Service Tax

Scope of taxation

Service tax is a consumption tax levied and charged on:

any taxable service (including digital services) provided in Malaysia by a registered person in carrying on his business;
any imported taxable services acquired by any person who carries on business in Malaysia; and
any digital services provided by a foreign registered person to a Malaysian consumer.

Special concessionary treatment is given to transactions involving Designated Areas (Labuan, Langkawi, Tioman and Pangkor) and Special Areas (free zones, licensed warehouses, licensed manufacturing warehouses and Joint Development Area).

Taxable persons and taxable services

Examples of taxable services include but are not limited to the provision of accommodation premises, sale or provision of food, cigarettes, electronic cigarettes, tobacco products, drinks and alcoholic beverages, certain professional services, information technology services, digital services (including electronic platform services), certain telecommunication services, betting and gaming services, management services, consultancy services, training services, security services, provision of parking space, provision of golf course, golf driving range or services related to golf or golf driving range, courier and certain delivery services (other than to destinations outside Malaysia), domestic flight services, provision and issuance of charge card or credit card whether or not annual subscription or fee is imposed, and provision of electricity to domestic consumer. A complete list of taxable persons and taxable services can be found in the First Schedule to the Service Tax Regulations 2018.

It is proposed that the scope of prescribed taxable services will be expanded to include logistic services, karaoke services, brokerage and underwriting services*.

_{*Currently, brokerage and underwriting services in relation to financial services are prescribed taxable services. It is unclear what the proposed expansion will be at this time.}

Rate of tax

The rate of service tax is 6% ad valorem for all taxable services and digital services except for the provision of charge or credit card services. Service tax for the provision of charge or credit card services is RM25 per year on each principal card or supplementary card.

It is proposed that the service tax rate will be increased from 6% to 8% for all prescribed taxable services except for food and beverages services and telecommunication services which remains at 6%.

Registration

A taxable person is a person who is registered or liable to be registered for service tax. A person is liable to be registered if the total value of his taxable services for a 12-month period exceeds or is expected to exceed the prescribed registration threshold.

The following is a summary of taxable persons and their respective prescribed registration thresholds:

Group	Taxable person	Registration threshold (RM)
A	Operators of hotels, inns, lodging house, service apartment, homestay*	500,000
B	Operators of restaurants, bars, snack-bars, canteen, coffee house or any place providing food and drinks whether eat-in or take-away*	1,500,000
C	Operators of night-clubs, dance halls, cabarets	500,000
	Operators of 1st, 2nd or 3rd Class Public House and 1st or 2nd Class Beer House
	Operators of approved health and wellness centres and massage parlours*
D	Operators of private clubs	500,000
E	Operators of golf course or golf driving range	500,000
F	Licensed operators of bettings, sweepstakes, lotteries, gaming machines or games of chance	500,000
G	Registered advocates, solicitors and syarie lawyers	500,000
	Registered public accountants
	Licensed or registered surveyors / registered valuers, appraisers and estate agents
	Registered professional engineers
	Registered architects
	Consultancy, training or coaching services provider*
	Information technology services providers*
	Management services providers*
	Employment services providers*
	Licensed private agencies
	Operators of online platform or marketplace
H	Persons who are regulated by Bank Negara Malaysia and provide credit card or charge card services through the issuance of a credit card or a charge card	Nil
I	Licensed insurers or takaful operators	500,000
	Licensed/registered persons providing telecommunication services and contents applications services	500,000
	Approved customs agents	Nil
	Operators of parking space for motor vehicles	500,000
	Operators of motor vehicles service or repair centres	500,000
	Licensed courier service providers	500,000
	Hire-and-drive car and hire-car service companies	500,000
	Advertising service providers	500,000
	Providers of electricity transmission and distribution services	500,000
	Licensed airlines providing domestic flights*	500,000
	Brokerage and underwriting financial services providers	500,000
	Cleaning services providers*	500,000

*These are subject to some exclusions

Any person who is not liable to be registered for service tax may apply to the Director General (DG) of Customs for registration as a registered person.

Foreign digital service providers are liable to be registered if the total value of digital services provided to Malaysian consumers for a 12-month period exceeds or is expected to exceed the prescribed registration threshold of RM500,000.

Invoice

A registered person is required to issue an invoice with the prescribed particulars for the taxable services rendered. A foreign registered person is also required to do the same. However, the requirements are much more simplified. The prescribed particulars include description of the taxable or digital services provided, total amount payable excluding tax and amount of service tax. The invoice may be issued and sent electronically.

Payment of service tax by a registered person (bi-monthly)

Service tax is due when:

payment is received for the taxable services rendered, or
immediately after the 12th month from the date of provision.

Taxpayers may request to account for service tax based on the date of invoice via an application to the DG of Customs.

Service tax due is accounted for and payable to the Royal Malaysian Customs Department (RMCD) every 2 months (i.e. taxable period). The service tax return (SST-02) and payment is due by the last day of the month following the end of the taxable period. A taxable person can apply to the DG of Customs to vary the taxable period.

Late submission of returns or late payments of taxes will be subject to the following penalty rates:

10% penalty on the unpaid service tax amount for the first thirty (30) day period past when service tax is due;
an additional 15% penalty on the unpaid service tax amount for the second thirty (30) day period past when service tax is due; and
an additional 15% penalty on the unpaid service tax amount for the third thirty (30) day period past when service tax is due.

Payment of service tax on imported taxable service by a non-taxable person (monthly)

A non-taxable person is required to account for service tax on imported taxable services acquired in the course of business via an SST-02A form. The service tax is due at the earlier of the payment date or the date the invoice for the services is received. The SST-02A form and the payment of service tax must be made by the last day of the month following the month in which the service tax is due.

Payment of service tax by a foreign registered person (quarterly)

Service tax is due when payment is received for the digital services provided. The foreign registered person can apply to account for service tax based on invoice date.

The service tax that falls due during a taxable period (3 months) is payable to the RMCD by the last day of the month following the end of that taxable period. A foreign registered person can apply to the DG of Customs to vary the taxable period.

Refund of service tax on bad debts

A registered person or a person who has ceased to be a registered person can apply for a refund of service tax in relation to bad debts. The conditions for the refund application are that:

the whole or part of the service tax paid has been written off as a bad debt; and
all reasonable efforts have been made by the applicant to recover the service tax.

Group relief

Service tax is not applicable to the following transactions performed among companies within a qualifying group of companies, (i.e. subject to certain qualifying criteria):

Provision of certain qualifying professional services in Malaysia by a registered person;
Acquisition of certain qualifying professional services from overseas by a Malaysian business; and
Provision of digital services by foreign service providers.

Exemption

Exemption for specific business-to-business (B2B) services

To minimise the tax pyramiding effect on businesses, certain taxable professional services or advertising services provided by a registered person to another registered person who is registered for the same service are exempted from service tax, subject to certain qualifying criteria.

Local service tax registered businesses which provide certain taxable professional services or advertising services are exempted from having to account for and pay service tax through the imported taxable service mechanism on the same professional services or advertising services acquired from foreign service providers, subject to certain qualifying criteria. In addition, local service tax registered businesses which provide digital services can claim refund of service tax paid on digital services acquired from foreign registered persons if the digital service acquired is the same as the digital service they provide.

2023/2024 Malaysian Tax Booklet