(TAX UPDATE) Paying Commission? Read This Before LHDN Finds You

(TAX UPDATE) Paying Commission? Read This Before LHDN Finds You

CP58, 2% Withholding Tax and e-Invoice: The Tax Risk Many SME Owners Still Ignore

Introduction

Many SME owners react the same way when they hear about CP58.

“What is CP58?”
“I never kena tax audit on CP58 before.”
“Isn’t Form E enough?”
“Why my ex-tax agent never tell me?”

Then I usually tell them calmly.

CP58 was introduced in 2011.
That was many years ago.

Last time you did not kena, maybe you were lucky.

But in the coming years, with e-Invoice and digital audit trail, do you want to depend on luck?

The reality is simple.

Many companies actually need to issue CP58 but do not realise it.

And now CP58 is no longer just an annual form.
It is connected to 2% withholding tax and real time e-Invoice reporting.

Let us break this down clearly.

CP58 Is Mandatory Under Section 83A

Under Section 83A of the Income Tax Act 1967, a company must report incentives paid to agents, dealers or distributors.

This is done using Form CP58.

It applies when you pay:

Cash incentives
• Commission
• Bonus
• Performance reward

Non cash incentives
• Tour packages
• Sponsored seminars
• Lucky draw prizes such as car, property or laptop
• Company products given as reward

The deadline is 31 March of the following year.

You must prepare CP58 for all recipients.
You must provide a copy if the recipient receives more than RM5,000.
You must keep records for 7 years.

The recipient declares the income.
The company can generally claim tax deduction.

This sounds straightforward.

But this is only the starting point.

Since 2022 There Is 2% Withholding Tax

From 1 January 2022, Section 107D introduced 2% withholding tax.

If your company pays monetary incentives to agents, dealers or distributors who are resident individuals, you must withhold 2% if the total amount received by that individual exceeded RM100,000 in the preceding year.

Important clarifications.

Sole proprietors are included.
Individual partners are included.
Partnerships and LLPs are excluded.
Credit notes and trade discounts are excluded.
The RM100,000 threshold must be reviewed every year.

The 2% must be deducted from payment.
It must be remitted within 30 days.
It must be reported in CP58.

If you fail to deduct it, LHDN may require the company to pay it first.

This is no longer paperwork issue.
It becomes cash flow issue.

e-Invoice Has Changed the CP58 Landscape

With the rollout of e-Invoicing, CP58 reporting is no longer just annual compliance.

It is now part of the digital reporting system.

When you pay commission, bonus or incentives, the payer company must issue a self billed e-Invoice.

This serves as official proof of income for the agent and official proof of expense for the company.

LHDN now sees the transaction much earlier.

For agents, dealers and distributors under Section 83A, you cannot consolidate transactions monthly.

Each commission payment requires a separate self billed e-Invoice.

Operationally this means more discipline and proper system configuration.

A Practical Scenario

Company pays RM25,000 commission monthly to a sole proprietor sales agent.

Last year total exceeded RM100,000.

The company must now:

Issue self billed e-Invoice for each payment.
Deduct 2% withholding.
Remit within 30 days.
Reflect it correctly in CP58.
Ensure accounting matches e-Invoice submission.

If not done properly, the data trail is already in LHDN system.

This is no longer about whether an officer manually discovers it.

The system will detect inconsistency.

Where Most SMEs Are Exposed

From what we see in practice, common gaps include:

Commission tracked manually.
No monitoring of RM100,000 threshold.
No distinction between individuals and entities.
Self billed e-Invoice not configured.
Withholding tax not aligned with accounting entries.
CP58 prepared in March without reconciliation.

Before e-Invoice era, these gaps might not surface.

Now inconsistencies are easier to detect.

Do Not Rely on “Last Time Never Kena”

Many business owners say they have been operating like this for years.

Yes.

But tax enforcement environment has changed.

Digital reporting.
Data analytics.
System cross matching.

Luck is not a compliance strategy.

KTP’s View

CP58 is no longer just a form.

It is a governance issue and a system issue.

At KTP, we treat CP58 as part of your accounting workflow, not a year end exercise.

We help clients:

Map commission payment flow.
Identify individual versus entity recipients.
Configure self billed e-Invoice process.
Monitor RM100,000 threshold quarterly.
Integrate 2% withholding tracking.
Align CP58 reporting with accounting data.

Compliance must be designed, not assumed.

Ask Yourself Honestly

Before your next commission payment, ask:

Are we issuing self billed e-Invoice correctly?
Are we monitoring RM100,000 threshold?
Are we deducting 2% properly?
Will our CP58 reconcile with e-Invoice data?

If you hesitate in answering, that is your warning signal.

Speak to KTP Before 31 March

If your company pays commission or incentives, you are dealing with:

Section 83A CP58
Section 107D 2% withholding tax
e-Invoice self billing requirements

These are connected.

At KTP, we assist SME clients in:

CP58 compliance review
2% withholding tax assessment
Self billed e-Invoice setup
Commission system restructuring
Full accounting and tax alignment

In the e-Invoice era, compliance is continuous.

Review your system before LHDN reviews you.

Past Blog of CP 58

21 January 2021 : Have you CP 58?
https://www.ktp.com.my/blog/cp58/21jan2021

20 January 2021 : Form EA vs CP 58
https://www.ktp.com.my/blog/formea-vs-cp58/20jan2021

13 January 2025 : (Tax Update) Mandatory Online Submission Form E-107D (2% withholding tax reported in CP58)
https://www.ktp.com.my/blog/mandatory-online-submission-form-e-107d/13jan25

25 November 2025 : (TAX UPDATE) Malaysia’s E-Invoicing Implementation Date for New Business (context on e-Invoicing rollout that impacts commission reporting)
https://www.ktp.com.my/blog/e-invoice-implementation-date/26nov2025

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