Service Tax

Effective date and scope of taxation

Service tax is a consumption tax levied and charged on:

  1. any taxable services (including digital services) provided in Malaysia by a registered person in carrying on his business;
  2. any imported taxable services acquired by any person who carries on business in Malaysia; and

  3. any digital services provided by a foreign registered person to a Malaysian consumer.

To avoid being taxed twice, local Malaysian businesses which acquire digital services from a foreign registered person are exempted from having to account for and pay service tax through the imported taxable service mechanism.

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).

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.

 

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 (subject to some exclusions)

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 (subject to some exclusions)

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 (subject to some exclusions)

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 providers (subject to some exclusions)

Digital and information technology services providers (subject to some exclusions)

Management services providers (subject to some exclusions)

Employment services providers (subject to some exclusions)

Licensed private agencies

Operators of online platform or market place

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 (subject to some exclusions)

500,000

Brokerage and underwriting financial services providers

500,000

Cleaning services providers (subject to some exclusions)

500,000

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.

Voluntary registration

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. The DG of Customs may approve the registration to be effective from a date he determines and subject to conditions he deems fit.

 

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, drinks and alcoholic beverages, certain professional services, digital services (including electronic platform services), certain telecommunication services, betting and gaming services, management 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.

 

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):

  1. Provision of certain qualifying professional services in Malaysia by a registered person;

  2. Acquisition of certain qualifying professional services from overseas by a Malaysian business; and

  3. Provision of digital services by foreign service providers.

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.

 

Exemption on digital services related to banking/financial Services

Provision of digital services in relation to banking / financial services provided by local financial institution / banks licensed under Financial Services Act 2013, Islamic Financial Services Act 2013, the Labuan Financial Services and Securities Act 2010 and the Labuan Islamic Financial Services and Securities Act 2010, Development Financial Institutions Act 2002 and any other qualified digital service provider are exempted from service tax effective 1 January 2020 to 31 July 2025.

To standardise the service tax treatment on digital service in relation to banking / financial services provided by non local bank providers, the exemption is also granted to :

I. Recipient of digital payment services; and

II. Local non-bank digital payment service provider as follows:

a. Payment instruments issuers 

b. Merchant acquirers 

c. Payment system operators

W.e.f 1 August 2022 to 31 July 2025.

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 for digital services provided although this is much more simplified. The prescribed particulars include but are not limited to 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. If payment is not received within 12 calendar months from the date the taxable service was provided, the tax is due on the day immediately after the expiry of the 12-month period.

The DG of Customs may approve an application from a registered person for the service tax of the taxable service rendered to be due at the date of issuance of the invoice instead of the payment date.

Any service tax that falls due during a taxable period, is payable to the Royal Malaysian Customs Department (RMCD) latest by the last day of the month following the end of the taxable period. A taxable period is a period of 2 calendar months, however, a taxable person can apply to the DG of Customs to vary the taxable period. If the application to vary the taxable period is approved, the service tax due is payable to RMCD latest by 30 days from the end of the varied taxable period.

 

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

A non-taxable person who acquires imported taxable services in carrying out his business is required to account for the service tax due in a prescribed declaration to RMCD. The service tax for imported taxable services is due at the earlier of the payment date or the date the invoice for the services is received. The furnishing of the declaration and the payment of service tax due must be made latest 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)

For digital services provided by a foreign registered provider, service tax is due when payment is received for the digital services provided. The DG of Customs may approve an application from a foreign registered person for the service tax of the digital service provided to be due at the date of issuance of the invoice instead of the payment date.

Any service tax that falls due during a taxable period, is payable to the RMCD latest by the last day of the month following the end of that taxable period. A taxable period is a period of 3 calendar months, however, a foreign registered person can apply to the DG of Customs to vary the taxable period. If the application to vary the taxable period is approved, the service tax due is payable to RMCD latest by the last day of the month following the end of the varied 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.  

 

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