# Section 109B — Withholding Tax on Special Classes of Income > How the 10 per cent withholding tax on technical fees, services and movable-property rent works, and how to answer the derived-in-Malaysia question after the 2017 amendment. - Category: taxation - Language: en - Status: published - Updated: 2026-07-20 - Canonical: https://negaraku.md/en/taxation/withholding-tax-special-classes --- Ask a Malaysian finance team why they did not withhold on a foreign consultant's invoice and the answer is almost always the same: *the work was done overseas*. That answer was correct until 17 January 2017, wrong from that date until 6 September 2017, and is now correct again — but for an entirely different reason, and with a hole in it that most guides do not mention. ## What counts as a special class of income? Section 4A of the Income Tax Act 1967 defines three limbs, reproduced almost word for word in s.109B(1): - **s.4A(i)** — amounts paid for services rendered by the non-resident or its employee in connection with the use of property or rights belonging to that person, or the installation or operation of any plant, machinery or other apparatus **purchased from** that person. - **s.4A(ii)** — amounts paid for 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. - **s.4A(iii)** — rent or other payments under any agreement or arrangement for the use of any **movable property**. The limbs are narrower than “technical fees” suggests. Limb (i) is tied to property or equipment bought from the same non-resident — an installation fee from an unrelated engineer is not limb (i). Limb (ii) is tied to management or administration of an undertaking, venture, project or scheme. Limb (iii) is the broadest and the least discussed. Public Ruling 10/2019 para 8.1 lists slot hire and charter, ship and aircraft leasing whether dry or wet, time charter and voyage charter, all at 10 per cent of gross, and expressly covers equipment used **in or outside Malaysia**. The rate is 10 per cent of gross, from Part V of Schedule 1. ## Is the payment derived from Malaysia? Section 15A deems s.4A income to be derived from Malaysia in three situations: 1. responsibility for payment lies with the Government, a State Government or a local authority; 2. responsibility for payment lies with a person who is **resident** for that basis year; or 3. the payment is charged as an **outgoing or expense in the accounts of a business carried on in Malaysia**. Read those again. Not one of them mentions where the service was performed, where the non-resident is, or whether anyone entered Malaysia. It is a payer test. If a Sdn Bhd books the invoice as an expense, limb 3 is satisfied by that fact alone. ## What actually changed in 2017 This is where most guidance goes wrong, because two different instruments in the same year pull in opposite directions. **Section 6 of the Finance Act 2017 deleted the proviso to s.15A** with effect from **17 January 2017**. Before that, s.15A applied only to the amount attributable to services performed in Malaysia. After it, Public Ruling 10/2019 para 5.2 states the position plainly: s.4A(i) and s.4A(ii) income derived from Malaysia is chargeable “regardless of whether the services are performed in or outside Malaysia”. **The Income Tax (Exemption) (No. 9) Order 2017 [P.U.(A) 323/2017]** then exempted a non-resident from income tax on s.4A(i) and s.4A(ii) income for services performed outside Malaysia, with effect from **6 September 2017**. The distinction matters in three practical ways. - **It is an exemption, not a scope exclusion.** The income is still derived from Malaysia. You are relying on an Order, so you carry the evidential burden of showing where the work was done. - **It does not reach s.4A(iii).** Movable-property rent was never within the Order. Charter and equipment rental paid to a non-resident remains within s.109B wherever the asset sits. - **There was a gap.** Services performed outside Malaysia between 17 January 2017 and 5 September 2017 fall in neither the old proviso nor the new exemption. Public Ruling 10/2019 section 20 sets out the treatment of pre-amendment contracts, and answers yes for payments made before 6 September 2017. ## How do you split a mixed contract? Public Ruling 10/2019 para 5.3 requires apportionment “in a manner that is fair and justifiable”, based on the value of services performed in Malaysia. Example 1 works it on time cost: a RM20,000 project running 42 days, of which a consultant spent 6 days in Malaysia, yields RM2,857.14 subject to 10 per cent — RM285.71 of tax on a RM20,000 invoice. Time cost is LHDN's own illustration, not a statutory formula. If the value of the Malaysian component is genuinely different from its day count, say so in the file and document the basis before the audit, not after. ## When does s.107A take over instead? Public Ruling 10/2019 section 19 gives the switch. Where a payment for s.4A(i) or (ii) income relates to a **contract project in Malaysia** which results in either a permanent establishment under an applicable treaty, or a business presence where no treaty applies, s.107A applies instead of s.109B — 10 per cent plus 3 per cent, on Form CP37A. Example 29 in the Ruling makes it concrete: a Singapore engineering firm doing nine months of inspection and rectification work in Johor Bahru crosses the six-month supervisory threshold in Article 5(4) of the Malaysia–Singapore treaty, acquires a permanent establishment, and moves to s.107A. The trap is that a project can start under s.109B and cross into s.107A partway through. The treaty threshold is measured on facts you may not know when the first invoice arrives. ## Common mistakes - **Treating “performed overseas” as the end of the analysis.** It answers the exemption question. It does not answer whether the income is derived from Malaysia, and it is no answer at all for movable-property rent. - **Withholding on a journal entry, or missing one.** Crediting means the amount is available to or for the benefit of the payee. A contra entry offsetting a balance the non-resident owes you starts the one-month clock on the contra date. - **Grossing up when the payer bears the tax.** LHDN changed this on 5 December 2018. Compute on the gross amount paid, no regrossing. - **Deducting the tax you bore.** Withholding tax borne by a payer is the non-resident's tax, not an expense wholly and exclusively incurred in producing the payer's income, so it is not deductible. - **Claiming a treaty rate on a self-assessment of residence.** You need written confirmation from the payee's revenue authority, retained for review. ## What's next Two follow-ups matter more than the rest. If the payment is for software, cloud access, advertising or a marketplace fee, the first question is not s.109B at all — it is whether the payment is royalty under s.109, which [withholding-tax-digital-services](/en/taxation/withholding-tax-digital-services) works through alongside the separate imported-services SST charge. If you have already missed a deduction, [withholding-tax-non-compliance](/en/taxation/withholding-tax-non-compliance) quantifies what it costs. ## Sources - Public Ruling No. 10/2019 — Withholding Tax on Special Classes of Income — https://www.hasil.gov.my/wp-content/uploads/PR_10_2019.pdf (LHDN) - Income Tax Act 1967 (Act 53), reprint as at 21 May 2024 — ss.4A, 15A, 39(1)(j), 109B, 109H and Schedule 1 Part V — https://www.hasil.gov.my/wp-content/uploads/20240521-akta-cukai-pendapatan-1967-akta-53.pdf (LHDN) - Withholding Tax — https://www.hasil.gov.my/en/perundangan/cukai-pegangan/ (LHDN) - Form CP37D (Pin. 1/2024) — Account of Deductions from Special Classes of Income under Section 4A — https://www.hasil.gov.my/wp-content/uploads/cp37d-pin-1_2024.pdf (LHDN) --- Source of truth: https://github.com/negaraku-md/NegaraKu.md License: CC BY-SA 4.0