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Guide to Service Tax on Imported Services in Malaysia
This article provides a comprehensive guide to Service Tax on imported services in Malaysia, including exemptions, late payment penalties, and responsibilities for both SST registrants and non-SST registrants. Navigating the intricacies of Service Tax in Malaysia, particularly concerning imported taxable services, is an essential endeavor for businesses operating within the country. It is crucial to understand the obligations, exemptions, and penalties that come with this tax.
Additionally, it sheds light on the significance of online declaration and payment, and the legal consequences of non-compliance. With a particular emphasis on ensuring compliance, this article equips businesses with the knowledge needed to adhere to the Service Tax Act 2018 and avoid potential pitfalls.
- Service Tax Policy No 2/2020 – exemption for Service tax on imported service
There are three scenarios in which imported taxable services can be exempt from service tax:
Imported taxable services related to:
- Goods or land situated outside Malaysia.
- Matters outside Malaysia.
- Intra-group relief, applicable to the acquisition of imported taxable services under Group G – Professional Services, First Schedule of Service Tax Regulations 2018 (except for employment services and private agency). If a company acquires these taxable services from a company within the same group of companies outside of Malaysia, such acquisition is not considered an imported taxable service and is not subject to service tax.
Exemption of service tax on B2B services, effective from 1 January 2019. This exemption applies to specific taxable services, such as professional services (except for employment services and private agency) and advertising services provided by a registered person to another registered person who is registered for the same service. To be eligible for this exemption, the recipient of the services must meet the following conditions:
- Acquirers of taxable services are registered in the same taxable group as the provider of taxable service.
- The services acquired must be in the same category of taxable service as provided by the recipient to the customer.
Effective from 1 January 2020, the B2B exemption is extended to:
- Digital services acquired from foreign registered persons by SST registrants.
- Information technology (IT) service and advertising service acquired from any person outside Malaysia by SST registered persons. The taxable service exempted must be identical to the IT service and advertising service distributed by the registered person.
4. For B2B exemption eligibility, the following conditions must be met:
- Digital services acquired from foreign registered persons by SST registrants.
- Information technology (IT) service and advertising service acquired from any person outside Malaysia by SST registered persons. The taxable service exempted must be identical to the IT service and advertising service distributed by the registered person.
Imported Taxable Services
As of 1 January 2019, imported taxable services are subject to service tax. According to Section 2 of the Service Tax Act 2018, “imported taxable service” refers to any taxable service acquired by an individual or entity in Malaysia from a source outside Malaysia.
Any entity importing a taxable service into Malaysia for business purposes must fulfill the obligation of filing a return and remitting the applicable service tax related to the imported service.
For businesses, a key challenge lies in determining the nature of the services they import and ascertaining whether these services fall under the taxable category. While this assessment can be conducted as an initial step, it is essential to maintain an up-to-date record of imported services and their associated service tax treatment.
It’s important to note that, in certain instances, both service tax and withholding tax may be applicable to the same service.
The concession for “companies within the same group of companies” typically applies to imported services, but the B2B exemption does not.
Businesses engaged in importing taxable services are obliged to register an account with the Customs department.
To clarify, “Imported Taxable Service” is defined under Section 2 of the Service Tax Act 2018 as any taxable service obtained by an individual or entity in Malaysia from a source outside Malaysia.
When is the Service Tax due for imported taxable services?
The Service Tax Act 2018, as amended under the Finance Act 2018 (Section 11), stipulates that the service tax for imported taxable services is due at the earlier of two events: when payment is made or when the invoice for the imported taxable service is received.
Responsibility of Non SST Registrant
Under the provisions of Section 24 (5A) of the Service Tax Act 2018, non-SST registrants engaging in business activities and procuring imported taxable services are mandated to maintain a comprehensive record of all related transactions. These records must be preserved for a period of seven (7) years and must be kept within Malaysia. Additionally, these records should be maintained in either Bahasa Malaysia or English.
Filing & Payment
Service tax filing and payment procedures vary based on your registration status. Here’s an overview:
Service Tax Registrants
Service tax registrants can report their imported taxable services within their existing service tax returns. For these individuals or entities, compliance includes accounting for and remitting the tax on a monthly basis.
Non-SST Registrants
For individuals or entities importing taxable services and not registered under the Sales & Service Tax (SST), specific guidelines apply. Regardless of SST registration status, all businesses must independently account for and remit service tax to the Royal Malaysian Customs Department (Customs) for the imported taxable services.
Filing of Return and Tax Payment – SST Registrant
As per Section 26 of the Service Tax Act 2018, SST registrants are required to declare tax on imported taxable services using Form SST-02. The value of these services must be separately declared in section B1 of Form SST-02. Filing and payment should be completed no later than the final day of the month following the conclusion of the taxable period.
Responsibilities include:
- Accounting for the service tax due on imported taxable services as per the business service taxable period.
- Submitting Form SST-02 and remitting SST payments by the end of the month following the taxable period’s conclusion.
Filing of Return and Tax Payment – Non SST Registrant
Non-SST registrants, in compliance with Section 26A of the Service Tax Act 2018, are required to report and remit tax on imported taxable services using Form SST-02A. Filing and payment should be accomplished no later than the final day of the month following the month in which the payment for the service was made or when invoices were received.
Responsibilities include:
- Accounting for the service tax due on imported taxable services.
- Submitting Form SST-02A and remitting SST payments by the end of the month following the month in which the payment for the service was made to the service provider or when invoices were received by the business, whichever comes earlier.
Manual for Online Declaration and Payment
To streamline the process of declaring and paying for imported taxable services, all business owners have the option to utilize the MySST portal for online submissions and the FPX system for online payments. For detailed guidance on these procedures, or visit RS36 Solutions for other tax planning related guide and services.
Late Payment Penalty
Conclusion:
In the realm of Service Tax in Malaysia, awareness and adherence to the regulations are paramount. Whether you are an SST registrant or a non-SST registrant, understanding your responsibilities, the deadlines for filing, and the consequences of non-compliance is of utmost importance. The availability of online tools for declaration and payment eases the process, but vigilance is required to avoid late payment penalties and potential legal ramifications.
As we conclude, we emphasize that this article serves as a foundation for your journey through the complexities of Service Tax, but it is imperative to engage with the Royal Malaysian Customs Department and the Inland Revenue Board for specific guidance. Staying informed and compliant is not only a legal obligation but also a prudent practice in the realm of Malaysian business taxation.
If you are in search of professional SST submission services, consider reaching out to RS36 Solutions for expert assistance.
Frequently Asked Questions (FAQs)
What is Service Tax in Malaysia?
Service Tax in Malaysia is a consumption tax levied on specified services.
Who is required to pay Service Tax?
Businesses and individuals using taxable services are typically responsible for paying Service Tax.
What are imported taxable services?
Imported taxable services are services acquired from sources outside Malaysia and are subject to Service Tax.
How can I declare and pay Service Tax for imported services?
You can declare and pay Service Tax for imported services online through the MySST portal using Form SST-02 or Form SST-02A, depending on your registration status.
What happens if I don't pay Service Tax on time?
Late payment penalties may be imposed, starting at 10% for the first 30 days of delay.
Are there any exemptions from Service Tax for imported services?
Yes, certain services qualify for exemptions, such as those related to goods or matters outside Malaysia and intra-group relief.
What are the consequences of providing incorrect information in my Service Tax return?
Providing incorrect information can lead to fines, imprisonment, or both, under Section 26 of the Service Tax Act 2018.
What is Withholding Tax (WHT) in relation to Service Tax?
WHT is an additional tax requirement for specific services that fall within the scope of the Income Tax Act 1967.
Can businesses in Malaysia claim input tax credit for Service Tax paid on imported services?
Yes, businesses can claim input tax credit on Service Tax paid for imported services, subject to specific conditions.
How long should I retain records related to imported taxable services?
Records of imported taxable services must be kept and maintained for seven years in Malaysia, as per the Service Tax Act 2018.
