Service Tax

Service tax was reinstated on 1 September 2018 as Malaysia moved away from the former GST regime.

Service tax applies to prescribed taxable services, provided by prescribed taxable persons. With effect from 1 January 2019, service tax also applies to imported taxable services.

Service tax is a final tax with no credit mechanism. Therefore any service tax incurred by a business is a final cost. The current rate of service tax is 6%.

Taxable services are prescribed in broad categories on a positive list. If a service is not specifically prescribed as a taxable service, then it will not be within the scope of the service tax.

The key challenge for businesses is in determining which services fall within the category of taxable services. While many categories such as hotels, legal services and local air transportation are relatively easy to classify, others such as management, consultancy and IT services have inherent ambiguity which must be managed.

An additional layer of complexity arises due to several concessions designed to reduce service tax applying at multiple stages of the supply chain, or on exported or export related services.

Taxable services

Group A: Accommodation
Group B: Food and beverages
Group C: Night clubs, dance halls, cabarets, karaoke centre, health and wellness centres, massage parlours, public houses, and beer houses
Group D: Private clubs
Group E: Golf club and golf driving range
Group F: Betting and gaming
Group G: Professionals
Group H: Credit card and charge card
Group I: Others
Group J: Logistics

Group A: Accommodation

Provision of accommodation premises
Provision of any other taxable services specified in other Groups
Provision of other services within the area or place of business under the control of the service provider
Provision or sale of cigarettes, tobacco products, smoking pipes (including pipe bowls), electronic cigarettes and similar electric vaporising devices, preparation of a kind used for smoking (in liquid or gel form whether or not containing nicotine) through electronic cigarettes and electric vaporising devices
Provision or sale of alcoholic and non-alcoholic beverages

Group B: Food and beverages

Provision of prepared or served food and drinks
Provision of any other taxable services specified in other Groups
Provision of other services (excluding rental of space) within the area or place of business under the control of the service provider
Provision or sale of cigarettes, tobacco products, smoking pipes (including pipe bowls), electronic cigarettes and similar electric vaporising devices, preparation of a kind used for smoking (in liquid or gel form whether or not containing nicotine) through electronic cigarettes and electric vaporising devices
Provision or sale of alcoholic and non-alcoholic beverages

Group C: Night clubs, dance halls, cabarets, karaoke centre, health and wellness centres, massage parlours, public houses, and beer houses

Provision of all types of services by the service provider
Provision of any other taxable services specified in other Groups
Provision or sale of cigarettes, tobacco products, smoking pipes (including pipe bowls), electronic cigarettes and similar electric vaporising devices, preparation of a kind used for smoking (in liquid or gel form whether or not containing nicotine) through electronic cigarettes and electric vaporising devices
Provision or sale of alcoholic and non-alcoholic beverages

Group D: Private clubs

Provision of all services within the private club
Provision of any other taxable services specified in other Groups
Provision or sale of cigarettes, tobacco products, smoking pipes (including pipe bowls), electronic cigarettes and similar electric vaporising devices, preparation of a kind used for smoking (in liquid or gel form whether or not containing nicotine) through electronic cigarettes and electric vaporising devices
Provision or sale of alcoholic and non-alcoholic beverages

Group E: Golf club and golf driving range

Provision of golf course, golf driving range or services related to golf or golf driving range
Provision of any other taxable services specified in other Groups
Provision of any other services within the golf club or golf driving range
Provision or sale of food and drinks
Provision or sale of cigarettes, tobacco products, smoking pipes (including pipe bowls), electronic cigarettes and similar electric vaporising devices, preparation of a kind used for smoking (in liquid or gel form whether or not containing nicotine) through electronic cigarettes and electric vaporising devices

Group F: Betting and gaming

Betting and gaming services involving bettings, sweepstakes, lotteries, gaming machines or games of chance
Conducting betting and gaming tournaments
Conducting card games

Group G: Professionals

Legal services (including Islamic legal services)
Accounting, auditing, book keeping, consultancy
Surveying services, including valuation, appraisal and estate agency
Engineering consultancy
Architectural services
Consultancy services (including training and coaching services)
Information technology services
Management services
Employment services (excluding secondment)
Provision of guards or protection
Digital services (including digital marketplace platform services)
Maintenance or repair services excluding maintenance management services related to land or buildings for residential purposes provided by any developer, joint management body, management corporation or residential association
Maintenance services for repair of residential buildings

Group H: Credit card and charge card

Provision of credit card and charge card services

Group I: Others

Insurance services (excluding life or medical insurance to individuals)
Telecommunication services
Subscription broadcasting services
Provision of parking spaces where charges are imposed
Servicing and repair of motor vehicles
Hire and drive / hire car services, charter bus services and excursion bus services
Advertising services (including digital advertising services)
Provision of electricity in excess of 600kwh per 28-day cycle to a domestic consumer
Local air travel services (including ancillary services in connection with local air travel services)
Brokering and underwriting services
Cleaning services in relation to goods, land or commercial or industrial buildings

Group J: Logistics

Logistic services including all or part of the supply chain of logistic management services, warehousing or warehousing management services, freight forwarding services, port or airport services, shipping services, aviation services or cold chain facilities services, delivery, distribution or transportation of goods services
Delivery, distribution or transportation of goods, documents or packages services through the E-Commerce platform including on behalf of any person
Licensed courier services
Services for the release of goods from customs control

The Export Concession

Several services are defined not to be taxable when they relate to land, goods or other matters located outside Malaysia. The key in applying this rule would be in determining the subject matter to which the service relates.

Other services are specifically not subject to service tax when they are exported or are export oriented.

There is no 'generic' export rule and therefore each service must be considered in the context of how the service is prescribed to be taxable.

The 'Companies Within the Same Group of Companies' Rule

Under this concession, prescribed taxable services would fall outside the scope of service tax if they are provided only within the corporate group, however this concession does not apply to all taxable services.

Key issues to be resolved include whether the service falls within the scope of the rule, and if the companies meet the requirements to be considered part of the corporate group for service tax purposes.

Care must also be taken to ensure that the same 'type' of taxable services are not provided outside the corporate group as this would negate the concession for the same services provided within the corporate group.

The 'B2B Exemption'

The 'B2B Exemption' may be claimed by a taxable person who acquires taxable services. Under the B2B exemption, if a taxable person is registered for the provision of the same taxable service as he acquires from a service tax registered supplier, then the taxable person may claim exemption from service tax. In such instance, the service tax registered supplier would be exempt from charging service tax. This concession comes with conditions and does not apply to all types of taxable services.

Registration Requirements

Any person providing taxable services in excess of a prescribed threshold is required to register for service tax. The threshold is generally RM500,000, however certain services have a different threshold.

Filing & Payment

Service tax returns must be filed and the tax paid every two months.

How We Can Help

Below are the main services we provide in respect of service tax. We also offer bespoke services, so if these do not meet your needs, please contact us for further discussion.