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.
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.
- Service Tax Briefing / Training
- Assessment of the applicability of service tax to your contracts
- Assessment of the 'company within the same group of companies' concession
- Assessment of the B2B relief concession
- Application for service tax ruling
- Service tax outsourcing services
- Review of your service tax compliance framework
- Service tax audit assistance
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