Up until earlier this year, Malaysian businesses that relied on Facebook, Google and Amazon Web advertising did not have to factor in tariffs into their expenses, but a new law has changed that and left many bewildered on the Witholding Tax (WHT) scheme.
While the WHT has been around for ages as a special category for things such as advertising, technical services, and royalties, it only applied to those provided within the country.
However, after the amendment to the Malaysian Income Tax Act 1967 came into effect on Jan 17, businesses have been required to pay the form of tax for services rendered by offshore companies.
For example, if a company received a US$10,000 invoice on a Facebook advert, the payer would have to deduct 10 percent of the bill and pay the social networking site US$9,000 while the remaining balance is paid to the Inland Revenue Board (IRB).
And while the idea seems straight forward, there is a problem which leaves the taxpayer in a quandary – companies like Google and Facebook expect full payment for their invoices and the IRB, too, expects what’s due with no exceptions.
So how do we go about this, then?
According to e-commerce blog ecInsider, the solution depends on who you ask. Tax consultants would advise you to withhold the 10 percent and pay the IRB, but their play-it-safe tendencies do not resolve the advertising provider’s full-payment requirement, without WHT deduction.
On its Payment Terms, Facebook stipulates:
“6. Tax liability: The amounts charged to you by us, whether through your credit card or otherwise, may be subject to and include applicable taxes, including without limitation withholding taxes. It is your responsibility to remit any taxes that apply to your transactions. You agree to indemnify and hold us harmless from and against any claim arising out of your failure to do so.”
The Advertising Program Terms for Google Asia Pacific Pte. Ltd. also says:
“7. Payment: … Charges are exclusive of taxes. Customer will pay (i) all taxes and other government charges and (ii) reasonable expenses and attorneys’ fees Google incurs in collecting late payments.”
The other question is whether advertisers can pay to a local company to avoid the conundrum altogether but the short and fast answer to that is no. For invoices to Malaysian companies, Google issues their’s from Singapore while Facebook invoices were addressed in Ireland. Many others, including Amazon, send their bill directly from the United States.
There is, however, a saving grace, if you may call it, under bilateral Double Taxation (Avoidance) Agreement, the pact signed between two governments to prevent overlapping taxation. But the rates vary according to the country. Under the Malaysia-Singapore DTA agreement, Malaysian businesses did not have to withhold payments to Google as the WHT does not apply in the two countries, as agreed upon. The same applies for invoices addressed from Spain.
That may be a relief, but unfortunately the same can’t be said for others like Facebook and Amazon.
An option is to ask for a higher billing amount from the provider, for example, if the service is worth US$10,000, the invoice could be billed as US$11,000 to make up for the WHT difference, but this is an unlikely scenario.
It’s not to say that the IRB’s scheme is not riddled with problems, it also reflects on the country’s reputation as a business-friendly environment. But until that is sorted out, the best way to go about this, for the time being, is by paying that 10 percent out of your own pocket.