Implementation of service tax on digital services
Under the Service Tax (Amendment) Act 2019, the service tax will be levied on digital services (DS) with effect from 1 January 2020. DS is any service delivered or subscribed over the internet or other electronic network that cannot be obtained without the use of information technology and where the delivery of the service is essentially automated, for example, online training, provision of music, eBooks, software, advertisement, online platforms, and so on.
Registration and compliance requirements
A foreign service provider that is providing DS to consumers in Malaysia is required to register for the service tax if the total value of DS provided is more than RM 500,000 per year. The current service tax rate is 6%.
A foreign service provider that is liable for the service tax may register for it from 1 October 2019. As a service tax registered person, the foreign service provider will be required to issue invoices for DS and submit service tax returns quarterly. Foreign registered persons must file a service tax return no later than the last day of the month following the end of their taxable period. For example, if the taxable period is 1 January 2020 – 31 March 2020, the due date to submit the service tax return is on or before 30 April 2020.
With the implementation of the service tax to DS, some confusion may arise from the overlap with the service tax on imported taxable services. For example, a business is currently required to account for imported taxable service, such as the purchase of eBooks from an overseas supplier. After the implementation of the service tax on digital services on 1 January 2020, if the foreign service provider of the eBook is registered for DS tax and it charges service tax on the DS, this will result in the service tax being accounted for twice. It is advisable for foreign service providers of DS in Malaysia to seek assistance for service tax registration and to address any such issues. BDO in Malaysia has a team of experienced indirect tax professionals who would be pleased to help.