8. Rent or Other Payments Made under any Agreement for Use of Moveable
Property [Paragraph 4A(iii) of the ITA]
8.1 Paragraph 4A(iii) of the ITA consists of rents or other payments made to non –
residents for the use of any moveable property which include rents or other
payments made for the use of oil rigs, boats, ships, cars, aircraft or other
equipment in or outside Malaysia. The following are activities falling within the
scope of paragraph 4A(iii) of the ITA:
(a) Slot hire / charter
Slot hire / charter is where the hirer / charterer has exclusive use of a
particular slot / space in a ship / aircraft to the exclusion of others.
Payments paid for slot hire / charter are subject to withholding tax at
10% on the gross amount.
(b) Leasing of ships / aircrafts
Leasing of a ship / aircraft is the exclusive use of a ship / aircraft which
is chartered, whether bare boat (dry lease ) or with crew (wet lease ).
Payments made to non-residents who lease out ships /aircrafts fall
within the scope of paragraph 4A(iii) of the ITA and are subject to
withholding tax at the rate of 10% on the gross receipt.
(c) Time charter
Time charter is where a ship / aircraft is chartered for a specific time.
Thus, if a ship / aircraft is chartered, for instance if it is for 3 years,
withholding tax at the rate of 10% on the gross amount must be deducted
from the payment or the charter fe es paid in respect of the use of the
ship / aircraft.
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(d) Voyage charter
Voyage charter is in respect of a particular voyage / flight, i.e a
predetermined route. If a ship / aircraft is chartered in respect of a
particular voyage / flight, the charter fee re ceived is subject to
withholding tax at 10% on the gross fees.
8.2 The following income does not fall within the scope of paragraph 4A(iii) of the
ITA:
Freight charges
Freight charges paid to non -residents in respect of export/import of goods do
not fall withi n the scope of paragraph 4A(iii) of the ITA as freight charges are
fees for the shipment of goods and not payments for the use of a moveable
property.
However, fees other than freight charges for the shipment of goods such as
handling fees and agency service fees falls under the scope of paragraph
4A(ii) of the ITA and would be subject to withholding tax under section 109 B
of the ITA.
8.3 The following are taxable income under paragraph 4A (iii) of the ITA that is
specifically given exempt ion under the Inc ome Tax (Exemption ) Orders : –
8.3.1 Pooling arrangements
A non -resident deriving income under paragraph 4A(iii) of the ITA
consisting of payments made under an agreement or arrangement for
participation in a pool by a company resident in Malaysia who is
engaged in the business of transporting passengers or cargo by sea
is specifically exempted from payment of income tax under the
Income Tax (Exemption) (No.25) Order 1995 [P.U. (A) 322/1995].
Consequently, withholding tax under section 109B of the ITA shall not
apply to the exempted income.
8.3.2 Income received from a Malaysian shipping company
(a) A non -resident person in Malaysia deriving income under
paragraph 4A(iii) of the ITA from a Malaysian shipping company,
consisting of payments made under any agreement or
arrange ment for the use of a ship is specifically exempted from
payment of income tax under the Income Tax (Exemption) Order
2007 [P.U.(A) 58/2007].
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The income is in relation to the use of the ship on a voyage
charter or time charter or bare boat charter. Consequently,
withholding tax under section 109B of the ITA shall not apply to
the exempted income. The exemption is effective from 2.9.2006.
(b) For the purpose of this exemption, the words below have the
following meaning:
“Ship” means a sea -going ship other than a ferry, barge, tug –
boat, supply vessel, crew boat, lighter, dredger, fishing boat or
other similar vessel”.
“Bare boat” means a ship which is chartered without crew and
the charterer has the exclusive use of the ship for a period or for
a voyage,
“Malaysian ship” means a sea -going ship registered under
theMerchant Shipping Ordinance 1952, and
“Malaysian shipping company” means a resident company
incorporated under the Companies Act 1965 or Companies Act
2016, which owns a Malaysian ship and carrying on a business
of –
(i) transporting passengers or cargoes by sea on a ship, or
(ii) letting out a ship.
8.3.3 Income derived from the rental of International Standard Organisation
(ISO) containers by a Malaysian shipping company
A non -resident person who receives income derived from the rental
of ISO containers by a Malaysian shipping company is exempted from
withholding tax from 20.10.2001 under the Income Tax (Exemption)
(No. 24) Order 2002 [P.U.(A) 210/2002].
For the purpose of this exemption, Malaysian shipping compa ny has
the same meaning as in subparagraph 8.3.2(b).
9. Reimbursements
9.1 Reimbursements refer to out -of-pocket expenses incurred by the payee –
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(a) in the course of rendering services to the payer, or
(b) in respect of the use of any moveable property,
and are subsequently reimbursed by the payer. Such expenses include the
cost of airfare, travelling, accommodation, telephone and photocopying
charges.
9.2 Reimbursements are considered as being part of the contract value for
services rendered or for rent or payments made for the use of moveable
property. As such, it is income of the payee under section 4A of the ITA and
is subject to withholding tax at the rate of 10% on the gross amount under
section 109B of the ITA.
9.3 Reimbursements on hotel accommodation are not incl uded in the
computation of gross income falling under section 4A of the ITA for the
purposes of withholding tax. This exclusion is aimed at reducing the cost of
services provided by non -residents. Hotel accommodation means
accommodation in a hotel, apartme nt hotel, service apartment, motel or hostel
in or outside Malaysia.
10. Disbursements
10.1 Disbursements are out -of-pocket expenses incurred by the payer and paid to
a third party on behalf of the payee –
(a) in connection with services rendered by the payee, or
(b) in respect of the use of any moveable property.
Disbursements are considered as being part of the contract value for services
rendered or for rent or payments made for the use of any moveable property.
As such, it is income to the payee under section 4A of the ITA and is subject
to withholding tax at the rate of 10% on the gross amount under section 109B
of the ITA.
10.2 Disbursements on hotel accommodation in or outside Malaysia are not
included in the computation of gross income falling under section 4A of the
ITA for the purposes of withholding tax. The purpose of this exclusion is
similar to that of reimbursement, i.e. is to reduce the cost of services provided
by non -residents.
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Example 13
SH Pte Ltd, a Singapore company, rendered services to Roadworks Sdn Bhd
in March 201 8. The services were performed in Malaysia. SH Pte Ltd issued
an invoice dated 15.6. 2018 for the value of RM1,000. Roadworks Sdn Bhd
paid the cost of air fares of RM500 for the representative of SH Pte Ltd to XS
Airlines (XS) on 15.3. 2018 . Thes e expenses were classified as travelling
expenses in the profit and loss account of Roadworks Sdn Bhd. Upon
receiving the invoice, Roadworks Sdn Bhd paid RM900 to SH Pte Ltd and
subsequently remitted the balance of RM100 to the Director General.
The gross amount paid to SH Pte Ltd is subject to withholding tax under
section 109B of the ITA at the rate of 10%.
The payer should remit the sum of RM100 to the DGIR within one month after
the payment for the services has been paid or credited to SH Pte Ltd.
Howev er, if it can be confirmed that SH Pte Ltd is a tax resident in Singapore,
then the withholding tax rate is 5% pursuant to the DTA between Malaysia
and Singapore.
The disbursements or out -of-pocket expenses of RM500 incurred by
Roadworks Sdn Bhd are subje ct to withholding tax under section 109B of the
ITA. Even though the payment for the airfare to XS is made in full, withholding
tax of RM50 (10% X RM500) should be borne by the payee and the payer
should remit the sum of RM50 to the DGIR within one month a fter the payment
of the airfare has been paid or credited to XS .
The total amount of withholding tax charged on the payee should be:
RM
10% X RM1,000 = 100.00
10% X RM500 = 50.00
150.00
The payer may subsequently recover the amount of tax of RM50.00 fr om SH
Pte Ltd.
For the purpose of this example, it is assumed that SH Pte Ltd did not submit
documentary proof of its resident status.
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11. Advance Payments and Deposits
11.1 Advance payments and non -refundable deposi ts paid to a non -resident
payee –
(a) for services to be rendered, or
(b) in respect of the use of any moveable property
under section 4A of the ITA form s part of the gross income of a contract and
would be subject to withholding tax under section 109B of the ITA.
On the other hand, deposits paid upon the signing of an agreement for
services, which are refundable upon completion of the service do not form
part of the gross income of a contract.
11.2 Advance payments and non -refundable deposits for services performed in
and outside Malaysia are deemed to be derived from Malaysia and
chargeable to tax under paragraph 4A(ii) of the ITA. Even though the services
are yet to be performed, the advance payment or non -refundable deposit
made are purely for the services which will be performed and form part of the
gross amount payable for the services. The advance payment and non –
refundable deposit would be subject to withholding tax under section 109B of
the ITA at the rate of 10%.
Gilagolf 