Malaysia | Draft Budget Proposes Expansion of SST to Foreign Supplies of Services from 2019

The newly introduced Malaysian Sales and Service Tax system (SST) has been in effect since 1st September 2018, when it replaced the previous GST regime. The SST differs from the GST in that it is a single-stage tax which is charged just once in the lifecycle of the good or service. The SST consists of two separate taxes:

  • the sales tax which levies rates of 10% or 5% on domestic and imported goods. The tax is due at the point of sale by the manufacturer or the importer; and
  • the service tax which levies a 6% rate on domestic supplies of taxable services. Currently, it does not apply to imported services.

Registration and Returns

The registration requirement for both the sales tax and the service tax is generally triggered if the turnover of taxable goods or taxable services, over a twelve-month period, exceeds MYR 500,000.

SST returns must be submitted on a bi-monthly basis, no later than the last day of the month following the end of the taxable period.

Changes to the Service Tax

The 2019 draft budget contains proposals to broaden the scope of the service tax so that it also covers taxable imported services.

As of 1st January 2019, under anticipated new rules, supplies of business-to-business (B2B) imported taxable services will be subject to the 6% service tax. Resident recipient customers will be required to account for and pay the tax through a reverse charge mechanism.

The definition of taxable services under Malaysian law includes, amongst others, the provision of accommodation, food and beverage preparation, gaming, legal and consultancy services, insurance, information technology, advertising, telecommunications and electricity.

As of 1st January 2020, the reach of the service tax will be extended again to foreign supplies of business-to-consumer (B2C) online services. As of this date, foreign providers of online services will have to register with Royal Malaysian Customs and charge and remit the 6% service tax due on those supplies.  Online services include software, music, video and digital advertising.

Changes to the Sales Tax

As of 1st January 2019, registered manufacturers will be able to reclaim the input sales tax they pay for certain goods bought from local traders and importers. This facility will only apply to taxable goods which are raw materials, components or packing materials used solely for manufacturing taxable goods.

If you are affected by these changes or have any questions about the Malaysian Sales and Service Tax, please do get in touch.