S.107D is a new section of the Income Tax Act 1967 introduced for the first year in 2022. How this new section is going to affect you as a contractor? At the time of recording, the issue of definition of “company” as in S.107D is in doubt. Could S.107D be just “Sdn Bhd, Partnership and LLP” and not sole-proprietorship?
Where a company, in this section referred to as the payer, is liable to make payments in monetary form to an agent, a dealer or a distributor at any time in a basis year for a year of assessment arising from sales, transactions or schemes carried out by that agent, dealer or distributor, the payer shall upon paying or crediting such payments deduct therefrom tax at the rate of two per cent of the payments on account of tax which is or may be payable by that agent, dealer or distributor for any year of assessment and, whether or not that tax is so deducted, shall within thirty days after paying or crediting such payments render an account and pay the amount of that tax to the Director General:
Definition of “company” as per S.2 Income Tax Act, 1967 is as below:
“company” means a body corporate and includes any body of persons established with a separate legal identity by or under the laws of a territory outside Malaysia;
Hence, if you are a E(3) agency – sole-proprietorship, you may not be included as “company” under S.107D, and thus not necessary to implement the 2% withholding tax rule.