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WITHHOLDING TAXON SPECIAL CLASSES OF INCOMEINLAND REVENUE BOARD OF MALAYSIA(b)Public Ruling No. 1/2014Date of Issue: 23 January 2014Installation and commissioning servicesExample 3Champ Ltd, a company resident in Japan, sold 3 stainless steel boilersto Doublesteel Sdn Bhd, a steel manufacturer in Malaysia at a price ofRM1,000,000. It was agreed that an additional sum of RM100,000 waspayable to Champ Ltd for the service of installation and commissioningof the boilers.The sum of RM100,000 is chargeable to tax in Malaysia underparagraph 4A(i) of the ITA 1967. Therefore, withholding tax at the rate of10% on the gross amount should be deducted.8.Technical Advice, Assistance Or Services Rendered In Connection WithTechnical Management Or Administration [Paragraph 4A(ii) of the ITA 1967]8.1Paragraph 4A(ii) of the ITA 1967 consists of amounts paid to a non-residentperson in consideration of technical advice, assistance or services, which areperformed in Malaysia, rendered in connection with technical management oradministration of any scientific, industrial or commercial undertaking, venture,project or scheme.8.2The scope of payments made to a non-resident person under paragraph 4A(ii)of the ITA 1967 covers payments for technical assistance, non-technicalassistance, technical services or non-technical services rendered inconnection with scientific, industrial or commercial undertaking, venture,project or scheme.8.3Technical advice, assistance or services rendered in connection withtechnical management of any scientific, industrial or commercialundertaking, venture, project or scheme would include the passing over orutilisation of expert or specialised knowledge, skills or expertise. Examplesof technical management would include the provision of marketing,consultancy and legal services, supply of technical and software personneland inter-company technical services.8.4Administration would cover management or administrative services inconnection with any scientific, industrial or commercial undertaking, venture,project or scheme. Examples of administration would include non-technicalassistance, non-technical services, management and administrative functionssuch as planning, direction, control, co-ordination, accounting, financialmanagement consultation and labour negotiations. However, the allocation ofhead office expenses:(a)by a non-resident head office to the Malaysian branch, orPage 7 of 37

WITHHOLDING TAXON SPECIAL CLASSES OF INCOMEINLAND REVENUE BOARD OF MALAYSIA(b)Public Ruling No. 1/2014Date of Issue: 23 January 2014by a non-resident parent company to the Malaysian subsidiary,for ordinary day to day or routine administration expenses would be excludedfrom the above scope if it is shown that the payments to the non-resident headoffice or to the non-resident parent company are in no way related to theperformance of any specialised service.Example 4Koizumi Appliances Ltd, a Japanese company, trading in electrical goods hasa branch in Kuala Lumpur. The Japanese company performs certain clericaland administrative jobs such as invoicing and book keeping for its KualaLumpur branch for a monthly fee of RM3,000.As the clerical and administrative jobs such as invoicing and book keeping arepart of the day to day routine expenses and are in no way related to theperformance of any specialised service by the head office in Japan for itsMalaysian branch, they do not fall within the ambit of section 4A of the ITA1967 and therefore are not subject to withholding tax under section 109B ofthe ITA 1967.8.5The following are examples of services that generate income falling within thescope of paragraph 4A(ii) of the ITA 1967:(a)Management or marketing servicesExample 5KMN International Hotel Management Ltd, a Norwegian company,entered into an agreement with KMN Hotel (M) Sdn Bhd to providehotel management and marketing services in Malaysia in connectionwith:(i)the supervision and control of the general manager,(ii)the supervision and co-ordinationdevelopment programmes, and(iii)the promotion and marketing plans for the hotel in Malaysia.ofstafftrainingandUnder the terms of the agreement, the Malaysian company will pay amonthly fee based on 5% of the gross turnover to KMN InternationalHotel Management Ltd for the management and marketing servicesprovided in Malaysia. In addition, an annual fee of 2% on grossoverseas sales will be charged for marketing services performedoverseas.Page 8 of 37

WITHHOLDING TAXON SPECIAL CLASSES OF INCOMEINLAND REVENUE BOARD OF MALAYSIAPublic Ruling No. 1/2014Date of Issue: 23 January 2014The monthly fees of 5% on the gross turnover is subject to 10%withholding tax under section 109B of the ITA 1967. The 2% onoverseas marketing is not subject to withholding tax as the service isnot performed in Malaysia.(b)Consultancy services(i) Fee for consultancy services includes reimbursementExample 6M & A Ltd, an architectural firm in London was engaged to provideplans for a modern hospital in Kuala Lumpur. Staff from the firmcame several times to Malaysia for inspection of the site,discussions with the local company and finally delivered themaster plan. The plans were drawn in its office in London. It wasagreed that consultancy fees of RM1,000,000 would includereimbursements payable by monthly invoices based on theprogress of work done. The agreement also provided ananalysis of the fees charged.The portion of the fees including the reimbursements related to theservices performed in Malaysia is subject to withholding tax undersection 109B of the ITA 1967. However, if it can be confirmed thatM & A Ltd is tax resident in United Kingdom, then the withholdingtax rate is 8% on the value of services performed in Malaysiapursuant to the DTA between Malaysia and United Kingdom.(ii) Fee for consultancy servicesExample 7Jet Engineering (M) Sdn Bhd, entered into an agreement with JetEngineering Services (Asia) Pte Ltd, a Singapore company. TheSingapore company would provide specialist or technical personnelto carry out engineering inspection and rectification works in PortDickson, Kuantan and Melaka for a period of 2 months. The feesagreed were RM300,000.The fees of RM300,000 are subject to withholding tax at 10% asthe services were wholly performed in Malaysia.Page 9 of 37

WITHHOLDING TAXON SPECIAL CLASSES OF INCOMEINLAND REVENUE BOARD OF MALAYSIAPublic Ruling No. 1/2014Date of Issue: 23 January 2014(iii) Monthly fees for consultancy services include reimbursementExample 8FGH (M) Sdn Bhd, is a hardware and software provider. Thecompany had entered into an agreement with PQR Software PteLtd, an Indian company. PQR would provide personnel to work withFGH to supply and implement an Integrated Cash ManagementSystem in a Malaysian bank. It was agreed that FGH would paymonthly fees which included reimbursements such as air tickets,food and other related expenses.The monthly fees are subject to withholding tax at 10% on thegross amount as the services are wholly performed in Malaysia.(c)Legal services in connection with a debt or agency arrangementExample 9A legal firm resident in Singapore was engaged by a Malaysiancompany to advise on matters regarding a debt reduction agreementand an agency agreement. The services were performed wholly inSingapore.Payment for the legal services will not be subject to withholding tax asthe services are wholly performed outside Malaysia.(d)Inter-company technical servicesExample 10Em Electric Canada Limited is a multi-national company dealing withdifferent branded products in the field of telecommunications, processmanagement, storage solutions, industrial automation and other relatedservices. The Malaysian subsidiary, Em Technology Sdn Bhd, whileundertaking projects for various Malaysian customers, always seeksassistance from the parent company or other subsidiaries not residentin Malaysia to provide technical training, project management and otherrelated services.Staff from the parent company and other subsidiaries are assigned towork in Malaysia for a few months or even sometimes up to a yeardepending on the project requirements. The salaries of the assignedstaff are borne by the non-resident parent company or subsidiaries. Theparent company or subsidiaries will issue debit notes to recover thestaff cost and other reimbursements from Em Technology Sdn Bhd. APage 10 of 37

WITHHOLDING TAXON SPECIAL CLASSES OF INCOMEINLAND REVENUE BOARD OF MALAYSIAPublic Ruling No. 1/2014Date of Issue: 23 January 2014debit note is issued as an allocation of cost depending on the nature ofthe jobs involved.The amount on the debit note is subject to withholding tax at 10% onthe gross amount as the services are wholly performed in Malaysia. Inthe event that part of the services is performed offshore, then only thevalue of the services performed in Malaysia is subject to withholdingtax.(e)Specially-tailored training courseExample 11A human resource management company in Singapore was engagedby a Malaysian company to conduct courses specially tailored to theneeds of the Malaysian company. Courses were conducted both inMalaysia and Singapore.The payment for the courses conducted in Malaysia is subject towithholding tax under section 109B of the ITA 1967.(f)Services pertaining to the entertainment industry that does not fallwithin the scope of a public entertainerExample 12A model from the USA arrived in Malaysia on 12.1.2014 for a magazinephoto shoot. The model was paid RM100,000 for the one day photoshoot.The fee received by the model for the photo-shoot is considered aspecial class of income for a commercial undertaking as there was noelement of entertainment during her photo-shoot. The fee received bythe model would be subject to withholding tax under section 109B ofthe ITA 1967.NoteA photo-shoot of a model is generally used in the fashion industry. Amodel poses for a photographer at a studio where multiple photos aretaken to find the best pose. A few examples are:(i)Modelling for a newspaper or magazine article, as well asbillboards,(ii)Advertising a company’s product, where the product is generallyused by the model, and(iii)Modelling a new range of fashion designs for a store or designer.Generally there is no element of entertainment in photo-shoots.Page 11 of 37

WITHHOLDING TAXON SPECIAL CLASSES OF INCOMEINLAND REVENUE BOARD OF MALAYSIA9.Public Ruling No. 1/2014Date of Issue: 23 January 2014Rent Or Other Payments For Use Of Moveable Property [Paragraph 4A(iii) ofthe ITA 1967]9.1Paragraph 4A(iii) of the ITA 1967 consists of rents or other payments made tonon-residents for the use of any moveable property which include rents orother payments made for the use of oil rigs, boats, ships, cars, aircraft or otherequipment within or outside Malaysia. The following are activities falling withinthe scope of paragraph 4A(iii) of the ITA 1967:(a)Slot hireSlot hire is where the hirer has exclusive use of a particular slot in a shipto the exclusion of others. Payments paid for slot hire are subject to awithholding tax at 10% on the gross amount.(b)Leasing of shipsThe exclusive use of a ship which is chartered, whether bare boat or withcrew. Payments made to non-residents who lease out ships fall withinthe ambit of paragraph 4A(iii) of the ITA 1967 and are subject to awithholding tax at 10% on the gross receipt.(c)Time charterTime charter is where a ship is chartered for a specific time. Thus, if aship is chartered, say for 3 years, withholding tax at 10% on the grossamount must be deducted from the payment or the charter fees paid inrespect of the use of the ship.(c)Voyage charterVoyage charter is in respect of a particular voyage, say from Port A toPort B. If a ship is chartered in respect of a particular voyage, the charterfee received is subject to withholding tax at 10% on the gross fees.9.2The following income does not fall within the scope of paragraph 4A(iii) ofthe ITA 1967:Freight chargesFreight charges paid to non-residents in respect of export of goods are notwithin the scope of paragraph 4A(iii) of the ITA 1967 as freight charges arefees for the shipment of goods and not payments for the use of a moveableproperty.9.3The following income which is chargeable to tax under paragraph 4A(iii) ofthe ITA 1967 is specifically given exemption under the Income Tax(Exemption) Orders:Page 12 of 37

WITHHOLDING TAXON SPECIAL CLASSES OF INCOMEINLAND REVENUE BOARD OF MALAYSIA9.3.1Public Ruling No. 1/2014Date of Issue: 23 January 2014Pooling arrangementsA non-resident deriving income under paragraph 4A(iii) of the ITA1967 consisting of payments made under an agreement orarrangement for participation in a pool by a company resident inMalaysia engaged in the business of transporting passengers orcargo by sea is specifically exempted from payment of income taxunder the Income Tax (Exemption) (No.25) Order 1995 [P.U. (A)322/1995]. Consequently, withholding tax under section 109B of theITA 1967 shall not apply to the exempted income.9.3.2Income received from a Malaysian shipping company(a)A non-resident person in Malaysia deriving income underparagraph 4A(iii) of the ITA 1967 from a Malaysian shippingcompany, consisting of payments made under any agreementor arrangement for the use of a ship is specifically exemptedfrom payment of income tax under the Income Tax(Exemption) Order 2007 [P.U.(A) 58/2007].The income is in relation to the use of the ship on a voyagecharter or time charter or bare boat charter. Consequently,withholding tax under section 109B of the ITA 1967 shall notapply to the exempted income. The exemption is effectivefrom 2.9.2006.(b)For the purposes of this exemption, the words below have thefollowing meaning:“Bare boat” means a ship which is chartered without crew andthe charterer has the exclusive use of the ship for a period orfor a voyage,“Malaysian ship” means a sea-going ship registered under theMerchant Shipping Ordinance 1952,“Malaysian shipping company” means a resident companyincorporated under the Companies Act 1965, which owns aMalaysian ship and carrying on a business of (i)transporting passengers or cargoes by sea on a ship,or(ii) letting out a ship, andPage 13 of 37

WITHHOLDING TAXON SPECIAL CLASSES OF INCOMEINLAND REVENUE BOARD OF MALAYSIAPublic Ruling No. 1/2014Date of Issue: 23 January 2014“ship” means a sea-going ship other than a ferry, barge,tug-boat, supply vessel, crew boat, lighter, dredger, fishingboat or other similar vessel”.9.3.3Income derived from the rental of International StandardOrganisation (ISO) containers by a Malaysian shipping companyA non-resident person who receives income derived from the rentalof ISO containers by a Malaysian shipping company is exemptedfrom withholding tax from 20.10.2001 under the Income Tax(Exemption)(No.24) Order 2002 [P.U.(A) 210/2002].For the purpose of this subparagraph, Malaysian shipping companyhas the same meaning as in subparagraph 9.3.2(b).10. Reimbursements10.1 Reimbursements refer to out-of-pocket expenses incurred by the payee:(a)in the course of rendering services to the payer, or(b)in respect of the use of any moveable property,and are subsequently reimbursed by the payer. Such expenses include thecost of airfare, travelling, accommodation, telephone and photocopyingcharges.10.2 Reimbursements are considered as being part of the contract value forservices rendered or for rent or payments made for the use of moveableproperty. As such, it is income of the payee under section 4A of the ITA 1967and is subject to withholding tax at the rate of 10% on the gross amount undersection 109B of the ITA 1967.10.3Prior to 1.1.2009 reimbursements relating to hotel accommodation in Malaysiaare part of the gross income falling under section 4A of the ITA 1967 and aresubject to withholding tax of 10% under section 109B of the ITA 1967.Example 13KJ Pte Ltd, an Australian company, rendered technical service to PillarworksSdn Bhd in June 2008. The services were performed in Malaysia. KJ Pte Ltdissued an invoice dated 15.7.2008 for the value of RM15,000 which includedreimbursements such as cost of air fare and hotel charges of RM5,000incurred by the company.These expenses were classified as travelling and accommodation expenses inthe profit and loss account of Pillarworks Sdn Bhd.Page 14 of 37

WITHHOLDING TAXON SPECIAL CLASSES OF INCOMEINLAND REVENUE BOARD OF MALAYSIAPublic Ruling No. 1/2014Date of Issue: 23 January 2014The reimbursements of RM5,000 form part and parcel of the technical servicefee, and are therefore subject to withholding tax under section 109B of the ITA1967. Thus, Pillarworks Sdn Bhd is responsible to withhold 10% of the grossfee of RM15,000 i.e.RM1,500 and remit to the Direcor General of InlandRevenue (DGIR) within one month from the date of crediting the net technicalservice fee of RM13,500 to KJ Pte Ltd.10.4 With effect from 1.1.2009, reimbursements on hotel accomodation are notincluded in the computation of gross income falling under section 4A of theITA 1967 for the purposes of withholding tax. This exemption is aimed atreducing the cost of services provided by non-residents. Hotel accomodationmeans accomodation in a hotel, apartment hotel, service apartment, motel orhostel.Example 14The facts are the same as in Example 13 except that the services wereperformed in June 2009. The invoice dated 15.7.2009 was for the value ofRM15,000 which included reimbursements such as cost of air fare andhotel charges of RM4,000 and RM1,000 respectively.As the reimbursement for hotel accomodation is not included in the technicalservice fee, therefore this reimbursement is not subject to withholding taxes.Pillarworks Sdn Bhd is responsible to withhold 10% of the gross fee ofRM14,000 (RM1,400.00) and remit to the DGIR within one month from thedate of crediting the net technical service fee of RM13,600 to KJ Pte Ltd.11. Disbursements11.1 Disbursements are out-of-pocket expenses incurred by the payer and paid toa third party on behalf of the payee (a)in connection with services rendered by the payee, or(b)in respect of the use of any moveable property.Disbursements are considered as being part of the contract value forservices rendered or for rent or payments made for the use of anymoveable property. As such, it is income to the payee under section 4A ofthe ITA 1967 and is subject to withholding tax at the rate of 10% on thegross amount under section 109B of the ITA 1967.11.2 Prior to 1.1.2009, disbursements on hotel accomodation was included inthe computation of gross income falling under section 4A of the ITA 1967for the purposes of withholding tax.Page 15 of 37

WITHHOLDING TAXON SPECIAL CLASSES OF INCOMEPublic Ruling No. 1/2014Date of Issue: 23 January 2014INLAND REVENUE BOARD OF MALAYSIAExample 15SH Pte Ltd, a Singapore company, rendered technical service to RoadworksSdn Bhd in September 2006. The services were performed in Malaysia. SHPte Ltd issued an invoice dated 15.10.2006 for the value of RM1,000.Roadworks Sdn Bhd paid the cost of air fares of RM500 for the representativeof SH Pte Ltd to Singapore Airlines (SIA). These expenses were classified astravelling expenses in the profit and loss account of Roadworks Sdn Bhd.Upon receiving the invoice, Roadworks Sdn Bhd pai

business carried on in Malaysia. 6.2 Income under paragraphs 4A(i) and 4A(ii) of the ITA 1967 are deemed derived from Malaysia if such services are performed in Malaysia. 6.3 In a case where the contract requires performance of services both within and outside Malaysia, the proportion of contract value that is attributable to