Question

Ayer Moiek Sdn Bhd is currently developing a sport complex for futsal in Sungai Layar. During the year ended 30 September 2019 the company made the following payments:

1. RM3,500,500 to Sport Unity Ltd. (resident in Australia) for work carried out for the sport complex.

The breakdown of the RM3,500,500 is as follows:

Nature of payment                                                                              RM

Cost of plant and machinery                                                               1,200,000

Technical advice on the installation of plant and                                              700,000

machinery rendered in Malaysia

Contract work on infrastructure and building carried out in Malaysia           1,600,500

2. RM998.000 being royalties paid to Sport Planet Ampang (resident company based in Ampang, Selangor) for use of patents relating to foundation work.

Required:

State with reasons whether the above payments made by Ayer Moiek Sdn Bhd are subject to withholding tax. State the rate(s) imposed, sections (if any) and the amount of withholding tax (if applicable), and the due date of payment.                                                               

Answer 1

1. Calculation of withholding of tax on the basis of Nature of Payment along with section and due date of payment is as under:
a) Cost of plant and machinery - RM  1,200,000
Tax to be withheld- NIL
No tax is to be withheld on the purchase of assets

b) Technical advice on the installation of plant and machinery rendered in Malaysia -   RM 700,000

Tax to be withheld for payment for technical advice to Non-Resident is eligible for withholding of Tax under section 109B of  Income Tax Act 1967 @ 10%

Tax Withheld @ 10% u/s 109B= RM 70,000 (RM 7,00,000*10%)
Due Date- within one month of the date of payment of technical services to NR

c) Contract work on infrastructure and building carried out in Malaysia RM 1,600,500
Tax to be withheld for payment for Contract work to Non-Resident is eligible for withholding of Tax under section 107A of  Income Tax Act 1967 @ 13% (10% for tax payable by non-resident contractor +3% for tax payable by non-resident contractor's employees)

Tax Withheld @ 10% u/s 107A (1)(a)= RM 160,050 (RM 1,600,500*10%)
Tax Withheld @ 3% u/s 107A (1)(b)= RM 48,015 (RM 1,600,500*3%)

TotalcTax Withheld @ 10% u/s 107A for Contract payment to NR= RM 208,065 (RM 7,00,000*13%)

Due Date- within one month of the date of Contract payment to NR

2. RM998.000 being royalties paid to Sport Planet Ampang (a resident company based in Ampang, Selangor) for use of patents relating to foundation work.

No withholding of tax for payment made to residents