Date: XX February 2017

Announcement: Withholding Tax on Royalty and Service Fee Payments to Non

Residents

Dear Valued Client / Business Associate,

On 21 October 2016, Malaysia announced its 2017 budget (the Budget). Key proposals
include significant changes to the withholding tax rules. The Finance Bill 2016 was passed by
the Dewan Rakyat on 23 November 2016 and includes significant changes to the Malaysian
Withholding Tax treatment of royalty and service fee payments made to non-residents, as
summarised below:

a) A significant expansion of the definition of royalty to include payments for the use of, or
the right to use, or the alienation of software, amongst others; and

b) The imposition of Withholding Tax on services rendered by non-residents, regardless of

whether such services are rendered within or outside Malaysia.

For more information on this matter please refer to the detailed explanation is attached below.

Key Tax Implications Arising from the Above Changes

In view of the above, taxpayers making payments to nonresidents, particularly in respect of

software / intangible property and service fees are advised to undertake the following
measures:

1) Review cross-border contractual and payment arrangements in light of the Finance Bill
2016 changes to assess whether Withholding Tax applies.

2) Determine whether preferential treatment under a double tax agreement is

available. This would entail reviewing each applicable double tax agreement (particularly
Articles concerning Business Profits, Royalties, Technical Fees and Other Income, to the
extent that the double tax agreement contains such Articles) and considering how the
proposed changes will interact with the relevant double tax agreement.

3) Ascertain which party is responsible for bearing the Withholding Tax. In the absence of an
agreement between the parties to the contrary, Withholding Tax is a tax on the non-resident,
whilst the compliance obligations (and associated penalties) fall on the payer. The terms
under existing contracts may have to be discussed and/or renegotiated if impacted by the
proposed Withholding Tax changes. If the Withholding Tax is borne by the payer, the tax
implications have to be considered.

The above are some non-exhaustive suggestions on preliminary matters to consider. Where it
is determined that your organisation may be affected by the proposed changes, it may now be
appropriate to commence looking at options to restructure existing cross-border
arrangements and to formulate strategies for dealing with future transactions.

If you require our assistance in addressing the withholding tax changes for your organisation,
please do not hesitate to contact any of our Managers whom you are accustomed to dealing
with or who are responsible for the tax affairs of your organization at the telephone number
(603) XXXX XXXX.

Regards,