Global

Details

  • Service: Tax, Global Indirect Tax
  • Type: Regulatory update
  • Date: 11/1/2012

Malaysia: Service Tax Essentials 

Essential information regarding Service Tax Essentials as it applies in Malaysia.


Scope and rates

What supplies are liable to Services Tax?


Service Tax is a single stage tax on prescribed services provided by prescribed taxable persons.


What is the standard rate of Services Tax?


The standard rate of Service Tax is 6 percent.


Are there any reduced rates, zero rates, or exemptions?


Generally, no exemption is granted under service tax.


What are the other local indirect taxes beside Services Tax?


Yes, other indirect taxes include:


  • Sales Tax (see Country Sales Tax Essentials for further information)
  • cess
  • excise duty
  • customs duty
  • windfall profit levy.

top

Registration

Who is required to register for Malaysian Services Tax?


Any person who provides prescribed taxable services and has reached the prescribed threshold (where applicable).


Are there penalties for not registering or late registration?


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.


Is voluntary Services Tax registration possible for an overseas company?


No.


Are there any simplifications that could avoid the need for an overseas company to register for Services Tax?


Not applicable.


Does an overseas company need to appoint a fiscal representative?


Not applicable.

top

Services Tax grouping

Is Services Tax grouping possible? 


Certain professional services provided within the same group of companies are not taxable, subject to meeting certain requirements.


Can an overseas company be included in a Services Tax group?


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.

top

Returns

How frequently are Services Tax returns submitted? 


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.


Are there any other returns that need to be submitted?


No.


If a business receives a purchase invoice in foreign currency, which exchange rate should be used for Services Tax reporting purposes?


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.

top

Services Tax recovery

Can a business recover Services Tax if it is not registered?


No.


Does your country apply reciprocity rules for reclaims submitted by non-established businesses?


Not applicable.


Are there any items that businesses cannot recover Services Tax on?


No, recovery of Service Tax can be incurred on business input.

top

International supplies of goods and services

How are exports of goods and services treated?


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.


How are goods dealt with on importation?


Not applicable.


How are services which are brought in from abroad treated for Services Tax purposes?


Not applicable.

top

Invoices

Is a business required to issue tax invoices?


Yes. Generally, every registered person who makes a taxable supply of goods or services must issue an invoice.


What do businesses have to show on a tax 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.

Can businesses issue invoices electronically?


Yes, but businesses has to obtain prior approval from the Director General from Customs in writing.


Is it possible to operate self-billing?


No.


Can a business issue Services Tax invoices denominated in a foreign currency?


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.

top

Transfers of business

Is there a relief from Services Tax for the sale of a business as a going concern?


Sale of business as a going concern is not subject to service tax.

top

Options to tax

Are there any options to tax transactions?


No.

top

Head office and branch transactions

How are transactions between head office and branch treated?


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.

top

Bad debt

Are businesses able to claim relief for bad debts?


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.

top

Anti-avoidance

Is there a general anti-avoidance provision under Services Tax law?


Yes.

top

Penalty regime

What is the penalty and interest regime like?


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.

top

Tax authorities

Tax audits


How often do tax audits take place?


Generally, the Customs authority audits are conducted in 3 to 5 year cycles.


Are there audits done electronically in your country (e-audit)? If so, what system is in use?


Currently, Malaysia does not conduct e-audits for Service Tax.


Advance rulings and decisions from the tax authority


Is it possible to apply for formal or informal advance rulings from the (indirect) 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.


Are rulings and decisions issued by the tax authorities publicly available in your country?


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/.

top

Miscellaneous

In your country, are there unique specific indirect tax rules (regimes) that differ from standard indirect tax rules in other jurisdictions?


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.


Are there indirect tax incentives available in your country (e.g. reduced rates, tax holidays)?


Not applicable.

 

Share this

Share this

Meet the team

KPMG’s Global Indirect Tax team members are based around the world.

Country VAT/GST essentials