DIGITAL TAX

INTRODUCTION

Effective 01 January 2020, provision of digital service from foreign service provider (FSP) to consumer in Malaysia is subject to service tax. Thus FSP who provides digital service to consumer in Malaysia and the value of digital service for a period of twelve months or less exceeds the prescribed threshold, is required to be registered under Service Tax Act (STA) 2018. Registered FSP must charge and collect service tax on provision of digital service to consumer and subsequently remit the service tax to Royal Malaysian Customs Department (‘RMCD’).

LIABILITY TO BE REGISTERED

  • FSP who provides digital services to consumer in Malaysia and the value of digital service for a period of twelve months or less exceeds the threshold of RM500,000 is liable to be registered under section 56B STA 2018
  • The value of digital service for a period of twelve months can be determined based on either the historical or future method.
  • The historical method is based on the value of digital service in any month plus the value of digital service for the eleven months preceeding that month.
  • For the future method, the value of digital service is based on the value of digital service in any month plus the expected value of digital service for the eleven months succeeding that month. FSP shall have reasonable grounds to expect its value of digital service to exceed the threshold if they have signed a written contract/agreement to provide digital service or received confirmed purchase orders from customer.
  • For registration purposes, the method to be used for computing the taxable turnover depends on the category of FSP: