WITHHOLDING TAX ON COMMISSIONS PAID TO RESIDENT INDIVIDUALS
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Effective from 1 January 2022, under Section 107D of the Income Tax Act 1967 (inserted via Finance Act 2021), a company is to withhold 2% tax on the gross monetary commission paid to resident individuals. A Media Release dated 12 January 2022 by the Inland Revenue Board of Malaysia (IRB) announced that the remittance under Section 107D will be deferred until 31 March 2022. Hence, companies are allowed to remit the 2% withholding tax starting from 1 April 2022 for monetary payments made to resident individuals from January to March 2022.
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Who Are Considered Resident Individuals for Withholding Tax Purposes?
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Resident individuals include any agent, dealer, or distributor who is authorised by the company to act on behalf of the company and receives payments, whether in monetary form or otherwise, from the company arising from sales, transactions, or schemes carried out by him as its agent, dealer,
or distributor.
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What Was Stipulated Under the New Section 107D of the Income Tax Act 1967?
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From 1 January 2022 onwards, monetary commission payments made by a company (the payer) to its authorised agent, dealer, or distributor (the payee)
arising from sales, transactions, or schemes carried out by him, are subjected to a 2% withholding tax.
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The 2% withholding tax is only applicable when the agent, dealer, or distributor is a resident individual who has received a total sum of monetary and non-monetary commission payment from the same company amounting to more than RM100,000 in the immediately preceding year of assessment.
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If the payer fails to remit the 2% withholding tax, a 10% penalty shall be imposed. In addition, the commission will not be tax-deductible in the
payer’s tax computation if the withholding tax is not remitted by the due date of tax submission.
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When to Pay the Remittance of the 2% Withholding Tax?
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As mentioned above, IRB issued a media statement dated 12 January 2022 as to the deferment of the remittance of 2% withholding tax until 31 March 2022. Therefore, companies can remit the amount withheld starting from 1
April 2022 and no late payment penalty will be imposed on the remittance of the amount withheld for payments made for the months of January to March 2022.
Let’s say in January 2022 and February 2022, Company A (payer) made a monetary commission payment of RM30,000 and a non-monetary commission payment of RM50,000 to Daniel, who is a resident individual (payee), acting as an
agent to Company A. On top of that, Daniel received a monetary commission of RM90,000 and a non-monetary commission (overseas trip & Rolex watch) of RM60,000 in Year of Assessment (YA) 2021.
Daniel’s total commission received as an agent in YA 2021 was RM 150,000. The 2% withholding tax is applicable to him as he has received a total sum of commission payments from the same company amounting to more than
RM100,000 in YA 2021 (the immediately preceding year of assessment).
Therefore, the 2% withholding tax is to be deducted from the monetary commission paid to Daniel in YA 2022 as follows:
- RM30,000 monetary commission payment made in January 2022
- ✅The 2% withholding tax is applicable as it is a monetary payment.
- ❌ The 2% withholding tax is not applicable as it is not a monetary payment.
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