Worldwide VAT, GST and Sales Tax Guide
Kuala Lumpur GMT +8
EY
Mail address:
P.O. Box 11040
50734 Kuala Lumpur
Malaysia
Indirect tax contacts
Yeoh Cheng Guan
Jalbir Singh Riar
Germaine Ong
Aljo Barias
Poh Ai Yeen
Aaron Kong
A. At a glance
Name of the taxes
Street address:
Level 23A, Menara Milenium
Jalan Damanlela
Pusat Bandar Damansara
50490 Kuala Lumpur
Malaysia
+60 (3) 7495-8408
cheng-guan.yeoh@my.ey.com
+60 (3) 7495-8329
jalbir.singh-riar@my.ey.com
+60 (4) 688-1908
germaine-sl.ong@my.ey.com
+60 (3) 7495-8558
aljo.barias@my.ey.com
+60 (3) 7495-8353
ai.yeen.poh@my.ey.com
+60 (8) 275-2653
aaron.kong@my.ey.com
Sales tax and service tax (SST)
Local name Cukai jualan dan cukai perkhidmatan (CJP)
Dates introduced
Sales tax
Service tax
Service tax on digital service (SToDS)
Sales tax on low-value goods (SToLVGs)
1 September 2018
1 September 2018
1 January 2020
1 January 2024
Trading bloc membership Association of Southeast Asian Nations (ASEAN)
Administered by Royal Malaysian Customs Department (RMCD) (http://www.customs.gov.my)
SST rates
Sales tax
Standard
10%
Other 5%, exempt and several specific rates for certain petroleum products
Service tax
Standard
8% on prescribed taxable services
Reduced 6% for food and beverage, telecommunications, logistics and vehicle parking space services
Other Specific rate of RM25 per year on the provision of credit card or charge card services
SToDS 8% on taxable digital services provided by foreign-registered persons
SST number format 15 digits (first alpha (usually W) remaining digits are numerical)
SToDS number format 8 digits (numerical)
SToLVGs number format 10 digits (numerical)
SST return periods
SST registrants Bimonthly (every two months (i.e., SST-02 returns)
Non-SST registrants and Sales tax only registrants Monthly submission exclusively for Service Tax on Imported Services (i.e., SST-02A returns)
SToDS registrants Quarterly (every three months (i.e., DST-02 returns)
SToLVGs registrants Quarterly (every three months (i.e., LVG-02 returns)
Threshold Registration
Sales tax
Service tax
SToDS
SToLVGs
RM500,000
RM500,000
RM500,000
RM500,000
Recovery of SST by non-established businesses No
B. Scope of the taxes
Sales tax. Sales tax is a single-stage tax applied to sales of locally manufactured taxable goods as well as to taxable goods imported for domestic consumption.
All taxable goods manufactured in, or imported into, Malaysia are subject to sales tax, unless they are specifically exempted by law. However, sales tax does not apply to goods manufactured in, or imported into, Labuan, Langkawi, Tioman, Pangkor, (intercountry) Joint Development Area, free zones, licensed warehouses, licensed manufacturing warehouses and licensed Petroleum Supply Bases.
“Manufacture” is defined as the conversion of materials by manual or mechanical means into a new product by changing the size, shape, composition, nature or quality of such materials and includes the assembly of parts into a piece of machinery or other products. However, this does not include the installation of machinery or equipment for construction purposes. With respect to petroleum products, the term “manufacture” pertains to the process of refining, including the separation, conversion, purification and blending of refinery streams or petrochemical streams.
Service tax. Service tax shall be charged and levied on any taxable services provided in Malaysia by a registered person in carrying on his business or self-assessed on any imported taxable services. It is applicable to specific taxable services prescribed under the First Schedule of the Service Tax Regulations 2018. Services that are not included in the prescribed list are not taxable. There are 10 major groups of taxable services that currently form the prescribed list. Taxable services include, but are not limited to, accommodation, food and beverage, night clubs and karaoke center services, private clubs, golf clubs, betting and gaming, professional or skills (e.g., legal, accounting, surveying services, employment services, consultancy, training or coaching services, management services, engineering services, information technology services, architectural services, safety or security services, digital services, and maintenance and repair services),
Exemption from registration. The following manufacturers are excluded from sales tax registration:
• Manufacturer of nontaxable goods (not eligible for voluntary registration)
• Manufacturer below the registration threshold (RM500,000)
• Subcontractor manufacturer below threshold (RM500,000)
• Manufacturing activities that have been exempted from registration
Importers. An importer of taxable goods does not need to apply for a sales tax registration. Sales tax on imported goods is assessed and collected when the goods are cleared by the Royal Malaysia Customs Department, together with any customs duties payable.
Service tax. Subject to the relevant registration thresholds provided in the service tax regulations, any person that carries on a business of providing taxable services must apply for service tax registration.
Mandatory registration is required where:
• The historical taxable annual turnover is more than the prescribed threshold (RM500,000).
• There are reasonable grounds that the future taxable annual turnover will be more than the prescribed threshold (RM500,000).
The following examples indicate businesses subject to the existing service tax registration thresholds (these lists are not exhaustive):
Examples of businesses with nil threshold
• Customs clearance agents
• Credit card or charge card services provider regulated by Bank Negara Malaysia
Examples of businesses with a RM500,000 threshold
• Professional engineer
• Accommodation services operator
• Parking operator
• Consultancy, training or coaching services, excluding research and development companies
• Caterer
• Food court operator
Example of businesses with a RM1.5 million threshold
• Operator of restaurant, bar, snack bar, canteen, coffee house or any place that provides food and drinks
– Eat-in or take-away
–
Excluding canteens in an educational institution or operated by a religious institution or body
Exemption from registration. The following persons are excluded from service tax registration:
• Persons/businesses providing non-taxable services (not eligible for voluntary registration)
• Persons below the registration threshold (RM500,000)
Voluntary registration and small businesses. If the value of taxable supplies made by a business is below the registration threshold, the business may apply to register for SST voluntarily.
Group registration. Group SST registration is not allowed in Malaysia. However, branch or divisional registration is allowed. A business that operates through branches or divisions must determine whether it is liable to be registered based on the aggregate total taxable supplies of all the branches and divisions. On approval, each branch or division may apply to register individually under the name of that branch or division.
Supplies made between divisions within the divisional registration are disregarded for SST purposes. There is no minimum time required for the duration for businesses to be registered under
the same branch or division. All members of an SST branch/divisional registration in Malaysia are jointly and severally liable for SST debts and penalties.
Fixed establishment. In Malaysia, there is no legal definition of a fixed establishment for SST purposes. Similarly, the permanent establishment rules under direct taxation do not have any relevance under SST, since this concept does not exist under SST law. In general, SST adopts a territorial scope, i.e., within the borders of Malaysia. In the case of goods, any person in Malaysia manufacturing or importing taxable goods in Malaysia is liable to sales tax. As for services, any person in Malaysia providing taxable services or acquiring imported taxable services in Malaysia is liable to service tax. However, the service tax on digital services (SToDS) adopts an extraterritorial scope, i.e., beyond the borders of Malaysia. In this regard, any FSP or foreign registered person (FRP) providing digital services to a consumer in Malaysia is liable to SToDS.
Non-established businesses. With effect from 1 January 2020, FSPs who provide digital services to consumers in Malaysia (i.e., individuals or businesses) are liable to be registered for SToDS when the total value of digital services provided to a consumer in Malaysia exceeds RM500,000 per year. FSPs who are liable to register for SToDS shall apply for registration not later than the last day of the month following the month in which they exceed the threshold. FSPs may register by completing and submitting the DST-01 Form online via the SToDS portal.
With effect from 14 May 2020, FRPs may apply group relief (i.e., intragroup exemption) on the provision of digital services to any qualifying group company in Malaysia.
However, should the FRP also provide the same digital services to any Malaysian companies outside of the group of companies in Malaysia (i.e., third party), all digital services provided to both companies within and outside the group of companies will be subject to service tax.
Aside from SToDS, there are no additional special rules for non-established businesses.
Tax representatives. Tax representatives are not required in Malaysia.
Reverse charge. Service tax at a rate of 6% (increased to 8% effective 1 March 2024) shall be charged and levied on any imported taxable services acquired on or after 1 January 2019 by any person carrying on a business in Malaysia. The recipient of imported taxable services is required to self-account and pay 6% service tax (increased to 8% effective 1 March 2024) based on the actual value of the imported taxable services. There is no input tax recovery.
Domestic reverse charge. There are no domestic reverse charges in Malaysia.
Digital economy. With effect from 1 January 2020, the scope of taxable services under the Service Tax Regulations 2018 was expanded to cover the provision of digital services, including the provision of electronic media that allows the suppliers to provide supplies to customers or transaction for the provision of digital services on behalf of any person. Local service providers providing specific digital services related to banking and financial services are not subject to service tax. This applies only until 31 July 2025.
A local service provider who provides digital services as prescribed above shall be liable to register under Service Tax legislation if the value of services during a period of 12 months or less exceeds the threshold of RM500,000. This value shall be determined based on either historical or future method. SToDS at the rate of 6% (increased to 8% effective 1 March 2024) shall be charged and levied on any qualifying digital service provided by an FRP to consumers (i.e., businesses or individuals (both business-to-business [B2B] and business-to-consumer [B2C]) in Malaysia. Similar to local service providers, an FSP who provides digital services (i.e., electronically supplied services) to consumers in Malaysia, where the value of these services during a period of 12 months or less exceeds the threshold of RM500,000, will be required to register for SToDS. The value of the digital services can be determined based on either the historical or future method.
The term “taxable goods” refers to goods that are locally manufactured, as well as imported goods, both of which are not exempt under the sales tax law.
The sales tax rates are:
• Standard rate: 10%
• Reduced rates: 5% and specific rates (imposed on certain petroleum products)
• Zero-rate: 0%
The standard rate of sales tax applies to all supplies of goods, unless a specific measure provides for a reduced rate, the zero rate or an exemption.
Example of goods and services taxable at 5%
• Nonessential goods (including among others, foodstuffs and building materials)
The term “exempt” refers to supplies of goods that are not liable to tax.
Nevertheless, the Minister of Finance has the power to exempt the following:
• Any goods or class of goods from the whole or any part of the sales tax, subject to conditions as they deem fit
• Any person or class of persons from payment of the whole or any part of the sales tax that may be charged and levied on any taxable goods manufactured or imported, as below:
–
Schedule A: class of person, e.g., ruler of states, federal or state government department, local authority, inland clearance depot, duty-free shop
– Schedule B: manufacturer of specific nontaxable goods, e.g., raw materials, components, packaging to be used in manufacturing activities
–
Schedule C: registered manufacturer, e.g., exemption of tax on acquisition of raw materials, components, packaging to be used in manufacturing of taxable goods
Example of exempt supplies of goods
• Raw food (e.g., meat, vegetables, seafood)
• Bricks, blocks, tiles
• Bicycles and other cycles (including delivery tricycles), not motorized
• Trucks, motorcycles
Option to tax for exempt supplies. The option to tax exempt supplies is not available in Malaysia.
Service tax. Service tax is imposed at a rate of 6% on the price, charge or premium for the taxable service. A specific rate of RM25 applies per year for each principal and supplementary card upon activation and subsequent years on the provision of credit card or charge card services by banks and financial service providers regulated by the Bank Negara Malaysia. From 1 March 2024, the service tax rate increased from 6% to 8% for all prescribed taxable services, except food and beverage, telecommunications, logistics and vehicle parking space services.
Specific exemptions are available for service tax registered persons, as follows:
• Intragroup exemption may apply when a company in a group of companies provides services to a related-party company, provided all the following conditions under Regulations 3 to 8, First Schedule of the Service Tax Regulations 2018, as amended, are met:
i. Taxable services fall under items (a) to (l), Group G, First Schedule of the STR 2018. The underlying services in question can be classified under one of the following taxable services:
– Legal services
– Accounting, auditing, bookkeeping and other services by public accountants
– Surveying services, including valuation, appraisal and estate agency services
– Engineering services
– Architectural services
– Consultancy, training or coaching services
– Information technology services
– Management services
– Digital services
ii. Control requirement:
–
Two or more companies are eligible to be treated as companies within a group of companies if one company controls each of the other companies.
– A company shall be taken to control another company if the first mentioned company holds directly, indirectly through subsidiaries, or together directly or indirectly through/ from subsidiaries:
–
More than 50% of the issued share capital of the second mentioned company
Or
–
From 20% to 50% of the issued share capital of the second mentioned company and the first mentioned company has exercisable power to appoint or remove all or a majority of directors in the board of directors in the second mentioned company.
iii. Exclusivity requirement – services provided only within the group:
– Where a company provides any such specified Group G taxable services to another person outside the group of companies, all such taxable services (whether provided to a company within or outside the group of companies) shall be taxable services, unless the total value of taxable services provided to the third parties does not exceed an amount equal to 5% of the total value of the same taxable service within a 12-month period.
– Where a company in a group of companies acquires the abovementioned professional services from any company within the same group of companies outside Malaysia, such service shall not be an imported taxable service, with effect from 1 September 2019.
– On a separate note, where an FRP provides digital services to a company in Malaysia within the same group of companies with the FRP, such services shall not be subject to service tax, effective 14 May 2020. However, where an FRP provides the same digital services to any company outside the group of companies, such digital services provided within or outside the group of companies will be subject to service tax.
A B2B exemption is applicable to a service tax-registered person who acquires the same taxable services as provided by it, from another service tax-registered person. Specifically, the B2B exemption will only apply to certain specific professional services as follows:
• Legal services
• Accounting, auditing, bookkeeping and other services by public accountants
• Surveying services, including valuation, appraisal and estate agency services
• Engineering services
• Architectural services
• Consultancy services, training or coaching
• Information technology services
• Management services
• Digital services
• Maintenance and repair services
• Advertising services
• Logistics services (covering logistics and delivery services (except delivery of food and beverage), courier and customs agents)
On a separate note, a B2B exemption on imported services was also introduced from 1 January 2020. This is to exempt the first leg of a qualifying B2B supply chain, where there is an import of taxable services (i.e., services are provided by an overseas service provider), which are subsequently followed by provision of the same service by the service tax-registered person to its Malaysian customers. This B2B exemption for imported taxable services would only be applicable for professional services as listed in the bullet above.
supplier shall issue an invoice under Regulations 10 (1) and (1A) of the Service Tax Regulations 2018, which require the following additional details:
• Name and address of the client
• The client’s service tax registration number
• The client’s total amount of service tax that is exempted
Credit notes. Adjustments generally arise because of the cancellation of a transaction, a change in the amount previously invoiced or a change in tax rate. Adjustment notes (i.e., debit and credit notes) should contain the prescribed particulars under the regulations and must cross-reference the original tax invoice number and date it relates to. The DG may disallow any deduction where the credit notes presented are untrue or incorrect.
e-Invoicing. E-invoicing will be implemented in phases in Malaysia starting 1 August 2024.
Scope of e-invoice. E-invoice covers typical transaction types such as business-to-business (B2B), business-to-customer (B2C) and business-to-government (B2G).
E-invoicing applies to all taxpayers undertaking commercial activities in Malaysia. This includes businesses engaged in the provision of goods and services and certain non-business transactions between individuals.
The Malaysian SST Act presumes that an invoice has been issued to the customer, even though there is no delivery of any equivalent document in paper form to the customer, if the requisite information is recorded in a computer and is transmitted to the customer by electronic means or produced on any material other than paper and delivered to the customer.
The government had announced that the e-invoicing initiative will be implemented in phases starting August 2024. In addition, the government has issued a gazette order pertaining to the implementation of e-invoicing (Income Tax (Issuance of Electronic Invoice) Rules 2024), as well as releasing the software development kit (SDK) for taxpayers to implement electronic invoicing.
At the time of preparing this chapter, the Inland Revenue Board of Malaysia (IRBM) has issued the following guidelines to date:
• E-invoice Guideline Version 4.0 (published 4 October 2024) – which explains the processes and procedures and provides a structured approach for taxable persons to implement e-invoicing, from generation and transmission, and to the storing of e-invoices, to meet compliance obligations.
• E-invoice Specific Guideline Version 3.1 (published 4 October 2024) – which provides further guidance on the issuance of e-invoice relating to certain transactions.
• E-invoice SDK Version 1.0 (released 6 April 2024) – which provides a collection of tools, libraries and resources that provide a set of functionalities, application programming interfaces (APIs) and development guidelines to assist businesses in integrating their existing system to the MyInvois System via API.
E-invoicing is administered by the IRBM. An e-invoice is a digital representation of a transaction between a supplier and a buyer, which replaces paper or electronic documents, such as invoices, credit notes and debit notes. An e-invoice contains the same essential information as traditional document, for example, supplier’s and buyer’s details, item description, quantity, price excluding tax, tax and total amount, which records transaction data for daily business operations.
The mandatory e-invoicing implementation timeline are as follows:
(i) From 1 August 2024 – taxpayers with an annual turnover or revenue of more than RM100 million
(ii) From 1 January 2025 – taxpayers with an annual turnover or revenue of RM25 million to RM100 million
(iii) From 1 July 2025 – all other taxpayers
30-day period from the end of the varied taxable period. On the other hand, SST-02A return is required to be furnished to the DG not later than the last day of the month following the end of the month in which the payment on the service has been made or invoice is received by the nontaxable person, whichever is earlier.
For FRPs, they are required to submit a DST-02 return on a quarterly basis (every three months), not later than the last day of the month following the end of the taxable period.
For RS, they are required to submit a LVG-02 return on a quarterly basis (every three months), not later than the last day of the month following the end of the taxable period.
The DG, upon receiving any application in writing, may reassign the taxable period other than the period previously assigned as it deems fit (i.e., vary the length of the taxable period or the date on which the taxable period begins or ends).
Periodic payments. The taxable person who is in a payable position must pay to the DG the amount of tax due and payable by it. Any tax due in respect of a taxable period becomes payable not later than the last day on which the taxable person is required to furnish the SST or DST returns, i.e., by no later than the last day of the 30-day period from the end of the varied taxable period. Payment must be made by way of electronic fund transfer, checks, bank draft, money order or postal order.
Electronic filing. Electronic filing is allowed in Malaysia, but not mandatory. For SST-02 and SST02A returns, the taxable persons may submit the SST return in one of three ways:
• Electronically
• By posting to the Customs Processing Center
• By couriering it to the Customs Processing Center
Taxable persons can choose the method to submit the return. They would not be required to notify the tax authority formally in terms of the method they have elected in submitting such returns. For SToDS, an FSP needs to submit the DST-02 returns and make payments electronically via the SToDS portal.
Payments on account. Payments on account are not required in Malaysia.
Special schemes. Approved Major Exporter Scheme. With effect from 1 July 2020, the sales tax exemption facility, Approved Major Exporter Scheme (AMES) was introduced to relieve the challenges under the existing sales tax drawback mechanism for traders who re-export/export the tax-paid goods and specific exemption facilities for manufacturers of nontaxable goods for export. The benefits to AMES participants are as follows:
• AMES traders are exempted from payment of sales tax on importation/acquisition of the goods that are subsequently exported or transported to designated areas or special areas.
• AMES manufacturers of nontaxable goods are exempted from payment of sales tax on importation/acquisition of raw materials, components packing and packaging materials for use in manufacturing of sales tax-exempted goods that are subsequently exported or transported to designated areas or special areas.
Annual returns. Annual returns are not required in Malaysia.
Supplementary filings. No supplementary filings are required in Malaysia. However, taxable persons can submit supplementary SST returns, if they have additional tax amounts to be reported to RMCD, via the MySST portal.
Correcting errors in previous returns. If a taxable person makes an error in any return, or any person other than a taxable person makes an error in any declaration furnished to RMCD, they may correct the error voluntarily in Form SST-02, Form SST-02A or Form DST-02, in such manner and within such time as the senior officer of RMCD may determine. In respect of what possible penalties may apply for such errors, see the subsection Penalties for errors below. However,