuala Lumpur company contracts a Singaporean consultant to build a financial model, working entirely from Singapore, Section 109B still applies. The fee is Malaysian-sourced income because the economic benefit is enjoyed in Malaysia.

The narrow exception: services wholly performed outside Malaysia by a non-resident company with no Malaysian permanent establishment (PE) may qualify for business profits treatment under a DTA. This is not a blanket exemption. It requires a specific treaty analysis and a pre-payment Certificate of Residence.

WHT Rates by Service Type

Service / Income Category	WHT Rate	Relevant ITA Section	Notes
Professional / technical / management services (remote)	10%	Section 109B	Most common for cross-border service payments
Contract work performed in Malaysia	10% + 3%	Section 107A	10% tax + 3% levy on gross contract value
Royalties (software licences, IP use)	10%	Section 109	SaaS subscriptions may be classified as royalties
Interest on loans from non-residents	15%	Section 109	Applies to non-resident related parties or third-party lenders
Special classes of income (installation, supervision, training)	10%	Section 109	Specific services listed under gazette Income Tax Exemption Orders

SaaS note: payments for cloud software subscriptions (Adobe, Salesforce, HubSpot) are a genuine grey area. LHDN may classify them as royalties under Section 109 (payment for the right to use software equals payment for the right to use IP equals royalty). Whether a specific DTA exemption applies depends on whether the payment is classified as business income or royalties under that treaty. If your SaaS spend is material, get a written tax position from a licensed tax agent before assuming zero WHT applies.

WHT vs Service Tax on Imported Services: Two Separate Obligations

Winnie's question mentioned SST, and this is exactly where confusion lives. These are different taxes, collected by different agencies, with different compliance steps. You may owe both on the same payment.

Tax	When It Applies	Who Pays	Who Collects / How
Withholding Tax (WHT)	Payment for services to non-resident with Malaysian-sourced income	Malaysian payer (deducted from supplier's payment)	LHDN via MyTax (CP37 or CP37D), by 15th of following month
Service Tax on Imported Services (STIS)	Malaysian company purchases taxable services from overseas providers	Malaysian company (self-assessed, paid separately, not deducted from supplier)	RMCD via MySST (SST-02 return), bi-monthly

Example: your Penang manufacturing company pays a German engineering firm RM50,000 for equipment design services performed in Germany.

• WHT (LHDN): RM5,000 withheld from payment to German firm, remitted via CP37 by the 15th of the following month.
• STIS (RMCD): RM4,000 (8% of RM50,000 for professional services) self-assessed and paid via MySST.
• The German firm receives RM45,000. Your company separately pays RM4,000 STIS to RMCD.

Treaty Exemptions: When Your Rate Changes

Malaysia has DTAs with over 70 countries. These treaties can reduce WHT on service payments, or eliminate it entirely if service income qualifies as "business profits" and the foreign company has no Malaysian PE.

Key rule: the Certificate of Residence (COR) must be in your hands before you remit at the reduced rate. Post-payment COR acquisition does not protect you from LHDN demanding the full standard rate. This timing requirement is the most commonly missed DTA compliance step.

Country	DTA with Malaysia	Technical Service Fees Rate	Condition
Singapore	Yes (2009)	5% (Article 14 FTS) or 0% if business profits with no PE	COR from IRAS required before payment
Hong Kong	Yes (2012)	5% (Article 12 FTS) or 0% if business profits with no PE	COR from HK IRD required before payment
China	Yes (1988)	10% or 0% if business profits with no PE	COR from Chinese SAT required before payment
United Kingdom	Yes (1997)	10% or 0% if business profits with no PE	COR from HMRC required; PE analysis is critical
United States	No comprehensive DTA	10% (standard rate applies, no treaty relief)	All payments to US entities are subject to full standard WHT

The US situation surprises many Kuala Lumpur and Johor Bahru companies that pay US SaaS vendors or contract US consultants. There is no Malaysia-US comprehensive DTA, so the standard 10% WHT rate applies with no treaty reduction available.

The Four-Question Test

Before paying a non-resident service provider, run through this:

1. Is the payer a Malaysian resident company? If no, Malaysian WHT does not apply. If yes, continue.
2. Is the payee a non-resident? If the payee is a Malaysian company, WHT does not apply. If non-resident, continue.
3. Is the payment for services that generate Malaysian-sourced income? If the service benefit is enjoyed in Malaysia (by a Malaysian company), it is sourced in Malaysia. Continue.
4. Does a DTA apply that changes the rate or eliminates WHT? Check the payee's country. If yes: obtain COR before payment and apply the treaty rate. If no DTA applies: use the standard rate.

The exception: services wholly performed outside Malaysia AND the non-resident has no PE in Malaysia AND a DTA exists treating the income as non-taxable business profits. Never assume this exception without a formal tax agent opinion backed by the COR.

How to Remit WHT to LHDN: Step-by-Step

The remittance deadline is the 15th of the month following the month of payment. Pay a foreign supplier on 20 June, and the WHT must be remitted by 15 July.

1. Determine the rate and section. Confirm Section 109B (services) applies. Check for an applicable DTA and the classification of income under that DTA (business profits vs fees for technical services).
2. Calculate the WHT amount. Multiply gross payment by applicable rate. For 10% WHT: gross RM30,000 means WHT is RM3,000. Supplier receives RM27,000; LHDN receives RM3,000.
3. Login to MyTax. Go to mytax.hasil.gov.my and login with your company TIN (prefix "C").
4. File e-CP107 or CP37. Navigate to the Withholding Tax module. Use CP37 for general WHT payments including Section 109B services, and CP37D for contract work under Section 107A.
5. Enter payment details. Supplier name, country, TIN (if available), gross amount, applicable section, WHT amount, and payment date. Upload the supplier invoice.
6. Submit and pay by the 15th. Via FPX, bank draft, or cheque at LHDN service centres. Get the e-CP107 receipt as proof of WHT remittance.
7. Retain records for 7 years. Keep the LHDN receipt, supplier invoice, WHT calculation, DTA documentation (COR if applicable), and bank transfer records. These are cross-checked during Form C audits.

If you made multiple service payments to the same non-resident supplier in the same month, you can file a consolidated CP37 for all payments in that month under the same 15th deadline.

Real Scenario: Singapore Developer Builds Your System

Your Shah Alam Sdn Bhd contracts a Singapore-incorporated software development company to build an internal HR system. The developer works entirely from Singapore. Total contract value: RM80,000, payable in two tranches of RM40,000 each.

Does WHT apply? Yes. Section 109B applies because the service benefit is enjoyed in Malaysia (by your Shah Alam company). The developer working remotely from Singapore does not change the source of income.

What rate applies? Nominally 10% under Section 109B. The Malaysia-Singapore DTA (2009) covers fees for technical services at 5% under Article 14. The income may also qualify as non-taxable business profits under Article 7 if the Singapore company has no PE in Malaysia. This is the route most tax advisors pursue for remote service arrangements.

What you should do: Request a Certificate of Residence from IRAS (Singapore's tax authority) before making either payment. With a valid COR and a written tax position from your agent confirming business profits treatment, you may remit at 0% or 5%. Without the COR, deduct 10% WHT from each tranche and remit to LHDN by the 15th of the following month.

The numbers at standard 10% WHT (no COR obtained):

• Tranche 1: Gross RM40,000, withhold RM4,000, remit to LHDN, supplier receives RM36,000.
• Tranche 2: Same treatment. RM4,000 to LHDN, RM36,000 to developer.
• Total WHT remitted: RM8,000.

Four Mistakes That Land Companies in LHDN Trouble

1. Paying the full invoice without withholding. Once payment leaves, recovering the WHT from your supplier is your commercial problem. LHDN does not care about your supplier's cooperation. You owe the full WHT plus a 10% penalty.
2. Assuming that work done offshore means no Malaysian tax. This is the exact misconception this article addresses. Malaysian WHT follows income source, not work location.
3. Claiming DTA relief without a pre-payment COR. LHDN only accepts a COR that was held before remittance. A COR obtained after the fact does not retroactively protect you.
4. Missing the 15th deadline. A 10% late penalty is automatic, not discretionary. Set a calendar reminder the day after every non-resident service payment goes out.

If your company has been paying overseas suppliers without withholding tax, a voluntary disclosure to LHDN under the Inland Revenue Board's voluntary disclosure programme will significantly reduce penalties compared to detection during a Form C audit. A licensed tax agent can guide you through this process.

Read Next

For the full WHT framework covering all payment types, forms, and remittance dates, see our Withholding Tax Malaysia guide. If you are a foreign company considering a Malaysian entity to manage WHT exposure, our guide to setting up a company in Malaysia as a foreigner covers the structural options.

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