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Malaysia’s new regulation: Service Tax on imported digital services

Under current service tax treatment, taxable services provided by service providers in Malaysia, are subject to a service tax. In order to ensure equal treatment within the industry, taxable services acquired by businesses in Malaysia from foreign service provider (FSP) falls under the scope of imported taxable services effective from 1 January 2020. The businesses have to account and pay for service tax on imported taxable services.

Tax regulations

Effective 1st January 2020, service tax shall be charged and levied on any digital service provided by a foreign registered person (FRP) to any consumer in Malaysia. The rate is 6%.

“Digital service” means any service that is delivered or subscribed over the internet or other electronic network and which cannot be obtained without the use of information technology and where the delivery of the service is essentially automated;”.

“Foreign service provider” means any person who is outside Malaysia providing any digital service to a consumer and includes any person who is outside Malaysia operating an online platform for buying and selling goods or providing services (whether or not such person provides any digital services) and who makes transactions for provision of digital services on behalf of any person;

“Consumer” means any person who fulfils any two of the following:

  • Makes payment for digital services using credit or debit facility provided by any financial institution or company in Malaysia;
  • Acquires digital services using an internet protocol address registered in Malaysia or an international mobile phone country code assigned to Malaysia;
  • Resides in Malaysia

In determining whether consumer is residing in Malaysia, FRP may consider information or a declaration from the consumer as below:

  1. The billing address of the consumer is in Malaysia
  2. The home address of the consumer is in Malaysia
  3. Recipient's country selection

These services include the supplies of the following (the list is not exhaustive):

  1. Software, application & video games (e.g. online licensing of software, updates and ad-ons website filters, firewalls, provision of mobile applications);
  2. Music, e-book and film (e.g. provision of music, live streaming services, include subscription-based media / membership)
  3. Advertisement and online platform (e.g. offering online advertising space on intangible media platform, offering platform to trade products or services)
  4. Search engines and social networks (e.g. customised search-engine services)
  5. Database and hosting (e.g. website hosting, online data warehousing, file-sharing and cloud storage services)
  6. Internet Based Telecommunication (e.g. Cloud-PABX, VOIP Phone,)
  7. Online training (e.g. Provision of distance teaching, e-learning, online courses, webinar)
  8. Others (e.g. Subscription to online newspapers and journals, provision of other digital content like images, text, information and payment processing services)

FSP who provides digital services to consumer in Malaysia and the value of digital service for a period of twelve months or less exceeds the threshold of RM500’000 (around 118'000 CHF) is required to be registered. The value of a digital service for a period of twelve months can be determined based on either the historical or future method.

FSP who is liable to be registered under the implementation of a service tax on digital services shall apply for registration not later than the last day of the month following the month in which he exceeds threshold. FSP has to complete the DST-01 form via online.

Since the effective date of the imposition of service tax on digital services is on 1st January 2020, early registration program is provided from 1st October 2019.

The invoice or document that relate to provision of a digital service to consumer shall state the following particulars:

  1. Date of invoice;
  2. Registration number of the FRP;
  3. A description sufficient to identify the digital services provided;
  4. The total amount payable excluding service tax, the rate of service tax and the total service tax chargeable shown as a separate amount.

As many foreign companies do not have establishments in Malaysia, the Government of Malaysia has encouraged the Embassies to share this information. At the moment, there isn’t any exemption available, the Government of Malaysia has also advised respective industries to come forward and contact the Ministry of Finance via the Royal Customs if they would like to request for exemption.

Would you like to know more about this new regulation?

To understand more on the regulation and its impact on your business, please contact our Senior Consultant Malaysia, Angela Di Rosa.

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