Tax on royalties and franchise fees in Malaysia

Withholding tax

• Royalties paid to a non-resident are subject to 10% withholding tax on the gross amount, or a lower treaty rate. Royalty includes payments for the use of trademarks and of know-how or commercial information. Official · LHDN, withholding tax, 2026-10-05
• The payer must remit the tax to LHDN within one month of paying or crediting the royalty. Late or non-payment adds 10% to the unpaid amount, and the expense can be disallowed for the payer's tax deduction. Official · LHDN, withholding tax, 2026-10-05
• Payments for technical or management services are covered separately and taxed at 10% only where the services are performed in Malaysia. Official · LHDN, withholding tax, 2026-10-05

Service tax on imported services

• A taxable service bought by a Malaysian business from a provider abroad is an imported taxable service; the Malaysian recipient pays service tax under reverse charge. The general rate has been 8% since 1 March 2024, though some groups stay at 6%. Consultancy, training, IT or management services from a franchisor can be caught. Secondary · Deloitte Malaysia, service tax at 8%, 2024-02-01

Planning points

1. Split the franchise fee in the agreement into its trademark and know-how, training and support components, so each is taxed on its own basis.
2. Agree whether royalties are quoted gross or net of the 10% withholding tax.
3. Check the treaty between Malaysia and your home country for the royalty rate before the first payment.

More on Malaysia