Withholding Tax on Software: What Malaysian Firms Must Know

If you've ever bought AutoCAD, Revit, or any other software directly from an overseas website using your credit card, there's a good chance you owe the Malaysian government money you don't know about — and it has nothing to do with the software price you saw on screen. This is called withholding tax, and it catches out architects, engineers, and small firms far more often than most people realize, simply because nobody explains it in plain terms. This guide does exactly that.

What Is Withholding Tax, in Plain Words?

Think of withholding tax like this: whenever a person or business in Malaysia pays money to a company overseas for certain things — software, royalties, technical services — the Malaysian government wants a small cut of that payment, collected right at the source, before the money leaves the country. Instead of the overseas company declaring and paying tax to Malaysia themselves (which the government has no real way to enforce on a foreign company), the law makes the Malaysian payer responsible for setting aside a percentage and paying it directly to LHDN (the Inland Revenue Board of Malaysia) on the foreign company's behalf.

It's not an extra tax on you personally — technically, it's a tax on the foreign company's income. But in practice, since most foreign vendors (Autodesk included) simply charge you the full price and don't adjust anything, you end up bearing this cost yourself, on top of what you already paid. We'll walk through exactly how that happens below.

Why Does This Apply to Software Purchases?

In December 2023, LHDN issued an official clarification — Practice Note No. 3/2023 — that directly addresses software. The ruling states plainly: when you pay a non-resident company (like Autodesk, which is US-based) for the right to use their software, that payment is treated as a royalty — the same tax category as paying for the use of a trademark, patent, or copyrighted work. And royalty payments to non-residents are subject to 10% withholding tax.

This applies regardless of whether you can modify the software, whether you're reselling it, or simply using it yourself — the moment money crosses the border to pay for the right to use software owned by a foreign company, the 10% rule is triggered.

The Part Most People Get Wrong: "Only Companies Need to Worry About This"

This is the single biggest misunderstanding, and it's exactly why so many architects miss it. Withholding tax has nothing to do with whether you're a Sdn Bhd, a sole proprietorship, or a partnership. The law simply asks: who is paying the money, and what is it for?

Many Malaysian architecture practices are set up as sole proprietorships or conventional partnerships rather than Sdn Bhd companies — often due to how the profession is regulated. If that describes your practice, you might reasonably assume tax rules written for "companies" don't apply to you. But withholding tax law was written to catch any payer, individual or otherwise, the moment the payment is for business or professional use. There is only one real exemption: buying software for genuinely personal use, unrelated to your practice or business.

A Worked Example, in Real Numbers

Let's say an architecture firm — doesn't matter if it's a Sdn Bhd or a sole proprietor — buys an AutoCAD subscription directly from Autodesk's website for RM10,000.

Scenario A: Done Correctly (Compliant)

This surprises most people: Autodesk's checkout system charges you the full RM10,000 — it has no way to hold back RM1,000 and let LHDN collect it separately. So the RM1,000 doesn't come out of what you pay Autodesk; it comes out of your own pocket, on top of the full price. The one silver lining: since it was done correctly, the full RM10,000 software cost remains a valid business expense you can deduct against your income tax.

Scenario B: Missed Entirely (Non-Compliant)

Most firms who miss this don't do it on purpose — they simply never knew the rule existed. Here's what it costs when LHDN eventually catches it (often during a routine audit):

In other words: trying to "save" the RM1,000 by simply not dealing with it can end up costing roughly 3.5 times more once LHDN catches up with it — and audits of foreign payments are exactly the kind of thing LHDN has been paying closer attention to in recent years, especially now that cross-border payments require e-invoicing through MyInvois.

The Simplest Way to Avoid All of This

Withholding tax only applies to payments made to a non-resident. When you pay a local reseller, you're not paying the non-resident directly — the reseller handles their own arrangement with Autodesk upstream, as part of running their business. That means:

This applies whether you're buying Autodesk software or a perpetual license like ZWCAD — the same principle holds: a local Malaysian purchase sidesteps withholding tax entirely, while a direct overseas purchase does not.

Quick Summary

The DPI Recommendation

If your practice has been buying Autodesk software directly online, it's worth checking with your accountant whether withholding tax has been handled correctly on those purchases — especially if you're a sole proprietor or partnership without dedicated finance staff tracking this. Going forward, buying through an authorized local reseller removes the issue completely, alongside the usual benefits of local support and warranty. As an authorized Autodesk and ZWCAD reseller in Malaysia, DPI Technology can quote you a straightforward local price with no hidden tax surprises.

This article is for general educational purposes and reflects LHDN guidance and Practice Note No. 3/2023 as understood as of August 2026. It is not tax advice. Withholding tax treatment can depend on the specific facts of a transaction — please consult a licensed tax agent or accountant regarding your firm's specific situation before making decisions based on this article.