- The payer must pay withholding tax to Lembaga Hasil Dalam Negeri Malaysia (LHDN) within one month after paying or crediting the non-resident, whether or not the tax was actually deducted (Income Tax Act 1967, sections 107A(1), 109(1), 109B(1) and 109F(1)).
- Domestic rates are royalty 10% and interest 15% (section 109, form CP37), special classes of income 10% (section 109B, form CP37D), income under paragraph 4(f) 10% (section 109F, form CP37F), and contract payments 10% plus 3% (section 107A, form CP37A) (LHDN, Withholding Tax, updated 5 October 2026).
- Late payment increases the unpaid amount by 10%, and the payment to the non-resident is not deductible as a business expense until the withholding tax and the increase are paid (Income Tax Act 1967, sections 39(1)(f), (i), (j) and (q)).
- A business with annual turnover or revenue below RM3 million is generally exempt from issuing e-invoices, including self-billed ones, unless a non-individual shareholder, holding company, related company or joint venture has turnover of RM3 million or more (e-Invoice General Guideline v4.8, 30 August 2026, sections 1.6.1(e) and 1.6.10). The withholding tax provisions have no turnover exemption.
- A validated self-billed e-invoice is the buyer’s proof of expense (e-Invoice Specific Guideline v4.9, 7 September 2026, section 10.4.6). It does not replace the CP37 form, and it does not make the payment deductible while the withholding tax is unpaid.
For payments to non-residents, withholding tax in Malaysia is tax that the Malaysian payer deducts from royalties, interest, contract payments, technical service fees and similar payments, and pays to Lembaga Hasil Dalam Negeri Malaysia (LHDN), the Inland Revenue Board of Malaysia (IRBM). The payer must pay it within one month after paying or crediting the non-resident.
The main rates are 10% for royalties and special classes of income, 15% for interest, and 10% plus 3% for contract payments for services performed in Malaysia (LHDN, Withholding Tax, updated 5 October 2026). A business within the e-invoice mandate must also issue a self-billed e-invoice for a foreign supplier’s invoice, and for imported services that deadline differs from the withholding tax deadline. This guide covers the rates, the CP37 forms, the deadlines, the penalties and how the two obligations fit together.
What is withholding tax in Malaysia?
Withholding tax is an amount withheld by the payer from income that a payee derives from Malaysia for certain transactions, and paid to LHDN (LHDN, Withholding Tax, updated 5 October 2026). The Income Tax Act 1967 (ITA), Malaysia’s main income tax law, places the duty to deduct and pay on the payer, not on the foreign recipient. For how withholding tax sits beside your other filings, see our Malaysia business tax guide.
LHDN defines the payer as the Government, a State Government, a local authority, a resident person, or any person who claims the payment as an expense in the accounts of a business carried on in Malaysia. The payee is the person who receives a payment subject to withholding tax. A private limited company (Sdn Bhd) that pays a foreign supplier and books the cost as a business expense is the payer whenever that payment falls into a withholding tax category.
The tax works in one of two ways:
- Final tax. For royalties, interest and special classes of income, the withholding tax is a final tax on the non-resident (LHDN, Withholding Tax).
- Tax on account. For contract payments under section 107A, the 10% portion is applied towards the non-resident contractor’s own Malaysian tax for the year (ITA section 107A(3)(a)). The 3% portion is on account of tax payable by the contractor’s employees.
Which payments to non-residents attract withholding tax?
The payment types on LHDN’s withholding tax page can be grouped into seven categories (LHDN, Withholding Tax):
- Contract payments for work or professional services performed in Malaysia under a contract (section 107A).
- Interest, other than interest on an approved loan and other interest LHDN lists as exempt, such as certain interest paid by licensed banks (section 109).
- Royalties, including payments for the use of copyrights, software, patents, trademarks, designs and know-how (section 109).
- Payments to non-resident public entertainers for services performed in Malaysia (section 109A).
- Special classes of income: services connected with the use of property or the installation or operation of plant bought from the non-resident, management or technical advice and assistance, and rent for movable property (section 109B).
- Gains or profits under paragraph 4(f), the ITA’s category for gains or profits not falling under any other paragraph of section 4 (section 109F).
- Fund distributions and early retirement-scheme withdrawals, such as Real Estate Investment Trust (REIT) distributions (sections 109D, 109DA, 109E and 109G). These are withheld by the fund or scheme provider, not by a trading business, and are not limited to non-resident recipients.
Interest, royalties and special classes of income are deemed derived from Malaysia when the Government, a State Government or a local authority is responsible for the payment, when a Malaysian resident is responsible for it, or when it is charged as an expense against Malaysian income. For interest paid by a resident, LHDN adds a condition: the borrowed money is used to produce Malaysian income, or the debt is secured on property in Malaysia.
Where the service is performed matters. Section 107A covers only work or professional services performed in Malaysia (ITA section 107A(5)).
For section 109B, LHDN states that the services and advice limbs apply only to the amount attributable to services performed in Malaysia. A consultant who advises your company entirely from overseas is therefore treated differently from one who flies in to do the work.
Withholding tax rates in Malaysia by payment type
Withholding tax rates in Malaysia for payments to foreign suppliers are 10%, 15%, or 10% plus 3%, depending on the type of payment. The table follows LHDN’s withholding tax page, last updated 5 October 2026, and leaves out the fund-distribution rates that trading businesses do not apply.
| Payment to a non-resident | ITA section | Domestic rate | Form | Nature of the tax |
|---|---|---|---|---|
| Contract payment for services in Malaysia | 107A | 10% + 3% of the service portion | CP37A | On account of tax, not final |
| Interest | 109 | 15% | CP37 | Final tax |
| Royalty | 109 | 10% | CP37 | Final tax |
| Interest and royalty, small-value payments | 109 | 15% / 10% | CP37S | Final tax |
| Public entertainer | 109A | 15% | CP154 and tax calculation issued by LHDN | Not stated as final by LHDN |
| Special classes of income (technical, management, installation services, rent of movable property) | 109B | 10% | CP37D | Final tax |
| Special classes of income, small-value payments | 109B | 10% | CP37DS | Final tax |
| Gains or profits under paragraph 4(f) | 109F | 10% | CP37F | Not stated as final by LHDN |
Source: LHDN, Withholding Tax, updated 5 October 2026.
When a double taxation agreement lowers the rate
A Double Taxation Avoidance Agreement (DTAA) between Malaysia and the payee’s country can set a lower rate for interest, royalties and technical fees. Malaysia has concluded 75 effective DTAAs (LHDN, Withholding Tax, updated 5 October 2026), and LHDN publishes the treaty rates on its Double Taxation Avoidance Agreement page.
The treaty rate is not automatic. LHDN requires written confirmation, a letter or certificate from the payee country’s revenue authority verifying the payee’s tax residence, and expects the payer to keep it for future compliance reviews. Where there is no such document, no DTAA or only a limited DTAA, the domestic rate in the table above prevails.
How to calculate and pay withholding tax with CP37 forms
Withholding tax is calculated on the gross amount of the payment, then submitted on the matching CP37-series form and paid through e-WHT, the withholding tax service on MyTax, LHDN’s online tax portal. The four steps below follow the LHDN withholding tax page and form CP37 (Pin. 1/2024).
Step 1: Classify the payment
Match the foreign supplier’s invoice to one category in the rate table. Check where the services were performed, because section 107A and the services limbs of section 109B depend on work done in Malaysia. If you will apply a treaty rate, request the payee’s certificate of tax residence now.
Step 2: Calculate the tax on the gross amount
Multiply the gross payment (for a section 107A contract payment, the service portion) by the rate. LHDN calculates royalty and special classes of income withholding tax on the gross amount, and form CP37 asks for the gross amount with a copy of the invoice attached.
Step 3: Submit the form and pay within one month
Log in to MyTax, complete and submit the CP37-series form through e-WHT, and pay online or with the bill number on the e-WHT slip at selected agent banks. A payer without a Malaysian bank account, or whose bank is not a member of FPX (Financial Process Exchange), can generate a virtual account number through LHDN’s online payment system and pay by telegraphic transfer, Interbank GIRO or electronic fund transfer.
Step 4: Keep the records together
File the foreign invoice, proof of the payment date, the CP37 form, the bank payment slip and any residence certificate in one place, alongside the other accounting documents to keep for tax filing. Form CP37 requires documentary evidence of the date the payment was made or credited.
Two worked examples
Contract payment (section 107A). A foreign contractor carries out fit-out works at your Malaysian premises. The service portion of the invoice is RM100,000.
| Item | Amount |
|---|---|
| Service portion of the contract payment | RM100,000 |
| 10% on account of the contractor’s tax | RM10,000 |
| 3% on account of the contractor’s employees’ tax | RM3,000 |
| Total withholding tax on form CP37A | RM13,000 |
| Service portion paid to the contractor after deduction | RM87,000 |
Royalty (section 109), LHDN’s own example. A royalty of RM200,000 is paid to a non-resident on 15 November 2023, so RM20,000 of withholding tax is due by 15 December 2023. LHDN received it on 20 December 2023, five days late, and the payer owed a further RM2,000 increase (LHDN, Withholding Tax).
Small-value payments can be paid twice a year
Withholding tax of RM500 or less per payment transaction on royalties, interest and special classes of income can be deferred, provided such small-value transactions occur more than once within the relevant six-month period. The tax is still due. Only the payment date moves, using forms CP37S and CP37DS.
| Payments made between | Pay withholding tax by |
|---|---|
| 1 December of the previous year and 31 May | 30 June |
| 1 June and 30 November | 31 December |
Source: LHDN, Withholding Tax, small-value payments section.
Withholding tax deadlines and late payment penalties
Withholding tax must be paid to LHDN within one month after the payment is paid or credited to the non-resident, and the payer owes it whether or not the tax was deducted (ITA sections 107A(1), 109(1), 109B(1) and 109F(1)). The clock runs from the date the payment is paid or credited, not from the invoice date. Ask your tax agent when a book entry to the non-resident’s account counts as crediting.
Missing the deadline has three separate consequences:
| Consequence | Legal basis | What it means for the payer |
|---|---|---|
| 10% increase on the unpaid tax | ITA sections 107A(2), 109(2), 109B(2), 109F(2) | The unpaid tax plus 10% becomes a debt due to the Government, recoverable under section 106(1) |
| Expense disallowed | ITA section 39(1)(f), (i), (j) and (q) | The payment to the non-resident is not deductible until the withholding tax and the increase are paid |
| Incorrect return penalty | ITA section 113(2) | Claiming the deduction in the return while the withholding tax is unpaid exposes the payer to a penalty, whether the return was filed on time or late |
Source: Income Tax Act 1967, online updated text as at 1 January 2026; LHDN, Withholding Tax, Enforcement section.
The Director General may remit the 10% increase in whole or in part for good cause shown (ITA sections 107A(4A), 109(3A), 109B(3A) and 109F(4)). Plan on paying it, not on a remission.
Year-end accruals carry a timing trap. If the payment is not yet due and nothing is paid or credited to the non-resident by the return’s due date, LHDN does not allow the deduction for that year; the payer can apply for relief under section 131A within one year after the end of the year in which the payment is made. For the annual return dates themselves, see our 2026 tax filing deadlines guide.
Withholding tax and self-billed e-invoices for imported services
One payment to a foreign supplier can create two LHDN obligations, and they run on different rules and different clocks. Withholding tax comes from the ITA.
The self-billed e-invoice duty comes from ITA section 82C(6), with conditions set in the e-Invoice Specific Guideline v4.9 (7 September 2026), which requires the Malaysian buyer to issue a self-billed e-invoice for goods sold or services rendered by foreign suppliers (sections 8.3(b) and 10.4.3). The reason given is that the foreign supplier is not mandated to issue a Malaysian e-invoice.
The e-invoice is submitted to MyInvois, LHDN’s e-invoice validation system; our complete LHDN e-invoice guide covers how it works.
| Point of comparison | Withholding tax | Self-billed e-invoice |
|---|---|---|
| Legal basis | ITA sections 107A, 109, 109B, 109F | ITA section 82C(6); conditions in Specific Guideline v4.9, sections 8.3(b) and 10.4 (interest payments: section 8.3(g)) |
| Who is covered | Any payer, any size | Businesses within the e-invoice mandate; below RM3 million is generally exempt, subject to the related-company rule in General Guideline v4.8, section 1.6.10 |
| Deadline | Within one month after paying or crediting | Imported services: by the end of the month following the month of payment or receipt of the foreign invoice, whichever is earlier (section 10.4.9) |
| Filed through | CP37-series form on e-WHT, MyTax | MyInvois, by portal or application programming interface (API) |
| What it proves | Tax paid on the non-resident’s income | The buyer’s proof of expense (section 10.4.6) |
| Risk if ignored | 10% increase, expense disallowed | RM200 to RM20,000, up to six months’ imprisonment, or both (ITA section 82C(6), paragraph 120(1)(d)); see our LHDN e-invoice penalty guide |
Which deadline comes first
Either deadline can come first. When the payment is made in the same month the foreign invoice arrives, or earlier, the withholding tax falls due first, or on the same day when one month after payment lands on the last day of the next month. When the payment is made in a later month than the invoice arrives, the self-billed e-invoice falls due first.
Two dated examples, assuming a business within the e-invoice mandate and a payment subject to withholding tax:
| Event | Example A | Example B |
|---|---|---|
| Foreign invoice received | 3 December 2026 | 20 November 2026 |
| Payment made | 18 December 2026 | 21 December 2026 |
| Withholding tax due | 18 January 2027 | 21 January 2027 |
| Self-billed e-invoice due | 31 January 2027 | 31 December 2026 |
| Deadline that comes first | Withholding tax | Self-billed e-invoice |
If service tax on imported taxable services applies under the Sales and Service Tax (SST) rules, the self-billed e-invoice must include the service tax amount (Specific Guideline v4.9, section 10.4.7). Our summary of the 2026 SST changes covers the wider SST picture.
Details that trip up the self-billed side
- Supplier TIN. A foreign supplier without a Tax Identification Number (TIN) takes the general TIN EI00000000030 (Specific Guideline v4.9, section 10.4.10); see our general TIN codes for foreign suppliers.
- Missing supplier details. Where details are not applicable or not provided by the foreign seller, the buyer inputs “NA” (section 10.4.5).
- No sharing obligation. The buyer is not obliged to share the validated self-billed e-invoice with the foreign seller (section 10.4.6).
- Company size. Our guide to the RM3 million e-invoice exemption covers the related-company tests.
For the e-invoice mechanics, read our guide to self-billed e-invoices for imported services and the overview of all self-billed e-invoice scenarios.
Common withholding tax mistakes
Five mistakes recur on payments to foreign suppliers:
- Paying the full invoice and forgetting to withhold. The payer still owes the tax (ITA section 109(1) and equivalents) and may recover it from the non-resident as a debt (section 109(3)(b)).
- Applying a treaty rate without a residence certificate. Without written confirmation of the payee’s tax residence, the domestic rate applies.
- Assuming services performed overseas are always outside the regime. The location test applies to section 107A and the services limbs of section 109B. Royalties and 4(f) income follow their own rules.
- Treating the self-billed e-invoice as the tax filing. MyInvois and e-WHT are separate systems with separate deadlines.
- Claiming the expense before the withholding tax is paid. The deduction is disallowed and the return can attract a section 113(2) penalty.
The 2% deduction on payments to agents, dealers and distributors under section 107D is a separate regime; our CP58 guide covers those payments.
Where JomeInvoice fits: the self-billed e-invoice side
JomeInvoice handles the e-invoice half of a foreign payment, not the withholding tax half. Computing and filing CP37 forms stays with your finance team or tax agent on e-WHT.
JomeInvoice is Malaysia’s e-invoicing middleware that connects your existing accounting, enterprise resource planning (ERP) or point-of-sale (POS) system to MyInvois without custom development on your side. It runs two invoice modules, Sales and Self-Billed, so self-billed e-invoices for foreign suppliers sit in their own module rather than mixed with sales (JomeInvoice docs, Self-Billed vs Sales).
Self-billed invoices can be created manually, uploaded, or sent by secure file transfer (SFTP) or API, and foreign-currency invoices carry the Malaysian ringgit (MYR) exchange rate you provide (JomeInvoice docs, Create an invoice). Support is local, in Bahasa Malaysia, English and Mandarin.
To see the Self-Billed module with your own foreign supplier invoices, talk to the JomeInvoice team.
Diary both clocks for every foreign invoice
Withholding tax on a foreign payment is due to LHDN within one month after you pay or credit the non-resident, at 10%, 15% or 10% plus 3% depending on the payment, and lateness costs a 10% increase, with the expense deduction blocked until the tax and the increase are paid. If your business is within the e-invoice mandate, the same invoice also needs a self-billed e-invoice by the end of the month after payment or invoice receipt, whichever is earlier. Classify each payment with your tax agent and diary both dates, because either can fall first.
See how JomeInvoice handles self-billed e-invoices for foreign suppliers
Issue and track self-billed e-invoices for imported services from your existing system, while your tax agent keeps the CP37 side.
Disclaimer: This article is for general informational purposes only and does not constitute legal or tax advice. LHDN guidelines are subject to updates. Always refer to the latest official LHDN e-Invoice Guidelines at myinvois.hasil.gov.my and consult a qualified tax professional for advice specific to your business.
Frequently Asked Questions
Who pays withholding tax in Malaysia?
The payer pays it to LHDN: the Government, a State Government, a local authority, a resident person, or anyone claiming the payment as a Malaysian business expense. Where the payer deducts the tax from the payment, the non-resident receives the net amount.
What is the withholding tax rate for services by non-residents?
The rate is 10% plus 3% of the service portion for contract services performed in Malaysia (section 107A), or 10% for technical, management or installation services performed in Malaysia (section 109B). A double taxation agreement can lower the rate on technical fees.
When must withholding tax be paid?
Within one month after the payment is paid or credited to the non-resident. Withholding tax of RM500 or less per royalty, interest or special classes payment, where such payments recur within the six-month period, can be paid by 30 June or 31 December instead.
What happens if withholding tax is paid late?
The unpaid tax increases by 10%, and the payment is not deductible as an expense until the tax and the increase are paid. Claiming the deduction while the tax is unpaid can also attract a penalty under section 113(2) of the ITA.
Does a double taxation agreement reduce withholding tax?
Yes, for interest, royalties and technical fees where the treaty sets a lower rate. LHDN requires a letter or certificate from the payee country’s tax authority confirming the payee’s tax residence, kept on file for compliance reviews.
Do I issue a self-billed e-invoice for a foreign supplier?
Yes, if your business is within the e-invoice mandate. For imported services, issue it by the end of the month after the earlier of payment or receipt of the foreign invoice (Specific Guideline v4.9, section 10.4.9). Businesses below RM3 million are generally exempt.
Is withholding tax a final tax in Malaysia?
Sometimes. Withholding tax on royalties, interest and special classes of income is a final tax for the non-resident. The 10% withheld on contract payments under section 107A is applied against the contractor’s own Malaysian tax, so it is not final.
Last updated: 6 November 2026 | Written by Yinn Sheng Ng, Head of Marketing
References
Based on: LHDN Withholding Tax page (updated 5 October 2026); Income Tax Act 1967 (online updated text as at 1 January 2026); e-Invoice Specific Guideline v4.9 (7 September 2026) and e-Invoice General Guideline v4.8 (30 August 2026). Verified 5 November 2026.
- LHDN, Withholding Tax (last updated 5 October 2026): https://www.hasil.gov.my/en/perundangan/cukai-pegangan/
- Income Tax Act 1967 (Act 53), online updated text as at 1 January 2026, sections 4(f), 39(1), 82C(6), 107A, 109, 109B, 109F, 113(2), 131A: https://www.hasil.gov.my/wp-content/uploads/Income-Tax-Act-1967-online-version-as-at-1-January-2026.pdf
- LHDN, Double Taxation Avoidance Agreements: https://www.hasil.gov.my/en/antarabangsa/perjanjian-pengelakan-pencukaian-dua-kali-pppdk/
- LHDN, Form CP37 (Pin. 1/2024): https://www.hasil.gov.my/wp-content/uploads/cp37-pin-1_2024.pdf
- LHDN, MyTax portal (e-WHT): https://mytax.hasil.gov.my/
- LHDN, e-Invoice Specific Guideline v4.9 (7 September 2026), sections 8.3, 10.4 and 16: https://www.hasil.gov.my/wp-content/uploads/IRBM-e-Invoice-Specific-Guideline.pdf
- LHDN, e-Invoice General Guideline v4.8 (30 August 2026), sections 1.6.1(e) and 1.6.10: https://www.hasil.gov.my/wp-content/uploads/IRBM-e-Invoice-Guideline.pdf