FAQ in Relation to the Deduction of Tax at 2% on Payments Made by a Company to an Agent, Dealer or Distributor

FAQ in Relation to the Deduction of Tax at 2% on Payments Made by a Company to an Agent, Dealer or Distributor

Effective 1st January 2022, a company is required to withhold 2% tax on payments made in monetary form to an agent, dealer or distributor who is a resident individual arising from sales, transactions or schemes pursuant to the new Section 107D of the Income Tax Act 1967 ["ITA 1967"].

The above withholding tax ["WT"] will apply if the total sum of payments (whether in monetary form or otherwise received by the agent, dealer or distributor from the payer company in the immediately preceding basis year exceeds RM100,000.

The 2% tax withheld has to be remitted to the Inland Revenue Board ["IRB"] within 30 days from the date of payment or crediting the payments to the agents, dealers or distributors, failing which an increase in tax of 10% will be imposed on the outstanding WT.

In the media release issued by the IRB on 12th January 2022, it was announced that payer companies are allowed a deferment for remittance of the WT applicable for the months of January 2022 to March 2022 which can be made from 1st April 2022, without being subject to any increase in tax.

Following the above, the IRB has issued the Frequently Asked Questions in Relation to the Deduction of Tax at 2% on Payments Made by a Company to an Agent, Dealer or Distributor (updated on 28th February 2022) ["the FAQ"] [in Bahasa Malaysia] to provide the timelines for remittance of the WT applicable to the following periods:-

Date of Payment to the Agent, Dealer or Distributor Last Day for Remittance of WT
Period from 1st January 2022 to 2nd March 2022 1st April 2022
From 3rd March 2022 onwards 30 days from the date of payment to the agent, dealer or distributor


For illustration [based on Example per Item E(3) of the FAQ]:-

Date of Payment Period for Remittance of WT Last Day for Remittance of WT
6th January 2022 07.01.2022 to 05.02.2022 1st April 2022
14th February 2022 15.02.2022 to 16.03.2022 1st April 2022
23rd March 2022 24.03.2022 to 22.04.2022 22nd April 2022


Apart from the above, other pertinent points included in the abovementioned FAQ are:-

i. Scope of Agent, Dealer or Distributor as a Resident Individual
 
● For the purpose of above provision, "individual" includes a sole proprietor and an individual partner in a partnership.
● Payments made to partnerships (i.e. not to the individual partners), limited liability partnerships, companies and associations do not fall within the above scope.
ii. Applicability of WT under Section 107D of the ITA 1967
 
● Payments in the form of credit notes, contra and discounts are not subject to the WT.
● In cases where the agent, dealer or distributor is complying with the Prepayment of Income Tax by Instalment ["Form CP500"], the payer company is still required to adhere to the WT compliance requirements.
iii. Determination of Threshold Amount
 
● The 2% WT will apply to the payment to be made to an agent, dealer or distributor for the current year if the total sum of payments (monetary and/or non-monetary) received by that agent, dealer or distributor from a payer company in the immediately preceding basis year arising from sales, transactions or schemes exceeds RM100,000 ["the threshold amount"].
● The threshold amount is to be ascertained by the payer company on a year-to-year basis (i.e. not on a one-off basis) to determine whether the payment to be made in the following year is subject to the WT under Section 107D of the ITA 1967 as illustrated below (based on Example under Item C4 of the FAQ):-

Year Amount Received by
Agent A from a Company		 Subject to WT? Remarks
2021 RM90,000 Not applicable Not in force yet
2022 Exceeds RM100,000 No Threshold amount in 2021 not met
2023 Any amount Yes Threshold amount in 2022 met
● The determination of the threshold amount is based on the payment received from each of the payer companies. i.e. company-by-company basis.
● In the determination of the threshold amount, the resident status of the agent, dealer or distributor (as an individual) is irrelevant. As an illustration [Item C5 of the FAQ refers]:-

Year Resident Status Amount Received Subject to WT? Remarks
2021 Non-resident Exceeds RM100,000 Not applicable Not in force yet
2022 Resident Any amount Yes Threshold amount in 2021
iv. Remittance and Other Reporting of WT via Prescribed Forms
 
● The payer company is required to complete the WT remittance form ["Form CP107D"] when remitting the WT applicable on payment made to each agent, dealer or distributor.
● Payment of WT can be made by post or at the IRB's payment centres located at Kuala Lumpur, Kota Kinabalu or Kuching.
● The payment of WT has to be reported in the Statement of Monetary and Non-monetary Incentive Payment to an Agent, Dealer or Distributor Pursuant to Section 83A of the ITA 1967 ["Form CP58"].
● For the above purposes, the agent, dealer or distributor must have an income tax reference number.

For further information, kindly refer to the following:-

a. FAQ in Relation to the Deduction of Tax at 2% on Payments Made by a Company to an Agent, Dealer or Distributor (updated on 28th February 2022);
b. Our Tax Flash - February 2022 issue; and
c. Our earlier email dated 21st December 2021.


Please do not hesitate to contact us if you need any clarification on the foregoing.