This tax guide provides an overview of the indirect tax system and rules to be aware of for doing business in Malaysia.

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Indirect tax snapshot

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What is the principal indirect tax?

Sales tax under the Sales Tax Act 2018 applies to any person who manufactures taxable goods. Sales tax is also levied on importation of taxable goods upon the clearance of the taxable goods from customs. However, an importer of taxable goods would not be liable to register for sales tax merely because he imports taxable goods.

Under the Service Tax Act 2018, service tax is a tax that will only be charged by a registered person who provides taxable services in the course or furtherance of business. Services that are taxable services are prescribed in the First Schedule of the Service Tax Regulations 2018.

The registered person for service tax will be liable to charge 6% of service tax on the taxable services provided. The tax is due and payable to the Royal Malaysian Customs Department (“RMCD”) once the payment for the taxable services provided is received. If any part of the payment is not received within 12 months from the date of invoice, service tax is due on the day following that period of 12 months.

Service tax is also charged on importation of services where these services are taxable service. The recipient of the service is required to do a self-recipient accounting and account the 6% service tax to the RMCD.

Is there a registration limit for the tax?

The manufacturer with turnover exceeding RM500,000 in any rolling 12-month period is liable to register for sales tax purposes.

On the other hand, for service tax, any person who provides a taxable service with a taxable turnover of RM500,000 in any rolling 12-month period is liable to register for service tax purposes. Different threshold applies to food and beverages service supplier as well as credit/charge card suppliers and permitted agents dealing with goods clearance from customs control.

The 12 -month rolling period applies retrospectively and prospectively for both sales tax and service tax.  A  manufacturer who manufactures taxable goods and a person who provides a taxable service not exceeding the threshold is not required to register but may do so on a voluntary basis.

Does the same registration limit apply to non-established businesses?

Effective from 1 January 2020, businesses not established in Malaysia are subjected to the same registration requirements if they are providing a taxable digital service to any consumer in Malaysia.

Is there any specific legislation to tax non-resident supplies of electronically supplied/digital services to private consumers resident in your country?

There is a specific legislation provision in the Service Tax Act 2018 on the imposition of Service Tax on Digital Services provided by the foreign registered person.

Does a non-established business need to appoint a fiscal representative in order to register?

No. There is no requirement for non-established business to appoint a representative.

How often do returns have to be submitted?

Registered taxable persons will be required to submit bi-monthly returns.  

The due date for the submission of a return is not later than the last day of the month following the end of the taxable period.

SST returns may be submitted manually by post or courier to the Customs Processing Centre or electronically via a web portal known as the ‘MySST portal’.

Are penalties imposed for the late submission of returns/ payment of tax?

Yes. In lieu of prosecution, the service tax due and payable that remains unpaid is subject to the following penalty:

  • 10% of the tax not paid wholly or partly for the first thirty- day period
  • an additional 15% of the tax not paid wholly or partly for the second thirty-day period
  • an additional 15% of the tax not paid wholly or partly for the third thirty-day period

Prosecution may be instituted after the expiry of the third– thirty period. A fine of not exceeding RM50,000 or to imprisonment for a term not exceeding three years or to both, may be imposed on prosecution and conviction of failure to pay the tax. The court may also order for a penalty similar to the penalty that may be imposed if prosecution was not instituted.

Are any other declarations required?

No.

Are penalties imposed in other circumstances?

Yes. Penalties can be imposed for a range of other offences, including:

  • incorrect returns
  • evasion and fraud
  • improperly obtaining refund
  • offences relation to goods, invoices and receipts
  • obstructing an officer
  • providing false information

A general penalty also is applicable on a conviction of an offence under the ‘Sales Tax Act’ and ‘Service Tax Act’ where no penalty is expressly stated in the legislation. The general penalty is a fine not exceeding RM30,000 or an imprisonment term not exceeding two years or to both.

Can the SST incurred by overseas businesses be claimed if they are not registered in Malaysia?

No.

What information must a Sales Tax and Service Tax invoice show?

A Sales Tax invoice must show:

  • the invoice serial number;
  • date of the invoice;
  • name, address and identification number of the registered manufacturer;
  • name and address of the person to whom the taxable goods is sold;
  • description sufficient to identify the taxable goods sold;
  • any discount offered;
  • for each description, distinguish the type of taxable goods, quantity of the taxable goods and the amount payable excluding sales tax;
  • total amount payable excluding sales tax, the rate of sales tax and the total sales tax chargeable shown as a separate amount;
  • total amount payable inclusive of total of sales tax chargeable;
  • any amount expressed in a currency other than ringgit shall also be expressed in ringgit at the selling rate of exchange prevailing in Malaysia at the time of sale of the taxable goods.

A Service Tax invoice must show:

  • invoice serial number;
  • date of the invoice;
  • name, address and identification number of the registered person;
  • description sufficient to identify the taxable services provided;
  • any discount offered;
  • total amount payable excluding service tax, the rate of service tax and the total service tax chargeable shown as a separate amount;
  • total amount payable inclusive of total service tax chargeable; and
  • any amount expressed in a currency other than ringgit shall also be expressed in ringgit at the selling rate of exchange prevailing in Malaysia at the time when the taxable services are provided.

There is a provision for the issuance of invoice which does not contain all the requirements of an invoice, subject to the Director General of Customs Malaysia’s approval.

SST record keeping

It is a duty for every registered manufacturer and taxable persons or persons other than taxable persons to keep complete and true records written up to date of all transactions which affect or may affect his liability to SST.

 

These records must be maintained in the national language or English language and shall be kept for seven (7) years from the date they are issued for all transactions related to SST.

 

Contact us

For further information on indirect tax in Malaysia please contact:

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Alan Chung
T +60 3 2692 4022
E alan.chung@my.gt.com

 

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International indirect tax guide

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