Withholding tax is a tax collection mechanism in which the payer acts as a tax collection agent for the Director General of Inland Revenue (DGIR) to withhold tax at the relevant rate upon making certain types of payments to a non-resident. These taxes will then be remitted to the Inland Revenue Board (IRB). 

Generally, payers are required to file and pay the withholding tax to the IRB within one month from the date of payment to the non-resident. Withholding tax only applies to certain types of Malaysian derived income received by non-residents. Such as interests, royalties, special classes of income, contract payments, remuneration to a public entertainer, etc. The tax rate ranges from 10% to 15%, subject to specific conditions. 

So let us first understand the basic concept of withholding tax. Let's say a Malaysia company, XYZ Sdn Bhd, would like to pay royalty fees to a non-resident company, ABC Ltd. Before making the payment to ABC Ltd., XYZ Sdn Bhd is required to withhold a certain percentage as withholding tax and remit it to the IRBM within one month after the payment date.  

Now, imagine you're engaged in multiple services with non-residents, where it can be challenging to keep track of and manage the deadlines for withholding tax payments. With the introduction of the small value withholding tax, businesses are no longer required to remit withholding tax payments on a monthly basis, which can be burdensome due to the frequency of transactions. Instead, they can remit taxes bi-yearly under the small-value withholding tax scheme. 

Starting from 1 August 2022, withholding tax payments not exceeding RM500 per transaction are small-value withholding tax payments, provided that the payer anticipates that withholding tax will be paid more than once during the six-month deadline extension. 

Furthermore, the IRB has clarified that the small-value withholding tax is only applicable to specific types of income, which is restricted to royalty and interest earned by a non-resident, as stipulated in Section 109 of the Income Tax Act 1967, and special classes of income which fall under Section 109B of ITA 1967. 

Payers are now permitted to make these payments bi-yearly instead of monthly, offering them greater flexibility and convenience way in managing their withholding tax payments. 

Those withholding tax payments that meet the aforementioned conditions are permitted to remit the withholding tax as follows: 

• For payments made to non-residents between 1 December to 31 May, the due date for remittance of the withholding tax form and payment to the IRB is 30 June. 
• For payments made to non-residents between 1 June to 30 November, the due date for remittance of the withholding tax form and payment to the IRB is 30 December.