withholding tax to foreign entities for software & technical services
1
If you purchased a software on a licensed basis (E.g. Windows or MS Office etc.) then you are not considered an owner of the software but only a licensee. This also includes payment for advertising on Facebook, Instagram and other social media platforms. It also includes payment for hosting charges and technical services excluding purchase of hardware and devices where there is a transfer of ownership.
2
Payment for license to use or royalties paid to a foreign entity with no permanent establishment in Malaysia is subject to withholding tax of 10%.
3
The rate of withholding tax may differ if the foreign entity is from a country in which Malaysia has a double tax treaty.
4
Non-compliance will result in penalties and LHDN may also disallow the expense resulting in a higher tax liability.
5
Many foreign entities require payment online. However, there is no feature in their payment platforms to deduct for withholding tax. As such, you as the purchaser is required to pay the 10% withholding tax irrespective of whether you are able to recover the said tax from the foreign entity.