Section 109B Withholding Tax Malaysia

30-second answer Reviewed 22 Jul 2026

Section 109B requires a payer to deduct 10 per cent from payments to a non-resident falling within s.4A of the Income Tax Act 1967 — services connected with the use of property or the installation of plant bought from that person, advice or services connected with management or administration, and rent for movable property. The payment is deemed derived from Malaysia by the payer test in s.15A. Since 6 September 2017 the portion attributable to services performed outside Malaysia is exempt, but only for s.4A(i) and (ii), never for movable-property rent.

The rate is 10 per cent of gross, set by Part V of Schedule 1, not by s.109B itself
Derivation is a payer test — a resident payer, or an expense charged to a Malaysian business, is enough
Finance Act 2017 removed the performed-in-Malaysia limit from s.15A with effect from 17 January 2017
P.U.(A) 323/2017 then exempted offshore-performed services from 6 September 2017 — an exemption, not a restored exclusion
The exemption covers s.4A(i) and (ii) only; movable-property rent under s.4A(iii) is taxable wherever the asset is used
Mixed contracts must be apportioned on a fair and justifiable basis, commonly on time cost
Where the contract creates a permanent establishment, s.107A displaces s.109B

Who this applies to: Malaysian companies, partnerships and businesses paying non-resident consultants, engineers, technical advisers and equipment lessors.

Full explanation ≈5 min

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:

responsibility for payment lies with the Government, a State Government or a local authority;
responsibility for payment lies with a person who is resident for that basis year; or
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 works through alongside the separate imported-services SST charge. If you have already missed a deduction, withholding-tax-non-compliance quantifies what it costs.

Frequently asked 5

Does withholding tax apply if the non-resident never came to Malaysia?

For s.4A(i) and s.4A(ii) income, no tax is payable on the portion performed outside Malaysia, because the Income Tax (Exemption) (No. 9) Order 2017 exempts it with effect from 6 September 2017. But this is an exemption, not a scope exclusion — s.15A still deems the income derived from Malaysia. Document where the work was done, because the burden is yours.

What is the difference between section 109B and section 107A?

Section 109B applies to s.4A income generally. Section 107A applies where the payment relates to a contract project in Malaysia that results in a permanent establishment under a treaty, or a business presence where no treaty applies. Public Ruling 10/2019 para 19 confirms that in those cases s.107A applies instead, at 10 plus 3 per cent.

Do I withhold on reimbursed expenses?

It depends on whether the amount is a reimbursement or a disbursement. Public Ruling 10/2019 sections 9 and 10 distinguish the two, and treats hotel accommodation disbursed in or outside Malaysia as outside the charge. Read those paragraphs against your actual invoice rather than applying a rule of thumb.

If I bear the withholding tax myself, do I gross up?

No. From 5 December 2018 LHDN computes s.109B tax on the gross amount paid to the non-resident, with no regrossing, where the payer bears the tax under a contractual agreement. The tax you bear is still not deductible in your own accounts, because it is the non-resident's tax.

Can I appeal against a withholding tax demand?

Section 109H allows a payer to appeal to the Special Commissioners within 30 days of the due date, on the basis that the tax is not payable. The appeal is blocked in three situations — where the non-resident has already appealed, where the payment has already been disallowed under s.39, or where the withholding tax has not been paid.

Sources & history 4 sources

⚑ Awaiting expert verification

The following are deliberately unstated or described only qualitatively until confirmed by a subject-matter expert:

Public Ruling No. 10/2019 is dated 10 December 2019 and remains the current edition — it has not been reissued to reflect any post-2019 amendment, so treat its examples as guidance of that vintage
P.U.(A) 323/2017 was read through Public Ruling 10/2019 paras 5.2 and 21 rather than from the gazette text itself; confirm the Order has not been revoked or superseded before relying on the offshore-services exemption

Sources

Change history

Version	Date	Change	By
01.00	20 Jul 2026	Approved and published.	—