Section 107D Tax Malaysia: Paying Affiliates and Agents

1. What Is Section 107D of the Income Tax Act?

Quick Answer: Section 107D is a withholding rule that started on 1 January 2022. A company paying cash commissions to a resident individual agent, dealer or distributor must deduct 2% and send it to LHDN. This applies once that person received more than RM100,000 from the company in the previous year. The agent then offsets the 2% against their own tax.

LHDN’s FAQ on the 2% deduction, updated 9 March 2026, says it was introduced to improve tax compliance among agents, dealers and distributors. For you, the money is not an extra cost. It is part of your partner’s commission, paid to LHDN on their behalf.

Two words matter most. “Company” means a sole proprietor paying affiliates does not have to deduct. “Individual” means commission paid to an affiliate’s Sdn Bhd is outside the rule.

2. Who Counts as an Agent, Dealer or Distributor?

Quick Answer: LHDN treats an agent, dealer or distributor as a resident individual authorised by your company to act for it, who earns payments from sales, transactions or schemes they carry out. Sole proprietors and individual partners count. Partnerships, LLPs, Sdn Bhd companies and associations do not. The label on your contract matters less than what the person actually does.

For a marketing team, the people who most often fit this description are:

• Affiliates paid per sale. Bloggers, content creators or deal sites earning a percentage of each order they bring in.
• Referral partners. Consultants or past customers paid a fee when their referral signs up.
• Commission-only sales agents. Freelance closers who sell your product or service and earn on results.

LHDN looks at the substance of a payment, not its label, so a “credit note” that is really a cash commission still counts. A June 2025 HASiL ruling on agents who have passed away also took their payments out of the 2% rule. From 1 August 2025, those go through the estate. For scheme design, see our guide to referral marketing.

3. Does Section 107D Apply to Affiliates, Referral Partners and Influencers?

Quick Answer: It applies to resident individuals you pay commission for sales they generate, once they cross the threshold. Flat influencer fees for content are less clear-cut, because they may not arise from sales. Payouts by Shopee or TikTok Shop to their own affiliates are the platform’s matter. Overseas partners fall under other withholding rules.

Treat this as a starting view to test with your tax agent, not a ruling.

The overseas row trips up many teams. Paying a foreign creator is a different tax question; see our guides to withholding tax on overseas influencers, overseas freelancers on Fiverr and Upwork and the CP37 form for overseas payments. Paying a foreign agency can also trigger imported services tax, and ad platforms have their own rules covered in withholding tax on Google and Facebook ads. For marketplace programmes, see how Shopee’s affiliate programme for sellers and TikTok affiliate commissions work.

4. How Does the RM100,000 Threshold Work? A Worked Example

Quick Answer: The threshold is checked every year, per paying company. Add up everything each partner received from your company last year, cash and non-cash. If it is more than RM100,000, deduct 2% from every cash payment to them this year. Amounts they earned from other brands do not count towards your threshold.

Picture a skincare brand, Brand X Sdn Bhd, with four affiliates. Names and amounts are illustrative.

Now follow Ben through one month in 2027:

Ben claims the RM180 as tax paid on his Form B. Watch Aina: if she passes RM100,000 from Brand X in 2027, her 2028 payouts are caught. For typical payouts, see our breakdown of affiliate commission rates in Malaysia.

5. How Do You Deduct, File and Pay Section 107D Tax?

Quick Answer: Deduct 2% when you pay the commission and total the deductions each month. Then submit Form CP107D through e-107D on MyTax and pay with the bill number by the last day of the next month. Online submission has been mandatory since 1 January 2025. Report the amounts on each agent’s CP58.

Use this checklist each month for every partner who crossed the threshold:

1. Confirm the partner is in scope. Resident individual, over RM100,000 from your company last year, payment linked to sales.
2. Collect their tax number. LHDN’s FAQ says agents must have a TIN; those without one can register through e-Daftar on MyTax.
3. Deduct 2% at payout. Pay the partner the net amount and record the gross, the 2% and the net.
4. Issue a self-billed e-invoice. LHDN’s e-Invoice Specific Guideline makes the paying business issue self-billed e-invoices for payments to agents, dealers and distributors, and does not allow a consolidated e-invoice for them.
5. Submit CP107D on e-107D. Log in to MyTax with the director or director’s representative role, add each recipient and generate the bill number.
6. Pay by the deadline. Pay online through ByrHASiL or FPX using the bill number, by the last day of the following month.
7. Report on CP58. Show each agent’s total payments and the 2% deducted on their annual CP58 statement.

The e-invoice step is explained in our guides to self-billed e-invoices for ad payments and e-invoicing for small businesses.

6. What Has Changed Since Section 107D Started in 2022?

Quick Answer: The 2% rate and RM100,000 threshold have not changed since 2022. The process has. Remittance became a monthly cycle in July 2022 and e-107D became mandatory on 1 January 2025. Payments to deceased agents were taken out from 1 August 2025, and agent payouts now need self-billed e-invoices.

HASiL’s 31 December 2024 media release ended manual CP107D submission, so whoever handles payouts needs MyTax access. Budget 2027 is tabled on 9 October 2026, after this was written, so check LHDN’s latest notices. Taxes on marketing tools have moved more, such as the 8% digital service tax on Canva and ChatGPT.

7. What Happens If You Get Section 107D Wrong?

Quick Answer: If you fail to remit on time, LHDN adds a 10% increase on the unpaid amount. Its FAQ says the company then cannot claim the 2% as an allowable expense under paragraph 39(1)(s). The partner also misses the tax credit they expected, which strains a relationship you rely on for sales.

The common mistakes are operational, not legal:

• No yearly threshold check. Payouts run from an affiliate dashboard that nobody totals per partner per year.
• Ignoring non-cash rewards. Free stock and vouchers push a partner over RM100,000 without anyone noticing.
• Wrong payee records. The contract is with a person, but payments go to their company account, or the other way round.
• Treating overseas creators the same way. Non-residents need a different withholding process altogether.
• Missing the deduction side. Commission is usually a deductible marketing expense, as explained in our guide to whether advertising is tax deductible, but late remittance puts part of that at risk.

Related reads: whether SEO is tax deductible and withholding tax on marketing SaaS.

8. How Should You Set Up an Affiliate Programme for Section 107D?

Quick Answer: Build the tax data in from day one. Capture each partner’s legal status, residency and tax number at sign-up, track every sale to a partner ID and keep a yearly total per partner. The RM100,000 check, the 2% deduction and the CP58 then come straight from your records.

This is the part ZenWeb can help with, on the marketing and website side:

• Partner sign-up form. Ask for legal name, entity type (individual, sole proprietor, company), residency and TIN, with a clear PDPA notice on why you collect them.
• Clean attribution. Unique links and UTM tags per partner so each commission ties to a real order, and PDPA-friendly tracking as covered in our guide to consent mode and PDPA in GA4.
• Yearly payout export. A report per partner, cash and non-cash, ready for your accountant every January.
• Partner landing pages. Pages that convert the traffic partners send, so the commission you pay buys real sales.

For creator deals, our guide to influencer marketing in Malaysia compares flat-fee and commission structures. The tax position stays with your licensed tax agent. Our digital marketing services cover the campaigns that feed the programme.

9. Conclusion: Make Section 107D Part of Your Payout Routine

Section 107D is narrow but real. If your company paid a resident individual more than RM100,000 in sales-linked commission last year, deduct 2%, file CP107D and remit by the end of the next month. One yearly threshold check and a monthly reminder cover most teams. It sits alongside other tax points on marketing spend, including when SST is due on agency invoices, SST on software development and donation deductions for cause marketing.

10. Frequently Asked Questions

1. What is Section 107D in Malaysia?

It is a rule in the Income Tax Act 1967 that makes a company withhold 2% from sales-linked cash payments to resident individual agents, dealers or distributors. It applies when the person received more than RM100,000 from that company in the previous year, and started on 1 January 2022.

2. Do I need to deduct 2% from affiliate commissions?

Only if your business is a company, the affiliate is a resident individual paid for sales they generate, and they received more than RM100,000 from your company last year. Payments to an affiliate’s own Sdn Bhd or to non-residents are outside the rule.

3. When must the 2% be paid to LHDN?

Since 1 July 2022, total the deductions for each month and remit them by the last day of the following month. Submit Form CP107D through e-107D on MyTax and pay with the bill number via ByrHASiL.

4. Does Section 107D apply if my business is a sole proprietorship?

No. The duty to deduct applies to companies, which LHDN defines as bodies corporate, including foreign bodies corporate and business trusts. Sole proprietors may still have other reporting duties, so check with a tax agent.

5. Do non-cash rewards like free products count?

They count towards the RM100,000 threshold, which includes cash and non-cash payments. The 2% deduction itself applies to cash payments such as commissions and incentives.