In view of the impending imposition of Service Tax on digital services, proposed to be effective 1 January 2020, the Royal Malaysian Customs Department (“RMCD”) has issued a Guide on Digital Services (as at 20 August 2019).
Service tax and digital services In general, businesses have been required to self-account for service tax imposed on imported taxable services at a rate of 6%. Effective 1 January 2020, digital services provided by foreign service providers (registered) are also subject to the 6% service tax. The guidance addresses the potential cascading effect of the services tax and price hike issues, including:
- “Group relief” is extended to qualifying imported taxable services acquired from foreign service providers within the same group of companies
- Businesses are exempted from accounting for service tax on imported professional services and advertising services, provided such imported services are the same as the services provided by the recipient company
- Local service providers that have paid service tax to foreign service providers on digital services may make a claim for refund from the Royal Malaysian Customs Department
- Distance-learning services for preschool, primary and secondary education and tertiary education (including vocational and professional training provided online), whether by local or overseas service providers are not categorized as a taxable service and not subject to service tax
- Online services including e-newspaper and reading materials relating to educational, technical, scientific, historical or cultural journal or periodical are not categorized as a taxable service and are not subject to service tax
Source KPMG
