Why Your Agency Deducts 2% from Your Commission: The Truth About Withholding Tax (WHT)
Many real estate negotiators in Malaysia get a shock when they see a 2% deduction for "Withholding Tax" (WHT) in their commission statement. Some assume the agency is taking extra profit. Others think it is a hidden fee.
In reality, this deduction is not an agency charge — it is a legal compliance requirement under the Income Tax Act, and when properly understood, it actually benefits the agent, not the agency.
This article explains why the deduction exists, when it applies, and why professional agents should not fight it but understand it.
1. The Legal Basis: Section 107D of the Income Tax Act
Under Section 107D, Income Tax Act 1967, a company (the property agency) is required to withhold 2% of commission payments made to a resident individual agent, dealer, or distributor.
However, the deduction is not for everyone. It only becomes mandatory when a specific threshold is crossed.
| Total Commission Earned from Same Agency (Previous Calendar Year) | 2% WHT Deduction in the Current Year? |
|---|---|
| RM100,000 or below | Not compulsory |
| Above RM100,000 | Compulsory (2% must be deducted) |
Important clarifications:
- The RM100k threshold applies per agency, not total income from all sources combined.
- The rule applies only to individual agents (REN), not Sdn Bhd entities.
- The deduction is made before commission is paid, and the 2% is forwarded to LHDN, not kept by the agency.
2. Why Some Agencies Deduct 2% from the First Ringgit (Even Below RM100k)
You may notice that some agencies still deduct WHT even if you have not crossed RM100k previously. Why?
There are three main reasons:
- (a) Audit and Penalty Protection
If an agent suddenly exceeds RM100k mid-year, the agency would otherwise be exposed to backdated penalty tax, including a 10% surcharge. - (b) Administrative Simplicity
It is easier for the agency to apply one consistent rule than to constantly monitor agent cumulative commission. - (c) Guaranteed Compliance
Deducting early means the agency never risks being seen as “non-compliant” during an LHDN audit.
In other words: Even when not compulsory, agencies deduct for their own legal and financial protection.
3. How the 2% Works for the Agent: It Is Not a Loss, It Is a Tax Credit
Example:
| Item | Amount |
|---|---|
| Gross commission | RM10,000 |
| 2% WHT deducted | RM200 |
| Net payout to agent | RM9,800 |
| RM200 remitted to LHDN | Yes (under agent’s IC number) |
That RM200 is not extra tax and it is not kept by the agency.
It is treated by LHDN as prepaid income tax on your behalf.
- The deduction will appear in your LHDN MyTax account
- It will automatically offset your final tax payable when you file Form B
- If your prepaid WHT exceeds your final tax amount, LHDN refunds the excess
This is why WHT is not a penalty — it is simply a partial tax paid in advance.
4. The Required Document: CP58
To ensure transparency, the agency must issue Form CP58 to all agents every year.
It shows:
- Total commission earned
- Total WHT deducted and submitted to LHDN
- Any incentives (cars, trips, laptops, reward points, etc.)
This document is used when the agent files their tax return. Without CP58, an agent cannot claim the 2% as a tax credit.
5. Why Financially Smart Agents Do Not Resist WHT
- It protects your tax record
You now have clean, declared income linked to your IC — useful for audits. - It helps with bank loans
Banks prefer agents with LHDN-declared income. WHT + CP58 = proof of earnings. - It prevents surprise tax debt
Agents who do not declare income often face backdated tax + penalty + audit. - It separates amateurs from professionals
Agents who complain about WHT are often those trying to avoid tax. Clients, lawyers, and developers trust agents who understand compliance, not avoid it.
Final Message
Withholding tax is not an agency trick.
It is not extra tax.
It is not a hidden fee.
It is:
- A legal requirement under Malaysian tax law
- A prepaid tax credit that reduces your tax later
- A safeguard for both agency and agent
- A sign of professional, traceable income
The only people who fear WHT are the ones who never intended to declare their earnings.
A compliant agent is a bankable agent.
A bankable agent is a scalable agent.
