1. Objective
The objective of this Public Ruling (PR) is to explain –
(a) special classes of income that are chargeable to tax under section 4A of the
Income Tax Act 1967 (ITA);
(b) deduction of tax from special classes of income; and
(c) consequences of not deducting and remitting the tax from special classes of
income.
2. Relevant Provision s of The Law
2.1 This PR takes into account laws which are in force as at the date this PR is
published.
2.2 The provisions of the ITA related to this PR are sections 2, 4A, 4B, 7 and 8,
paragraphs 4(c) and 6(1)(e), section 15A, subsection 24(8), paragraph
39(1)( j), sections 98, 109B, 109H, sub section 113(2), section 131A,
subsection 132(1) and Part V, Schedule 1 of the ITA.
2.3 The relevant subsidiary law s referred to in this PR are:
(a) Income Tax (Exemption) (No. 9 ) Order 2017 [P.U.(A) 323/2017];
(b) Income Tax (Exemption) (No.25) Order 1995 [P.U. (A) 32 2/1995];
(c) Income Tax (Exemption) Order 2007 [P.U.(A) 58/2007]; and
(d) Income Tax (Exemption) (No. 24) Order 2002 [P.U.(A) 210/2002].
3. Interpretation
The words used in this PR have the following meaning:
3.1 “Individual” means a natural person.
3.2 “Director General” means Director General of Inland Revenue.
3.3 “Person” includes a company, a body of persons, a limited liability partnership
and a corporation sole.
3.4 “Resident person” is a person resident in Malaysia for the basis year for a
year of assessment as determined u nder sections 7 and 8 of the ITA.
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Public Ruling No. 10/2019
INLAND REVENUE BOARD OF MALAYSIA Date of Publication: 10 December 2019
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3.5 “Non -resident person” in relation to the payee, is a person other than a
resident person.
3.6 “Double Tax Agreement (DTA) and protocols” means an agreement and its
protocols entered into between the two governments of two co untries to afford
relief from double taxation.
3.7 “Special Commissioners” means the Special Commissioners of Income Tax
referred to in section 98 of the ITA.
4. Special Classes of Income Chargeable to Tax
The income of a non -resident person from the following special classes of income is
chargeable to tax in Malaysia if it is derived from Malaysia:
(a) amounts paid in consideration of services rendered by the non -resident
person or his employee in connection with:
(i) the use of property or rights belonging to him; or
(ii) the installation or operation of any plant, machinery or other apparatus
purchased from him [paragraph 4A(i) of the ITA];
(b) amounts paid to a non -resident person in consideration of any advice given
or assistance or services rendered in connection with manag ement or
administration of any scientific, industrial or commercial undertaking, venture,
project or scheme [paragraph 4A(ii) of the ITA]; or
(c) rent or other payments made under any ag reement or arrangement to a non –
resident person for the use of any moveabl e property [paragraph 4A(iii) of the
ITA].
5. Derivation of Special Classes of Income
5.1 The gross income in respect of the amounts paid under paragraphs 4A(i),
4A(ii) and 4A(iii) of the ITA shall be deemed to be derived from Malaysia if:
(a) the responsibility for the payment lies with the Government, a State
Government or a local authority;
(b) the responsibility for the payment lies with a person who is resident in
Malaysia for that basis year; or
(c) the payment is charged as an outgoing or expense in the accounts of a
business carried on in Malaysia.
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INLAND REVENUE BOARD OF MALAYSIA Date of Publication: 10 December 2019
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5.2 Pursuant to section 6 of the Finance Act 2017 [Act 785], effective 17.1.2017,
income under paragraphs 4A(i) and 4A(ii) of the ITA which is derived from
Malaysia is chargeable to tax in Malaysia regardless of whether the se rvices
are performed in or outside Malaysia.
However, with effect from 6.9.2017 the Minister of Finance exempts a person
not resident in Malaysia from the payment of income tax in respect of income
derived from Malaysia in relation to –
(a) services referred t o in paragraph 4A(i) of the ITA; or
(b) advice, assistance or services referred to in paragraph 4A(ii) of the ITA
which are performed by the person outside Malaysia.
5.3 In a case where the contract requires performance of services both within and
outside Malaysia, the proportion of contract value that is attributable to
services performed in Malaysia must be ascertained in a manner that is fair
and justifiable. Apportionment of the contract value should be based on the
value of services performed in Malays ia. It is important that the contract value
be apportioned on these bases according to the facts of each case as only
the portion of contract value that is attributable to services performed in
Malaysia is subject to withholding tax under section 109B of t he ITA.
Example 1
Syarikat Maju Sdn Bhd, a Malaysian company signed an agreement with
Excel Ltd, a non -resident company, to provide a report addressing the
industry structure, market conditions and technology value for the Multimedia
Super Corridor Grant Scheme. A consultan t from Excel Ltd was in Malaysia
for 6 days for preliminary discussion on the project. The total number of days
spent on the whole project was 42 days from October to November 201 9. The
total fees paid for the project was RM20,000. The report was later com pleted
overseas.
The proportion of the project value attributable to the services performed in
Malaysia is computed on time cost.
Total fees for the project RM20,000
Number of days spent on the whole project 42 days
Number of days spent in Malaysia 6 days
Time cost in Malaysia RM2,857.14 (6/42 X 20,000)
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The fees of RM2 ,857.14 is subject to a withholding tax of 10% under section
109B of the ITA.
6. Services Rendered in Connection with the Use or Installation or Operation of
Assets [Paragraph 4A(i) of the ITA ]
6.1 Paragraph 4A(i) of the ITA consists of amounts paid in consideration of
services which are performed in or outside Malaysia, rendered by a non –
resident person or his employee, in connection with:
(a) the use of property or rights belonging to the non-resident person; or
(b) the installation or operation of any plant, machinery or other apparatus
purchased from him.
It should be noted that any services provided in connection with use of
property or rights belonging to the non -resident person that falls under the
scope of royalties would fall under the scope of paragraph 4A(i) of the ITA .
6.2 The following are examples of services that generate income falling within the
scope of paragraph 4A(i) of the ITA:
(a) Provision of personnel for advisory or supervisory se rvices
Example 2
A Sdn Bhd bought a power plant from B Ltd, a company resident in India
on 1.3.201 9. The terms of the purchase include installation of the plant
by B Ltd. For this purpose, B Ltd sent two of its engineers to Malaysia to
supervise the instal lation and operation of the plant from 15.4.201 9 to
31.5.201 9. The fees paid to B Ltd for the services was RM100,000.
The fees paid for services rendered by the employees of B Ltd in
connection with the installation of a plant purchased from B Ltd are
deem ed derived from Malaysia and chargeable to tax under paragraph
4A(i) of the ITA. The gross amount paid to B Ltd is subject to withholding
tax under section 109B of the ITA at the rate of 10%.
(b) Installation and commissioning services
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Public Ruling No. 10/2019
INLAND REVENUE BOARD OF MALAYSIA Date of Publication: 10 December 2019
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Example 3
Champ Ltd, a company resident in India, sold 3 stainless steel boilers to
Doublesteel Sdn Bhd, a steel manufacturer in Malaysia at a price of RM1
million in March 2017. It was agreed that an additional sum of
RM100,000 was payable to Champ Ltd for the inst allation services and
commissioning of the boilers in Malaysia and at the Malaysian
company’s branch in the United States of America (USA) in April 2017.
Subsequently i n January 2019, Champ Ltd sold an additional steel boiler
to Doublesteel Sdn Bhd and was paid RM120,000 for the installation
services and commissioning of the boiler s in the USA.
(i) The payment of RM100,000 for services rendered in April 2017 by
Champ Ltd in connection with the installation and commissioning of
the steel boiler s in and outside M alaysia are deemed derived from
Malaysia and chargeable to tax under paragraph 4A(i) of the ITA.
The gross amount paid to Champ Ltd is subject to withholding tax
under section 109B of the ITA at the rate of 10%.
(ii) The payment of RM120,000 for services r endered in January 2019
by Champ Ltd in connection with the installation and commissioning
of the steel boiler in the USA are deemed derived from Malaysia and
chargeable to tax under paragraph 4A(i) of the ITA.
However, e ffective 6.9.2017, payment for the installation and
commissioning is exempted from income tax as the services are
rendered and performed by Champ Ltd outside Malaysia.
Gilagolf 