Scope and rates
Service Tax is a single stage tax on prescribed services provided by prescribed taxable persons.
The standard rate of Service Tax is 6 percent.
Generally, no exemption is granted under service tax.
Yes, other indirect taxes include:
- Sales Tax (see Country Sales Tax Essentials for further information)
- excise duty
- customs duty
- windfall profit levy.
Any person who provides prescribed taxable services and has reached the prescribed threshold (where applicable).
Yes. Any person who fails or refuses to register or apply for a license is liable on conviction to a fine not exceeding 5,000 Malaysian Ringgit (RM) or to imprisonment not exceeding 2 years or to both.
Services Tax grouping
Certain professional services provided within the same group of companies are not taxable, subject to meeting certain requirements.
Two or more companies are eligible to be treated as companies within a group of companies if one company controls each of other companies. As such, overseas companies are also considered to be within a group of companies only for the purpose of determination whether a company will fall within the same group.
A taxable period for Service Tax is 2 calendar months. Service Tax returns are filed within 28 days of the following month of the taxable period.
If a business receives purchase invoices, there is no service tax implications. Where a taxable person issues invoices in foreign currency, it is recommended that prior permission from Customs is obtained.
Services Tax recovery
No, recovery of Service Tax can be incurred on business input.
International supplies of goods and services
There is no definition on exported services for Service Tax purpose. However, where services relate to matters outside Malaysia, they are not subject to Service Tax.
Yes. Generally, every registered person who makes a taxable supply of goods or services must issue an invoice.
- the charges for the taxable service
- the amount of service tax payable (which must be stated separately from the charges for the taxable service)
- invoice serial number.
Yes, but businesses has to obtain prior approval from the Director General from Customs in writing.
No. The amount of service tax must be shown on any invoice in ringgit and sen. Therefore, where the taxable person’s invoices are denominated in foreign currency, it is recommended that prior permission from Customs is obtained.
Transfers of business
Sale of business as a going concern is not subject to service tax.
Options to tax
Head office and branch transactions
Assuming the head office is in overseas while the branch is in Malaysia, the services by the head office would be treated as imported services and are not subject to Service Tax.
Yes, subject to meeting certain conditions such as:
- the taxable person has not received for the whole or any part of the payment in respect of the sale of taxable goods after 6 months from the date such sales tax was paid by the taxable person; and
- the Director General of Customs is satisfied that all reasonable efforts have been made by such person to recover the service tax.
The general penalty is the imposition of fine not exceeding RM5,000 or imprisonment not exceeding 2 years or both. The penalty for late payment of service tax returns, however, is 10 percent of such unpaid amount for the first 30 days and the rate shall be increased by 10 percent for the second period of 30 days and for every succeeding period of 30 days or part thereof during which such amount remains unpaid to a maximum penalty of 50 percent.
Generally, the Customs authority audits are conducted in 3 to 5 year cycles.
Currently, Malaysia does not conduct e-audits for Service Tax.
Advance rulings and decisions from the tax authority
Yes. The Customs authority ruling can be applied on classification, valuation and other matters as prescribed by the DG and it is binding for 3 years.
Publicly available rulings and decisions issued by the Customs authority are limited. Certain classification of goods rulings can be found here: http://www.customs.gov.my/.
Yes. Malaysia has specific facilities and rules with regards to free zones which are specified under Free Zone Act. Subject to this Act, goods and services of any description, except those specifically and absolutely prohibited by law, may be brought into, produced, manufactured or provided in free zone without payment of any customs duty, excise duty, sales tax or Service Tax.