Service tax is a consumption tax levied and charged on:
Special concessionary treatment is given to transactions involving Designated Areas (Labuan, Langkawi, Tioman and Pangkor) and Special Areas (free zones, licensed warehouses, licensed manufacturing warehouses and Joint Development Area).
Examples of taxable services include but are not limited to the provision of accommodation premises, sale or provision of food, cigarettes, electronic cigarettes, tobacco products, drinks and alcoholic beverages, certain professional services, information technology services, digital services (including electronic platform services), certain telecommunication services, betting and gaming services, management services, consultancy services, training services, security services, provision of parking space, provision of golf course, golf driving range or services related to golf or golf driving range, courier and certain delivery services (other than to destinations outside Malaysia), domestic flight services, provision and issuance of charge card or credit card whether or not annual subscription or fee is imposed, and provision of electricity to domestic consumer. A complete list of taxable persons and taxable services can be found in the First Schedule to the Service Tax Regulations 2018.
It is proposed that the scope of prescribed taxable services will be expanded to include logistic services, karaoke services, brokerage and underwriting services*.
*Currently, brokerage and underwriting services in relation to financial services are prescribed taxable services. It is unclear what the proposed expansion will be at this time.
The rate of service tax is 6% ad valorem for all taxable services and digital services except for the provision of charge or credit card services. Service tax for the provision of charge or credit card services is RM25 per year on each principal card or supplementary card.
It is proposed that the service tax rate will be increased from 6% to 8% for all prescribed taxable services except for food and beverages services and telecommunication services which remains at 6%.
A taxable person is a person who is registered or liable to be registered for service tax. A person is liable to be registered if the total value of his taxable services for a 12-month period exceeds or is expected to exceed the prescribed registration threshold.
The following is a summary of taxable persons and their respective prescribed registration thresholds:
Group
Taxable person
Registration threshold (RM)
Operators of hotels, inns, lodging house, service apartment, homestay*
Operators of restaurants, bars, snack-bars, canteen, coffee house or any place providing food and drinks whether eat-in or take-away*
Operators of night-clubs, dance halls, cabarets
Operators of 1st, 2nd or 3rd Class Public House and 1st or 2nd Class Beer House
Operators of approved health and wellness centres and massage parlours*
Operators of private clubs
Operators of golf course or golf driving range
Licensed operators of bettings, sweepstakes, lotteries, gaming machines or games of chance
Registered advocates, solicitors and syarie lawyers
Registered public accountants
Licensed or registered surveyors / registered valuers, appraisers and estate agents
Registered professional engineers
Consultancy, training or coaching services provider*
Information technology services providers*
Management services providers*
Employment services providers*
Licensed private agencies
Operators of online platform or marketplace
Persons who are regulated by Bank Negara Malaysia and provide credit card or charge card services through the issuance of a credit card or a charge card
Licensed insurers or takaful operators
Licensed/registered persons providing telecommunication services and contents applications services
Approved customs agents
Operators of parking space for motor vehicles
Operators of motor vehicles service or repair centres
Licensed courier service providers
Hire-and-drive car and hire-car service companies
Advertising service providers
Providers of electricity transmission and distribution services
Licensed airlines providing domestic flights*
Brokerage and underwriting financial services providers
Cleaning services providers*
*These are subject to some exclusions
Any person who is not liable to be registered for service tax may apply to the Director General (DG) of Customs for registration as a registered person.
Foreign digital service providers are liable to be registered if the total value of digital services provided to Malaysian consumers for a 12-month period exceeds or is expected to exceed the prescribed registration threshold of RM500,000.
A registered person is required to issue an invoice with the prescribed particulars for the taxable services rendered. A foreign registered person is also required to do the same. However, the requirements are much more simplified. The prescribed particulars include description of the taxable or digital services provided, total amount payable excluding tax and amount of service tax. The invoice may be issued and sent electronically.
Service tax is due when:
Taxpayers may request to account for service tax based on the date of invoice via an application to the DG of Customs.
Service tax due is accounted for and payable to the Royal Malaysian Customs Department (RMCD) every 2 months (i.e. taxable period). The service tax return (SST-02) and payment is due by the last day of the month following the end of the taxable period. A taxable person can apply to the DG of Customs to vary the taxable period.
Late submission of returns or late payments of taxes will be subject to the following penalty rates:
A non-taxable person is required to account for service tax on imported taxable services acquired in the course of business via an SST-02A form. The service tax is due at the earlier of the payment date or the date the invoice for the services is received. The SST-02A form and the payment of service tax must be made by the last day of the month following the month in which the service tax is due.
Service tax is due when payment is received for the digital services provided. The foreign registered person can apply to account for service tax based on invoice date.
The service tax that falls due during a taxable period (3 months) is payable to the RMCD by the last day of the month following the end of that taxable period. A foreign registered person can apply to the DG of Customs to vary the taxable period.
A registered person or a person who has ceased to be a registered person can apply for a refund of service tax in relation to bad debts. The conditions for the refund application are that:
Service tax is not applicable to the following transactions performed among companies within a qualifying group of companies, (i.e. subject to certain qualifying criteria):
To minimise the tax pyramiding effect on businesses, certain taxable professional services or advertising services provided by a registered person to another registered person who is registered for the same service are exempted from service tax, subject to certain qualifying criteria.
Local service tax registered businesses which provide certain taxable professional services or advertising services are exempted from having to account for and pay service tax through the imported taxable service mechanism on the same professional services or advertising services acquired from foreign service providers, subject to certain qualifying criteria. In addition, local service tax registered businesses which provide digital services can claim refund of service tax paid on digital services acquired from foreign registered persons if the digital service acquired is the same as the digital service they provide.