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ANSWER Scheme

Topic: withholding tax

1. i. The implication of the withholding tax under sec107A is as follows:

Contract cost Withholding tax treatment Amount to be withheld


(RM)
Service portion 10% withheld for Joyland Ltd and 6 million x 13% =
3% for employees of Joyland Bhd RM780,000
Material cost Withholding tax not applicable -

The tax withheld shall remit to the IRB within one month after paying or crediting the
contract amount to Joyland.

ii. Tax liability of Joyland Ltd for YA2011 is as follows:

RM

Chargeable income 3,600,000

Income tax payable at 25% 900,000

Less: 10% tax withheld on service portion (600,000)

Balance of tax payable 300,000

2. The recipient, Wise Kit Ltd is a non-resident and the royalry income is deemed derived from
Malaysia because the responsibility for the royalty payment lies with a resident person, that
is Sun System Sdn Bhd. Therefore, the withholding amount would be 10% of the royalty,
which is RM8,000.

On 10.12.2010, the amount payable to Wise Kit Ltd, will be net of withholding tax, that is
RM72,000. The withholding tax or RM8,000 must be paid to the tax authorities not later than
9.1.2010

If the amount of royalty is paid to a Malaysian branch of Wise Kit Ltd, withholding tax does
not apply as the royalty income is attributable to a business carried on in Malaysia.

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3. CCM Chemicals Sdn Bhd Malaysian resident

Branch in China

Paid royalty of 4% on net sales

Technology Ltd United Kingdom

The royalty received by Technology Ltd. Is derived from Malaysia because it is


payable/paid by a person (CCSB) who is tax resident in Malaysia. A foreign branch
would follow the residence status of the head office. As such the China branch would
be accorded Malaysian residence status.

CCSB would have to deduct a 10% withholding tax on the royalty within one month of
paying or crediting to Technology Ltd. And account to the tax authorities

4. The computation of witholding tax withheld by Bumiputra Commerce Bhd in YA2010.:

RM

Withholding tax;

Interest on saving account:

On the first RM100,000 Exempted

On the remaining RM20,000 80

20000

120,000 x 9,600 x 5%=RM80

Gain from a deposit under ” interest free banking scheme Exempted

5. computation of the total debt due to IRB .

RM

Royalty pain on 1 July 2011 100,000

Withholding tax to be received by the IRB not later than 1/8/2011 10,000

Penalty (10% x 100,000) 10,000

Total debt due 20,000

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6. Mr Jim is a non-resident, deriving interest income from Malaysia because the responsibility
for paying the interest income lies with Springhill Sdn Bhd(tax resident) who has used the
loan in the production of Malaysia derived income.

The withholding tax would be RM52,500 915% OF rm350,000) and Mr Jim will only receive
the net amount, that is RM297,500. The withholding tax of RM52,500 must be paid to the tax
authorities within one month after the payment is made or credited to Mr Jim.

7. a. The payment, being interest income is subject to Malaysia tax is deemed derived
from Malaysia. This is due to the fact that the payer (the subsidiary company) is a tax
resident of Malaysia and the loan is used to finance an asset used in the production of the
gross income of the payer derived from Malayisa.

Withholding tax at the rate of 155 must be deductde from the interest upon paying or
crediting such interest to the non-resident company. The withholding tax is the final tax
imposed on Yong Jue (HK) Ltd, the non-resident company.

b. i. interest or bonus from any saving accounts or deposits with Bank Simpanan
Nasional under the “save as you Earn scheme.”

ii. Interest from saving up to a max of RM100,000 in an approved financial


institution.

8. The US Company has recived special classes of income. Eg, the technical fees and services in
connection with the installation for a Malaysian resident company.The special calsses of income is
deemed derived from Malaysia because the responsiility for the payment lies with Angel Sdn Bhd, a
resident company. The income would be subject to 10% withholding tax as folows:

RM

a. Technical advice fees910% x RM60,000) 6,000

B. Services in connection with insatllation (10% x RM75,000) 7,500

The US company only receive the amount net of withholding tax. The withholding tax has to
be paid to the tax authorities:

i. Technical advice fees - not later than 1.7.2010

ii. services in connection with installation - not later than 15.1.2011

There is no withholding tax on the supplies of equipment by the US company.

9. i. Cost of the machinery is not subjected to withholding tax.

ii. The expenses incurred for consultancy services is not subjected to withholding tax
provision because the income is attributable to a business carried on in Malaysia.
Example, by the Malaysian company.

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iii. Payment for services in connection with the installation of the plant and machinery
falls under Section 4A income (special calss of income). Withholding tax is applicable
as the responsibility of payment lies with Malaysian resident company and the
recipient is a non-resident. The rate of the withholding tax is 10% and the amount of
tax withheld should be:

RM95,000 X 10% = RM9,500

The tax withheld shall, within one month after paying and crediting the payment, be
remitted to the IRB. If Cyber Comm Sdn Bhd failed to do so, the penalty will be:

RM95,000X10% = RM9,500

The withholding tax of RM9,500 and the penalty of RM9,500 will bcome a debt due
to the government by Cyber Comm Sdn Bhd and under Sec 3991)(i) , the payment is
not a deductible expenses unless the withholding tax and the penalty are paid.

The penalty imposed is not a deductible expenses

10. a. Withholding tax is imposed on non-residents who has business dealings in

Malaysia but merely renders services from his home country(trading with
Malaysia). In order to ensure an efficient tax collection, the Act has appointed
the payer as an agent responsible to collect income taxes from such non-
residents, to withhold a portion of the payment and pay to the tax authorities.
Such portion is known as withholding tax.

b. i. Withholding tax applies to the payment for technical assistance at the rate of
10% as follows:

RM80,000 X 10% =RM8,000

A penalty for non-payment of the tax to the IRB will be imposed at the rate of
10% of unpaid withholding tax as follows:

RM8,000 X 10% =RM800

ii. The payment of installation charges is subject to withholding tax provisions


despite the income is attributable to a business carried on in Malaysia. Eg, by
the Malaysian branch of the non-resident company. Sec 109B clearly spells
out that withholding tax is imposed on non-resident. The withholding tax will
be 10% x RM40,000 = RM4,000.

iii. The gross amount of fees for staff training eg. RM80,000 is a deductible
expense in determining the adjusted income of Naga Sdn Bhd but only if the
unpaid tax and penalty (RM8,800) have been paid to the IRB