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EY Street address: Mail address: Level 23A, Menara Milenium P.O. Box 11040 Jalan Damanlela 50734 Kuala Lumpur Pusat Bandar Damansara Malaysia 50490 Kuala Lumpur Malaysia
Indirect tax contacts
Yeoh Cheng Guan
+60 (3) 7495-8408 cheng-guan.yeoh@my.ey.com
Jalbir Singh Riar +60 (3) 7495-8329 jalbir.singh-riar@my.ey.com
Lindsey Cruickshanks
+60 (3) 7495-8440 lindsey.cruickshanks@my.ey.com
Germaine Ong +60 (4) 688-1908 germaine-sl.ong@my.ey.com
Aljo Barias +60 (3) 7495-8558 aljo.barias@my.ey.com
Stephen Nguoi +60 (82) 752 654 stephen.nguoi@my.ey.com
A. At a glance
Name of the taxes
Sales tax and service tax (SST)
Local name Cukai jualan dan cukai perkhidmatan (CJP)
Dates introduced
Sales tax
Service tax
Service tax on digital service (SToDS)
1 September 2018
1 September 2018
1 January 2020
Trading bloc membership Association of Southeast Asian Nations (ASEAN)
Administered by Royal Malaysian Customs Department (RMCD) (http://www.customs.gov.my)
SST rates
Sales tax
Standard
Other
Service tax
Standard
10%
5%, exempt and several specific rates for certain petroleum products
6% on prescribed taxable services
Other Specific rate of RM25 per year on the provision of credit card or charge card services
SToDS
6% on taxable digital services provided by foreign-registered persons
SST number format
15 digits (first alpha (usually W) remaining digits are numerical)
SToDS number format 8 digits (numerical)
SST return periods
SST registrants
Bimonthly (every two months (i.e., SST-02 returns)
Non-SST registrants and Sales tax only registrants Monthly submission exclusively for Service Tax on Imported Services (i.e., SST-02A returns)
SToDS registrants
Threshold Registration
Sales tax
Service tax
Quarterly (every three months (i.e., DST-02 returns)
Annual taxable turnover exceeds RM500,000
Annual taxable turnover exceeds RM500,000 subject to certain exceptions
SToDS Annual taxable turnover exceeds RM500,000
Recovery of SST by non-established businesses No
B. Scope of the taxes
Sales tax. Sales tax is a single-stage tax, applied to sales of locally manufactured taxable goods as well as to taxable goods imported for domestic consumption.
All taxable goods manufactured in, or imported into, Malaysia are subject to sales tax, unless they are specifically exempted by law. However, sales tax does not apply to goods manufactured in, or imported into, Labuan, Langkawi, Tioman, Pangkor, (intercountry) Joint Development Area, free zones, licensed warehouses, licensed manufacturing warehouses and licensed Petroleum Supply Bases.
The term “manufacture” is defined as the conversion of materials by manual or mechanical means into a new product by changing the size, shape, composition, nature or quality of such materials and includes the assembly of parts into a piece of machinery or other products. However, this does not include the installation of machinery or equipment for construction purposes. With respect to petroleum products, the term “manufacture” pertains to the process of refining that includes the separation, conversion, purification and blending of refinery streams or petrochemical streams.
Service tax. Service tax shall be charged and levied on any taxable services provided in Malaysia by a registered person in carrying on his business or self-assessed on any imported taxable ser vices. It is applicable to specific taxable services prescribed under the First Schedule of the Service Tax Regulations 2018. Services that are not included in the prescribed list are not taxable. There are nine major groups of taxable services that currently form the prescribed list. Taxable services include, but are not limited to, accommodation, food and beverage, night clubs, private clubs, golf clubs, betting and gaming, professional services (legal, accounting, surveying services, employment services, consultancy, training or coaching services, management services, engineering services, information technology services, architectural services, safety or security services, digital services), credit card and charge cards and other specific services (insurance, advertising, telecommunication services, customs agents, parking, motor vehicle repair, cleaning services, courier, etc.).
Various amendments and some new measures were proposed during the Budget 2022 announce ment, as follows:
• An Indirect Tax Special Voluntary Disclosure Program (SVDP) will be introduced, in phases. Penalty remission of 100% in Phase 1 and 50% in Phase 2 have been proposed. Remission of taxes may be considered on a case-by-case basis.
• Sales tax exemption will be extended until 30 June 2022 on Completely Knocked Down (CKD) (100% exemption) and Completely Built Up (CBU) (50% exemption) passenger cars, including MPVs and SUVs.
• Full import duty, excise duty and sales tax exemption on sales of electronic vehicles (EV) has been extended until 30 June 2022.
• Effective 1 January 2022, excise duty will be imposed on nicotine-based gel or liquid products for electronic cigarettes and vapes.
• Excise duty is to be imposed on premixed 2-in-1 or 3-in-1 drinks with sugar content exceeding 33.3g/100g (consisting of chocolate or cocoa, malt, coffee or tea) from 1 April 2022.
• Export duty exemption will be available for petroleum products under a Late-Life Assets Production Sharing Contract with effect from 1 January 2020 to 31 December 2029.
• Entertainment duty exemption on admission fees to entertainment facilities (e.g., amusement park, performance, sport events and competition, and cinema) in the Federal Territories of Kuala Lumpur, Labuan and Putrajaya will be extended to 31 December 2022.
• Tourism tax exemption for tourists staying in accommodation premises will be extended to 31 December 2022.
• Service tax on brokerage activities for listed shares will be exempted from 1 January 2022.
• Sales tax to be imposed on imported low-value goods sold online and air couriered to custom ers in Malaysia from 1 January 2023.
• With effect from 1 July 2022, service tax will be levied on the delivery services rendered by any service provider (including e-commerce platforms), except for food and beverage delivery and logistics services.
At the time of preparing this chapter, the changes listed above have not yet been finalized.
C. Who is liable
Sales tax. Any person that manufactures taxable goods in the course of doing business must apply for a sales tax registration.
Exemption from registration. The following manufacturers are excluded from sales tax registra tion:
• Manufacturer of nontaxable goods (not eligible for voluntary registration)
• Manufacturer below the registration threshold (RM500,000)
• Subcontractor manufacturer below threshold (RM500,000)
• Manufacturing activities that have been exempted from registration
Importers. An importer of taxable goods does not need to apply for a sales tax registration. Sales tax on imported goods is assessed and collected when the goods are cleared by the Royal Malaysia Customs Department, together with any customs duties payable.
Service tax. Subject to the relevant registration thresholds provided in the service tax regulations, any person that carries on a business of providing taxable services must apply for service tax registration.
Mandatory registration is required where:
• The historical taxable annual turnover is more than the prescribed threshold (RM500,000).
• There are reasonable grounds that the future taxable annual turnover will be more than the prescribed threshold (RM500,000).
The following examples indicate businesses subject to the existing service tax registration thresh olds (these lists are not exhaustive):
Examples of businesses with nil threshold
• Customs clearance agents
• Credit card or charge card services provider regulated by Bank Negara Malaysia
Examples of businesses with a RM500,000 threshold
• Professional engineer
• Courier service operator
• Parking operator
• Consultancy, training or coaching services excluding research and development companies
Example of businesses with a RM1.5 million threshold
• Caterer
• Food court operator
• Operator of restaurant, bar, snack bar, canteen, coffee house or any place that provides food and drinks
— Eatin or take-away
— Excluding canteens in an educational institution or operated by a religious institution or body
Exemption from registration. The following persons are excluded from service tax registration:
• Persons/businesses providing nontaxable services (not eligible for voluntary registration)
• Persons below the registration threshold (RM500,000)
Voluntary registration and small businesses. If the value of taxable supplies made by a business is below the registration threshold, the business may apply to register for SST voluntarily.
Group registration. Group SST registration is not allowed in Malaysia. However, branch or divisional registration is allowed. A business that operates through branches or divisions must deter mine whether it is liable to be registered based on the aggregate total taxable supplies of all the branches and divisions. On approval, each branch or division may apply to register individually under the name of that branch or division.
Supplies made between divisions within the divisional registration are disregarded for SST purposes. There is no minimum time period required for the duration for businesses to be registered under the same branch or division. All members of an SST branch/divisional registration in Malaysia are jointly and severally liable for SST debts and penalties.
Non-established businesses. With effect from 1 January 2020, foreign service providers who provide digital services to consumers in Malaysia (i.e., individuals or businesses) are liable to be registered for service tax on digital services (SToDS) when the total value of digital services provided to a consumer in Malaysia exceeds RM500,000 per year. Foreign service providers who are liable to register for SToDS shall apply for registration not later than the last day of the month following the month in which they exceed the threshold. Foreign service providers may register by completing and submitting the DST-01 form online via the SToDS portal.
With effect from 14 May 2020, foreign-registered persons (FRP) may apply group relief (i.e., intragroup exemption) on the provision of digital services to any qualifying group company in Malaysia.
However, should the FRPs also provide the same digital services to any Malaysian companies outside of the group of companies in Malaysia (i.e., third party), all digital services provided to both companies within and outside the group of companies will be subject to service tax.
Aside from SToDS, there are no additional special rules for non-established businesses.
Tax representatives. Tax representatives are not required in Malaysia.
Reverse charge. Service tax at a rate of 6% shall be charged and levied on any imported taxable services acquired on or after 1 January 2019 by any person carrying on a business in Malaysia.
The recipient of imported taxable services is required to self-account and pay 6% service tax based on the actual value of the imported taxable services. There is no input tax recovery.
Domestic reverse charge. There are no domestic reverse charges in Malaysia.
Digital economy. With effect from 1 January 2020, the scope of taxable services under the Service Tax Regulations 2018 was expanded to cover provision of digital services, including provision of electronic media that allows the suppliers to provide supplies to customers or transaction for provision of digital services on behalf of any person. A local service provider who provides digital services as prescribed above shall be liable to register under Service Tax legislation if the value of services during a period of 12 months or less exceeds the threshold of RM500,000. This value shall be determined based on either historical or future method.
Local service providers providing specific digital services related to banking and financial services are not subject to service tax. SToDS at the rate of 6% shall be charged and levied on any qualifying digital service provided by a foreign-registered person to consumers (i.e., businesses or individuals (both B2B and B2C)) in Malaysia. Similar to local service providers, a foreign service provider who provides digital services (i.e., electronically supplied services) to consumers in Malaysia, where the value of these services during a period of 12 months or less exceeds the threshold of RM500,000, will be required to register for SToDS. The value of the digital services can be determined based on either the historical or future method.
From 1 January 2023, sales tax will be imposed on low-value goods (LVGs) imported into Malaysia via air courier. Online sellers (whether from Malaysia or overseas) would be required to register for sales tax and charge the same accordingly. Further details are expected to be published by the Director General (DG).
Online marketplaces and platforms. In Malaysia, an online marketplace or platform is defined as any person operating an online platform (for buying and selling goods or providing services) and who supplies digital services on behalf of any person. An example of online platforms include offering online advertising space on an intangible media platform and offering platform to trade products or services.
To the extent that the value of the digital services provided by the online platform operator to consumers (B2B or B2C) in Malaysia exceeds the prescribed threshold for registration, the operator would be liable to be register for service tax (local) or SToDS (foreigner).
Registration procedures. For sales tax and service tax, businesses may apply for registration by completing and submitting form SST-01 electronically via the MySST portal not later than the last day of the month following the month in which the business is liable to be registered.
Foreign service providers who are liable to be registered for SToDS shall apply for registration via the DST-01 Form electronically via the MYSToDS portal not later than the last day of the month following the month in which the threshold has been exceeded.
For both service tax and SToDS, RMCD would require the businesses to complete the relevant details/information in the online registration form (e.g., business particulars/information, manufacturing/type of services provided). There are no other documents requied for submission of the registration form to RMCD. However, where necessary, RMCD may request additional informa tion via email after the application is successfully received by them for their verification pur poses.
Once the application has been approved, the business will be notified in writing and assigned a registration number by the Malaysian tax authorities (RMCD).
Deregistration. A business that ceases operations must cancel its SST registration. The business is required to notify the RMCD within 30 days from the date of such occurrence.
For SToDS, a foreign-registered person may apply to cancel its registration if his liability to be registered has ceased or the Director General (DG) determines that the person is not liable to be registered. The foreign-registered person shall notify the DG in writing of that fact and the date of cessation within 30 days from the date of cessation. This can be done by completing an online application via MYSToDS portal.
Changes to SST registration details. Taxable persons are required to notify the RMCD controlling station, in writing, of any amendments to the following:
• Changes in the name of business
• Changes in the address of any place of business
• Changes in partners of a partnership
• Changes in the status of business
• Changes or addition in the manufactured goods or taxable services provided
• Changes of any new place of business or closing of any place of business at which business is no longer carried on
There is no specific time limit stated in the legislation for notification of such changes. The exact wording of the Regulations refers to “shall immediately notify.”
Designated area. The duty-free islands are free from all types of customs duties and excise duties. For the purposes of SST, the duty-free islands are known as designated areas (DAs) and cur rently refer specifically to the islands of Labuan, Langkawi, Tioman and Pangkor. Generally, any supplies of taxable goods or taxable services made by any person within or between the DAs are not subject to SST unless they are prescribed otherwise by the Minister. Further, any goods imported from overseas are not subject to sales tax unless they are prescribed by the Minister.
D. Rates
Sales tax. Sales tax is an ad valorem tax and different rates apply based on the customs classifi cation (HS codes) of the taxable goods. It is, therefore, crucial that the correct HS code classifi cation is assigned to each of the products to ensure accuracy of the sales tax rate being applied.
The term “taxable goods” refers to goods that are of locally manufactured, as well as imported goods, both of which that are not exempt under the sales tax law.
The sales tax rates are:
• Standard rate: 10%
• Reduced rates: 5% and specific rates (imposed on certain petroleum products)
• Zero-rate: 0%
The standard rate of sales tax applies to all supplies of goods unless a specific measure provides for a reduced rate, the zero rate or an exemption.
Example of goods and services taxable at 5%
• Nonessential goods (including among others, foodstuffs and building materials)
The term “exempt” refers to supplies of goods that are not liable to tax.
Nevertheless, the Minister of Finance has the power to exempt the following:
• Any goods or class of goods from the whole or any part of the sales tax, subject to conditions as they deems fit
• Any person or class of persons from payment of the whole or any part of the sales tax that may be charged and levied on any taxable goods manufactured or imported, as below:
Schedule A: class of person, e.g., ruler of states, federal or state government department, local authority, inland clearance depot, duty-free shop
Schedule B: manufacturer of specific nontaxable goods – raw materials, components, pack aging to be used in manufacturing activities
Schedule C: registered manufacturer – exemption of tax on acquisition of raw materials, components, packaging to be used in manufacturing of taxable goods
Example of exempt supplies of goods
• Raw food (e.g., meat, vegetables, seafood)
• Bricks, blocks, tiles
• Bicycles and other cycles (including delivery tricycles), not motorized
• Trucks, motorcycles
In view of the ongoing economic crisis due to COVID-19, the Malaysian government announced several economic measures to mitigate the economic impact of COVID-19 and reinvigorate economic growth. Specifically, the following exemptions were announced during 2020:
• Exemption of sales tax for the local acquisition and importation of equipment and machineries by port operators, subject to the following conditions: Such machineries and equipment are essential and used directly in connection with the port operation
Sales tax exemption is not applicable to spare parts and finished goods, including those used for maintenance purposes.
The above exemption is for items submitted to the Ministry of Finance starting from 1 April 2020 to 31 March 2023 (i.e., three years).
• Exemption of sales tax for the automotive industry as follows: 100% sales tax exemption on the sale of locally assembled passenger cars 50% sales tax exemption on imported passenger cars.
The above exemption will be extended until 30 June 2022 as per the Budget 2022 announcement.
• Face masks imported or sold by local manufacturers are exempted from sales tax. Depending on the type of face mask, different tariff codes and effective dates apply (either from 23 March or 1 July 2020). The exemption is effective from prescribed dates until a date to be announced by the government.
• Importation or local sales of taxable protective personal equipment (PPE) and consumables to be contributed to the Ministry of Health (MOH) are exempted from sales tax. To qualify for such exemption, there must be a letter endorsed by the MOH. The exemption is effective from 25 March 2020 until a date to be announced.
• Manufacturers of hand sanitizer (under the tariff code 3808.94.9000) are eligible for sales tax exemption onundenatured and denatured ethyl alcohol. Manufacturers would have to submit the required documents to the Ministry of Finance (MOF) for approval.
Option to tax for exempt supplies. The option to tax exempt supplies is not available in Malaysia.
Service tax. Service tax is imposed at a rate of 6% on the price, charge or premium for the taxable service. A specific rate of RM25 applies per year for each principal and supplementary card upon activation and subsequent years on the provision of credit card or charge card services by banks and financial service providers regulated by the Bank Negara Malaysia.
Specific exemptions are available for service tax registered persons, as follows:
• Intragroup exemption may apply when a company in a group of companies provides services to a related party company, provided all the following conditions under Regulations 3 to 8, First Schedule of the Service Tax Regulations 2018, as amended, are met:
(i) Taxable services fall under items (a) to (i), Group G, First Schedule of the STR 2018. The underlying services in question can be classified under one of the following taxable ser vices:
— Legal services
— Accounting, auditing, bookkeeping and other services by public accountants
— Surveying services, including valuation, appraisal and estate agency services
— Engineering services
— Architectural services
— Consultancy, training or coaching services
— Information technology services
— Management services
— Digital services
ii. Control requirement:
• Two or more companies are eligible to be treated as companies within a group of companies if one company controls each of the other companies.
• A company shall be taken to control another company if the first mentioned company holds directly, indirectly through subsidiaries, or together directly or indirectly through/from subsid iaries:
— More than 50% of the issued share capital of the second mentioned company
Or
—
From 20% to 50% of the issued share capital of the second mentioned company and the first mentioned company has exercisable power to appoint or remove all or a majority of directors in the board of directors in the second mentioned company.
iii. Exclusivity requirement – services only provided within the group:
• Where a company provides any such specified Group G taxable services to another person outside the group of companies, all such taxable services (whether provided to a company within or outside the group of companies) shall be taxable services unless the total value of taxable services provided to the third parties does not exceed an amount equal to 5% of the total value of the same taxable service within a 12-month period.
• Where a company in a group of companies acquires the abovementioned professional services from any company within the same group of companies outside Malaysia, such service shall not be an imported taxable service, with effect from 1 September 2019.
• On a separate note, where a foreign registered person provides digital services to a company in Malaysia within the same group of companies with the foreign registered person, such services shall not be subject to service tax, effective 14 May 2020. However, where the foreign-regis tered person provides the same digital services to any company outside the group of companies, such digital services provided within or outside the group of companies will be subject to service tax.
Business-to-business (B2B) exemption is applicable to a service tax-registered person who acquires the same taxable services as provided by it, from another service tax-registered person. Specifically, the B2B exemption will only apply to certain specific professional services as fol lows:
• Legal services
• Accounting, auditing, bookkeeping and other services by public accountants
• Surveying services, including valuation, appraisal and estate agency services
• Engineering services
• Architectural services
• Consultancy services, training or coaching
• Information technology services
• Management services
• Advertising services
• Digital services
On a separate note, a B2B exemption on imported services was also introduced from 1 January 2020. This is to exempt the first leg of a qualifying B2B supply chain, where there is an import of taxable services (i.e., services are provided by an overseas service provider), which are subse-
quently followed by provision of the same service by the service tax-registered person to its Malaysian customers. This B2B exemption for imported taxable services would only be appli cable for professional services as listed in the bullet above.
To improve cash flow and reduce the costs of businesses affected by COVID-19, the government granted a service tax exemption to operators of accommodation premises (i.e., hotels, inns, service apartments, homestays or any other establishments as prescribed under Group A, First Schedule of the Service Tax Regulations 2018) from charging service tax on accommodation services and any other relevant taxable services under Group A, First Schedule of the Service Tax Regulations 2018. This exemption was available from the period of 1 March 2020 to 30 June 2021. Effective 1 July 2021, the provision of accommodation premises (excluding food and beverages, rental of space, parking, etc.) is exempt from service tax until 31 December 2021.
E. Time of supply
Sales tax is due on goods manufactured in Malaysia when the goods are sold, used or disposed of by a taxable person. The definition of “disposal” includes the manufacturer diverting the goods for its own use, destroying the goods, giving away or donating the goods and making a supply of manufactured goods for no consideration.
Service tax is due when payment is received for taxable services rendered. If payment is not received within 12 months after the date of when the services were provided, the tax is due on the day immediately after the expiration of the 12-month period. However, the registered person may apply to RMCD in writing, to account for service tax upon issuance of the invoice, subject to approval from RMCD.
Service tax on imported services is due upon the earliest of payment or invoice receipt date.
Deposits and prepayments. There are no special time of supply rules for deposits and prepay ments for sales tax in Malaysia. As such, the normal time of supply rules apply (as outlined above).
In principle, advance payments are subject to service tax if these payments are received as pay ment for the taxable services to be provided. Service tax is to be accounted upon receipt of such payments from the customer. However, payment as a deposit is not subject to service tax until such deposit is realized as payment for the taxable service rendered and an invoice has been issued.
Continuous supplies of services. If services are supplied continuously and payment is determined in whole or in part or payable periodically or from time to time, the tax is to be reported when the payment is received from customers or the tax invoice is issued (subject to approval by RMCD).
Goods sent on approval for sale or return. There are no special time of supply rules for goods sent on approval for sale or return in Malaysia. As such, the normal time of supply rules apply (as outlined above).
Reverse-charge services. Service tax in respect of imported taxable services shall be due and payable at the time when the payment is made or an invoice is received for the service, which ever is earlier.
Leased assets. Lease or rental of assets is not a taxable service under the First Schedule of the Service Tax Regulations 2018. As such, no time of supply rules apply.
Imported goods. Sales tax is due on imported goods at the time the goods are cleared by the Royal Malaysia Customs Department or removed from a customs bonded warehouse.
F. Recovery of SST by taxable persons
SST is a single-stage tax that is a cost to businesses as SST on purchases. It is not recoverable as input tax from RMCD.
There is no input tax recovery mechanism in Malaysia, and as such the SST incurred is a true cost to the business. This means that taxable persons that incur SST on purchases are unable to claim the tax back from customs. However, this does not apply in certain situations, for example any overpaid/erroneously paid tax to customs. For further information please see the Refunds subsection below.
Sales tax is a single-stage tax, applied to sales of locally manufactured taxable goods, as well as to taxable goods imported for domestic consumption. Service tax is charged and levied on any taxable services relating to Malaysia by a registered person in carrying on their business or selfassessed on any imported taxable services.
There are only certain specific exemptions or the drawback facility under the sales tax regime.
Nondeductible input tax. Input tax incurred in Malaysia is generally not recoverable.
Partial exemption. Deduction of input tax is not allowed in Malaysia.
Capital goods. Input tax incurred on capital goods in Malaysia is not recoverable.
Refunds. There are several credit facilities and refunds available for sales tax and service tax, as follows:
Sales tax
• Drawback – Drawback of sales tax may be allowable to any person on which sales tax has been paid, if the taxable goods have been exported within three months from the date sales tax was imposed, subject to conditions.
• Deduction of sales tax – A registered manufacturer is eligible to make a deduction of sales tax paid, at the rate of 2% or 4% of the total value of taxable goods purchased (i.e., raw materials, components or packaging materials) used solely in the manufacturing of taxable goods, from a person other than a registered manufacturer, subject to certain conditions.
• Refund of erroneously paid or overpaid tax – Any person who has overpaid or erroneously paid any sales tax, surcharge, penalty, fee or other money shall make a claim for refund in the pre scribed form (i.e., JKDM Form No. 2), subject to conditions.
Service tax
• Contra system – It is a facility that allows any registered person to deduct his return the amount of service tax paid but subsequently refunded to his customer because of either cancellation or termination for taxable services. An application can be made to the Director General of RMCD, subject to conditions.
• Refund of erroneously paid or overpaid tax – Any person who has overpaid or erroneously paid any sales tax, surcharge, penalty, fee or other money shall make a claim for refund in the prescribed form (i.e., JKDM Form No. 2), subject to certain conditions.
Pre-registration costs. Input tax incurred on pre-registration costs in Malaysia is not recoverable.
Bad debts. Claiming for bad debt is allowed for any person who is or has ceased to be a registered manufacturer or person provided that the SST has been paid, the whole or any part of the tax payable has been written off as bad debt. The claim for a refund on the whole or any part of the service tax paid shall be made within six years from the date the service tax is paid by the business.
Noneconomic activities. Input tax incurred on purchases that are used for noneconomic activities is not recoverable in Malaysia.
G. Recovery of SST by non-established businesses
Input tax incurred by non-established businesses in Malaysia is not recoverable.
H. Invoicing
SST invoices. For both sales and service tax, every registered manufacturer/person who sells/ provides any taxable goods/service is required to issue an invoice to customers containing pre scribed particulars in the national (Bahasa Melayu) or English language. The amount of sales/ service tax payable is to be stated separately from the total amount payable.
Where certain exemptions apply (e.g., applicable for service tax-registered persons who acquire the same taxable services as provided by them, from another service tax-registered person), the supplier shall issue an invoice under Regulations 10 (1) and (1A) of the Service Tax Regulations 2018, which require the following additional details:
• Name and address of the client
• The client’s service tax registration number
• The client’s total amount of service tax that is exempted
Credit notes. Adjustments generally arise as a result of the cancellation of a transaction, a change in the amount previously invoiced or a change in tax rate. Adjustment notes (i.e., debit and credit notes) should contain the prescribed particulars under the regulations and must cross-ref erence the original tax invoice number and date it relates to. The Director General (DG) may disallow any deduction where the credit notes presented are untrue or incorrect.
Electronic invoicing. Electronic invoicing is allowed in Malaysia, but not mandatory. The Malaysian SST Act presumes that an invoice has been issued to the customer, even though there is no delivery of any equivalent document in paper form to the customer, as long as the requisite information is recorded in a computer and is transmitted to the customer by electronic means or produced on any material other than paper and delivered to the customer.
Simplified SST invoices. Under the current SST regime, the document to support the SST-relevant transaction is referred only as an “invoice.” However, the DG may allow any particulars specified in the SST regulation not to be stated on an invoice issued, upon request in writing.
Self-billing. Self-billing is not allowed in Malaysia. However, the Director General has the power to recon-sider these rules for certain exceptions.
Proof of exports. Exports of goods are exempt from sales tax. To qualify for exemption, it must be proved that the goods have been exported from Malaysia. Acceptable documentation includes a customs export declaration and an export sales invoice issued by a registered manufacturer.
Foreign currency invoices. If an invoice is issued in foreign currency, the total amount payable before SST, the total SST chargeable and the total amount payable (including SST) must be converted to the domestic currency, which is the Malaysian ringgit (RM), by using the selling rate of exchange prevailing in Malaysia at the time of sale of taxable goods or when the taxable services are provided. In the case of SST levied on the importation of goods, the exchange rates published by RMCD that are updated every week, would be applied.
Supplies to nontaxable persons. There are no special invoicing rules for supplies to nontaxable persons in Malaysia. As such, full SST invoices are required.
Records. Every taxable person and non-established taxable person must keep complete and true up-to-date written records of all transactions that affect or may affect their liability to sales tax or service tax, including the following:
• All records of sales of taxable goods or provision of taxable services by or to that taxable person, including invoices, receipts, debit notes and credit notes
• All records of importation and exportation of taxable goods
• All records of imported taxable service
• All records by foreign-registered persons relating to provision of digital services, including invoices and receipts
• All other records as the Director General (DG) of Customs may determine
The documents should be kept in Malaysia. However, to the extent that the registered persons intended to retain these records outside Malaysia, a written approval must be obtained from the DG of Customs, subject to such conditions as they deem fit.
For SToDS, a non-established taxable person can keep their documents or records related to service tax on digital services outside Malaysia as long as the records are readily accessible when required.
Record retention period. Taxable persons are required to maintain their SST records for seven years and the records must be in English or in the national language (Bahasa Melayu) Any records shall be kept in Malaysia, except as otherwise approved by the Director General.
Electronic archiving. Records can be kept electronically, where they shall be kept in such manner as to enable the record to be readily accessible and convertible into writing. If the record is originally in a manual form and is subsequently converted into an electronic form, the record shall be retained in its original form prior to the conversion.
I. Returns and payment
Periodic returns. Every taxable person is required to account for tax by submitting an SST-02 return on a bimonthly basis (every two months). As of 1 January 2019, any nontaxable busi nesses that acquire services from overseas will also need to pay and file a separate SST-02A return.
The SST-02 return is required to be furnished to the DG not later than the last day of the month following the end of the taxable period. If a taxable person’s taxable period does not end on the last day of the month, the SST-02 return should be furnished no later than the last day of the 30-day period from the end of the varied taxable period. On the other hand, SST-02A return is required to be furnished to the DG not later than the last day of the month following the end of the month in which the payment on the service has been made or invoice is received by the non taxable person, whichever is earlier.
For FRPs, they are required to submit the DST-02 return on a quarterly basis (every three months), not later than the last day of the month following the end of the taxable period.
The DG, upon receiving any application in writing, may reassign the taxable period other than the period previously assigned as it deems fit (i.e., vary the length of the taxable period or the date on which the taxable period begins or ends).
Periodic payments. The taxable person who is in a payable position must pay to the DG the amount of tax due and payable by it. Any tax due in respect of a taxable period becomes payable not later than the last day on which the taxable person is required to furnish the SST or DST returns, i.e., by no later than the last day of the 30-day period from the end of the varied taxable period. Payment must be made by way of electronic fund transfer, checks, bank draft, money order or postal order.
Electronic filing. For SST-02 and SST-02A returns, the taxable persons may submit the SST return in one of three ways:
• Electronically
• By posting to the Customs Processing Center
• By couriering it to the Customs Processing Center
Currently, taxable persons can choose the method to submit the return. They would not be required to notify the tax authority formally in terms of the method they have elected in submitting such returns. For SToDS, a foreign service provider needs to submit the DST-02 returns and make pay ments electronically via the SToDS portal.
Payments on account. Payments on account are not required in Malaysia.
Special schemes. Approved Major Exporter Scheme. With effect from 1 July 2020, the sales tax exemption facility, Approved Major Exporter Scheme (AMES) was introduced to relieve the challenges under the existing sales tax drawback mechanism for traders who re-export/export the tax-paid goods and specific exemption facilities for manufacturers of nontaxable goods for export. The benefits to AMES participants are as follows:
• AMES traders are exempted from payment of sales tax on importation/acquisition of the goods that are subsequently exported or transported to designated areas or special areas.
• AMES manufacturers of nontaxable goods are exempted from payment of sales tax on importation/acquisition of raw materials, components packing and packaging materials for use in manufacturing of sales tax-exempted goods that are subsequently exported or transported to designated areas or special areas.
Annual returns. Annual returns are not required in Malaysia.
Supplementary filings. No supplementary filings are required in Malaysia. However, taxable per sons can submit supplementary SST returns, provided that they have additional tax amounts to be reported to RMCD, via the MySST portal.
Correcting errors in previous returns. If a taxable person makes an error in any return, or any person other than a taxable person makes an error in any declaration furnished to RMCD, they may correct the error voluntarily in Form SST–02, Form SST-02A or Form DST-02, in such man ner and within such time as the senior officer of RMCD may determine. In respect of what pos sible penalties may apply for such errors, please see the subsection Penalties for errors below. However, please note that there is an avenue for penalty waiver in the event of a voluntary disclosure, subject to the discretion of RMCD on a case-by-case basis.
Digital tax administration. There are no transactional reporting requirements in Malaysia.
J. Penalties
Penalties for late registration. A taxable person that fails to apply for a sales tax, service tax or SToDS registration is liable for a penalty, which may include imprisonment for a term not exceeding 24 months (i.e., 2 years), a fine not exceeding RM30,000 or both. Please note that the Director General also has the power to raise an assessment, upon conviction, of from 10-20 times the amount of sales or service tax or up to five years’ imprisonment or both for the first offense and from 20-40 times the amount of sales or service tax or up to seven years’ imprisonment or both for the second offense.
GST closure audit. A mandatory GST closure audit will be performed on all taxable persons as a prerequisite for GST registrants to be deregistered. A GST closure audit is a historical audit to be performed by the RMCD to verify that GST has been properly accounted for in all applicable business transactions and to ensure that the relevant information has been correctly reported in the GST-03 returns. To date, RMCD is actively conducting GST closure audits and this is expected to continue in 2022.
SST audit. In addition to the above, RMCD is conducting SST audits to verify that the relevant sales tax or service tax has been properly accounted for in all applicable business transactions and to ensure that the relevant information has been correctly reported in the SST returns.
Special Voluntary Disclosure Program (SVDP). As announced in Budget 2022, the SVDP will be divided into two phases where full (100%) or partial (50%) remission of penalties will be granted under phases 1 and 2 respectively. Consideration for remission of tax will be given on a case-by-case basis. At the time of preparing this chapter, this program is tentatively scheduled to commence on 1 January 2022.
Under the SVDP, taxable persons are encouraged to voluntarily disclose any unpaid or underpaid indirect taxes and/or erroneous indirect tax filings or submissions to RMCD.
Penalties for late payment and filings. Any person who fails to submit the return as required will commit an offense and may upon conviction be liable to a fine not exceeding RM50,000 or to imprisonment for a term not exceeding three years or to both. The penalty for late payment is:
• For the first 30-day period that the tax is not paid, 10% of the SST amount due
• For the second 30-day period that the tax is not paid, an additional 15% of the SST amount due
• For the third 30-day period that the tax is not paid, an additional 15% of the SST amount due
After the expiry of the 90-day period, any person who fails to pay to the DG, may upon conviction, be subject to a maximum penalty of 40% or to imprisonment for a term not exceeding three years or to both.
Penalties for errors. Any person who makes an error in any return furnished, i.e., submits an incorrect return by omitting information, understating output tax or overstating input tax or giv ing any incorrect information commits an offense and shall, upon conviction, be subject to a fine not exceeding RM50,000, or imprisonment for up to three years or both; plus, a fine equal to the amount of tax that has been or would have been undercharged.
For failure to notify tax authorities, or late notification regarding changes to a taxable person’s SST registration details, the RMCD could apply the general penalty upon conviction (RM30,000 or imprisonment up to two years or both). However, in practice, this would depend on specific circumstances. For further details, please see the subsection Changes to SST registration details above.
Penalties for fraud. Any person who with the intent to evade or assist any other person to evade sales and service tax by making, using or authorizing the use of any fraud will be imposed penalties.
For the first offense, the person will be liable to a fine of not less than 10 times and not more than 20 times the amount of SST or to a term of five years or to both.
For the second or subsequent offense, the person will be liable to a fine of not less than 20 times and not more than 40 times the amount of SST or to imprisonment for a term not exceeding seven years or to both.
Personal liability for company officers. If there is service tax or sales tax due and payable, sur charge is accrued, or penalty, fee or other money is payable by any of the following persons:
• The directors of the company
• The compliance officer who is appointed among the partners of the limited liability partnership or if no compliance officer is appointed as such, any one or all of the partners of the limited liability partnership
• The partners of the firm
• The office bearers of the society
• The persons responsible for the management of the body of persons
Such persons, together with the company, limited liability partnership, firm, society or other body of persons, can be jointly and severally liable for the service tax, surcharge, penalty, fee or other money.
Statute of limitations. The statute of limitations in Malaysia six years. Generally, the statute of limitations for SST is six years from the date of which the tax or duty is due or payable or the refund was made. However, note that in the case of fraud or willful default, such statute of limi tation would not apply.
Taxable persons are not allowed to amend the SST returns submitted after the statutory due date. However, RMCD allows for a supplementary SST return to be submitted via the MySST portal, provided that they have additional taxes to be reported. If there is a reduction in taxes declared to RMCD, a refund application must be submitted to RMCD using a prescribed form (i.e., JKDM Form No. 2) within one year from the time overpayment or erroneous payment occurred, subject to certain conditions.
For SToDS returns, if a taxable person makes an error in any DST-02 return furnished to RMCD, it must correct it in such manner and within such time as the officer of Customs may require, as below:
• Before submission due date and payment not made, and the status of the return shown as “Draft,” then there is no limitation for amendment.
• After submission of return, if the amendment results in an addition to the amount of service tax, then the service tax shall be paid accordingly. If the amendment results in a reduction to the amount of service tax, then a verification by the customs officer is required, and amendment is allowed up to three times only.
There is no time limit for taxable persons to amend the SToDS returns declared to RMCD.