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Malaysia: Service tax policy updated to reflect digital services

Malaysia: Service tax policy updated

The Royal Malaysian Customs Department issued updated service tax policies to provide additional guidance about the measures put in place to address potential cascading effect of the service tax on imported services—in particular digital services.

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Service Tax Policy 1/2020 concerns the expansion of scope of taxable services and effective 1 January 2020, reflects the following amendments:

  • Expansion of existing taxable service to include: (1) the provision of IT service includes distributing or reselling of IT services on behalf of any person; (2) the provision of telecommunication service includes digital services; and (3) the provision of advertising service includes digital advertising service.
  • New taxable services include: (1) the provision of electronic medium that allows the suppliers to provide supplies to customers; and (2) the provision of digital service including transaction for provision of digital services on behalf of any person. A person liable to be registered (based on historical method) must apply for registration no later than 29 February 2020 and the registration will take effect on 1 March 2020.  The registered person must charge service tax beginning 1 March 2020. For an existing registered person, changes must be made to this registration and service tax must be charged from the date of the registration of the new service.

Service Tax Policy 2/2020 concerns the service tax exemption on imported taxable services. Effective 1 January 2020, a registered person generally is exempted from self-accounting for service tax on certain imported taxable services. To qualify for the exemption, the taxable services that are imported must be professional services under Group G (except employment services and guard or security services) and advertising services under Group I, acquired from 1 January 2020. This exemption excludes digital services acquired from a foreign registered person, and note that there is a separate exemption for imported digital services under Item 3 of the Service Tax (Persons Exempted from Payment of Tax) Order 2018. When the service tax has been self-accounted before 1 January 2020, no refund is allowed.

Service Tax Policy 3/2020 concerns the service tax policy on claiming a refund by offsetting method on service tax on imported digital service provided by foreign registered persons. If certain conditions are met, a domestic registered person is allowed to claim a refund on service tax paid to a foreign registered person on digital services. A claim for refund (offsetting method) can be made in the SST-02 Form under item 13(c) in the tax period in which the service tax is paid. However, when the service tax has been self-accounted for prior to 1 January 2020, no refund is allowed.

Service Tax Policy 4/2020 concerns service tax on online distance learning services. In general, online distance learning services are not subject to service tax.

Service Tax Policy 5/2020 concerns service tax on online newspaper, online journals, and periodicals. Effective 1 January 2020, online newspapers, online journals and periodicals (digital services) provided by both foreign service providers and local service providers are not subject to service tax. For a domestic service provider that has accounted for service tax on the above services to be provided on or after 1 January 2020 but payment has not been received, a credit note must be issued to make the necessary adjustment. No service tax refund is allowed for any person who has paid the service tax regarding these e-services.

Service Tax Policy 6/2020 concerns the service tax treatment for the provision of training and coaching services for disabled persons.


Read a 2020 report prepared by the KPMG member firm in Malaysia

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