Malaysia becomes the second country to implement Digital Service TAX in Southeast Asia

In 2015, Malaysia joined the ranks of 160 countries around the globe who had implemented a Goods and Services Tax (GST) / Value Added Tax (VAT). Seventeen months later, Malaysia was the first country to revert to Sales and Services Tax (SST), the system that was in place prior to launching GST. The reverse officially came into effect on 1 September 2018. With growing e-commerce activities and with the intention of providing parity between local suppliers and offshore service providers, approximately two months after the reintroduction of SST the scope was widened by the expansion of tax on imported services. This was implemented in two stages:

1. Service tax imposed on Business-to-Business (B2B) transactions with effect from 1 January 2019; and
2. Service tax imposed on Business-to-Consumer (B2C) transactions from 1 January 2020 onwards.

Scope of this tax

Included in this widening of scope was a tax imposed at the rate of 6% on any digital service provided by a foreign service provider (FSP) to any consumer in Malaysia. This was introduced at the beginning of 2020, thereby making Malaysia the second country, after Singapore, to launch such a tax in Southeast Asia.

Definitions regarding digital service tax

A digital service is defined as a service that is delivered through an information technology medium, with minimal or no human intervention from a service provider.

Digital services include software, application & video games, music, e-book and film, advertisement and online platforms, search engines and social networks, databases and hosting, internet-based telecommunications, online training and others, for example, subscription to online newspapers and journals, and provision of other digital content such as images, text, information and payment processing services.

A foreign service provider is classified as any person outside of Malaysia providing any digital service to a consumer, including any person outside of Malaysia operating an online platform for buying and selling 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.

A consumer is defined as any person who fulfils any two of the following:

• Makes payment for digital services using a credit or debit facility provided by any financial institution or company in Malaysia.
• Acquires digital services using an internet protocol address registered in Malaysia or an international mobile phone country code assigned to Malaysia.
• Resides in Malaysia

Compliance Obligations for Foreign Service Providers

Any FSP who provides digital services to consumers in Malaysia — where the value of digital service for a period of 12 months or less exceeds the threshold of RM 500,000 — is required to be registered. The compliance responsibilities for an FSP are:

• To charge 6% service tax on the digital service provided to consumers in Malaysia at the time the payment for the digital service is received.
• To issue an invoice (whether electronically or in paper form) containing prescribed particulars to the consumer in respect of the digital service transaction.
• To submit a prescribed service tax return and remit the service tax collected (if any) to the Royal Malaysian Customs Department by the last day of the month, following the end of the taxable period (quarterly basis).
• To maintain complete and true records of all transactions for a period of seven years.

For more details, please refer to the Guide on Digital Services which can be downloaded from MySTODS, the official online portal for service tax on digital services:

• https://mystods.customs.gov.my/index.php

Contact us:

Ang Heng Ann
Tax Partner
Malaysia
Ecovis Malaysia Tax
Tel : +603 7981 1799
Fax: +603 7980 4796
Email: hengann.ang@ecovis.com.my