On 9 July 2019, Malaysia published the Service Tax (Amendment) Act 2019 in the Official Gazette, which received royal assent on 28 June. The Act, which was approved by parliament on 8 April 2019, provides for the taxation of B2C supplies by foreign service providers of digital services to Malaysian consumers at the service tax rate of 6%. The date of coming into operation of the Act must be set by notification published in the Official Gazette, although Royal Malaysian Customs (RMC) has already indicated it will come into operation on 1 January 2020.
For the purpose of service tax on digital supplies, foreign service providers are defined as any person outside Malaysia providing digital service to Malaysian consumers, including any person outside Malaysia operating an online platform for the buying and selling of goods or providing services (whether or not such person provides any digital services) and who makes transactions for provision of digital services on behalf of any person. Digital service is defined as any service that is delivered or subscribed over the internet or other electronic network and which cannot be obtained without the use of information technology and where the delivery of the service is essentially automated.
Foreign service providers will be required to register for service tax in Malaysia if they exceed or are expected to exceed a MYR 500,000 supply threshold in a 12-month period. The threshold is not set in the Act itself but has been indicated by the RMC.
Foreign service providers that supply digital services before the coming into operation of the Act are liable to be registered if it is reasonable to believe that the total value of digital services provided will exceed the threshold in the month the Act comes into operation and the preceding 11 months. Such providers are to be registered from 1 October 2019.
The standard period for service tax on digital supplies is three months, with the service tax return and payment due by the end of the month following the period. A return is required whether or not there is service tax to be paid. Failing to comply with the new requirements may result in fines of up to MYR 50,000, imprisonment for a term of up to three years, or both. In addition, late payment of service tax when required is subject to a 10% penalty for the first 30 days, plus additional penalties of 15% for subsequent 30-day periods the tax remains unpaid.
Lastly, where digital services are provided before the Act comes into operation and continue after coming into operation, the portion provided after coming into operation is subject to service tax. Where payment is received for digital services before the Act comes into operation and the services are provided on or after the date it comes into operation, no service tax is due.
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