As a measure included in the 2019 Budget law with the amendments for the Service Tax, the proposal is that from 1 January 2020 onwards, Malaysia will be imposing a service tax on digital services that are imported by consumers (B2C). The proposal has yet to be approved by the Upper House of the Parliament.
A 6% service tax is to be levied on the value of any digital service that is provided by a foreign service provider (“FSP”) to any consumer in Malaysia.
- “Digital service” definition includes
“any service that is delivered or subscribed over the internet or other
electronic network and which cannot be obtained without the use of information
technology and where the delivery of the service is essentially automated”.
Therefore, the services list to be captured is wide, amongst others: music & video streaming, cloud services, provision of software online and digital advertising services.
- “Consumer” is defined as any person
who fulfils any two of the following conditions:
- makes payment for digital services using credit or debit mean provided by any local financial institution or company;
- acquires digital services using a Malaysian IP address or through a smart phone with a country code assigned to Malaysia; or
- resides in Malaysia.
Once law is finally passed,
any FSPs who meet the mandatory registration
threshold will be required to register for service tax before September 31st,
2019, being possible to exercise an online registration.
Compliance obligations derived from the registration:
- charge 6% service tax to local consumers
- issue an invoice on the captured transactions
- file a service tax return
- keep transaction records for 7 years
This tax does not seem to be an OECD BEPS Action 1 DST type, nor a DST special indirect tax but not VAT/GST, but in this case is an indirect tax that is to be inserted in as a part of the recently created services tax, that was replacing the general sales tax in the country.
As the definition of consumer is wide, there are some doubts about the fact of companies also falling there and having to exercise the self-assessment rule in their B2B returns, something critical to be clarified, specially for SaaS and PaaS value foreign value propositions, but seems they are part of the targeted approach.