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SST in Designated Area and Special Area in Malaysia

SST in Designated Area and Special Area in Malaysia

In the intricate landscape of Malaysia’s taxation framework, a nuanced understanding of the Sales Tax and Service Tax (SST) treatment in both Designated Areas (DA) and Special Areas (SA) is paramount. This article delves into the specific provisions governing SST treatment within these designated zones, shedding light on exemptions, applicability, and the intricate interplay between the Sales Tax Act 2018 and the unique characteristics of each area. Focusing on Designated Areas such as Labuan, Langkawi, and Tioman, as well as Special Areas including free zones, licensed warehouses, Licensed Manufacturing Warehouse and joint development areas, the exploration aims to demystify the complexities surrounding tax obligations, particularly in the context of manufacturing activities and goods removal. As we navigate through the diverse scenarios and exceptions, a comprehensive understanding of SST Treatment in Designated and Special Areas emerges, providing clarity for businesses operating within these distinctive zones.

In relation to SST treatment within Designated Areas and Special Areas, reference can be made to the provisions outlined in the Service Tax Act 2018. According to this act, service tax will be imposed on any provision of taxable services conducted in the course or furtherance of business by a taxable person in Malaysia. Importantly, service tax is not applicable to imported and exported services. With these complexities in mind, follow RS 36 Solutions to delve into the intricacies of Malaysia’s SST landscape to help you navigate this financial terrain effectively.

Sales Tax Provisions

As stipulated by the Sales Tax Act 2018, sales tax is imposed on taxable goods manufactured within Malaysia by a taxable person. This tax is applicable to goods that are sold, unused, or disposed of by the manufacturer, as well as on taxable goods imported into Malaysia. It is noteworthy that sales tax does not apply to goods listed under the Sales Tax (Persons exempted from payment of Tax) Order 2018.  The aforementioned actions distinctly outline the nature of SST treatment in Designated Areas and Special Areas.

Special treatment for specific areas

Designated area (DA) Special Area (SA)
Areas not deemed outside Malaysia • Labuan
• Langkawi
• Tioman		 • Free Zone (FZ)
• Licensed Warehouse (LW)
• Licensed Manufacturing Warehouse (LMW)
• Joint Development Area (JDA)
Manufacturing activities Sales Tax Act does not apply to DA except for petroleum Sales Tax Act does not apply to SA
Importation Importation into DA (world to DA)
Exemption from Sales Tax except:

• Labuan: Importation of petroleum

• Langkawi: Importation of marble, petroleum and anchovies
• Tioman: Importation of petroleum and motor vehicles		 Importation into SA (world to SA)

Generally not subject to Sales Tax except for goods in the free zone which may be subjected to Sales Tax provided in the Special Area Order
Removal of Goods • From PCA to DA - deemed export, no sales tax
• From DA to PCA - deemed import, subject to sales tax
• To/from DA to DA - no sales tax
• To/from DA to SA* - no sales tax		 • From PCA to SA - deemed export, no sales tax
• From SA to PCA - deemed import, subject to sales tax
• To/from SA to SA - no sales tax
• To/from SA to DA* - no sales tax

SST Treatment in Designated Areas (DA)

Special Treatment for SST in Designated Areas within Malaysia

Designated Areas (DA) within Malaysia receive special treatment under the SST framework. Notably, Labuan, Langkawi, and Tioman are recognized as Special Designated Areas for SST Treatment. Within these regions, specific considerations apply to manufacturing activities, with the proposed sales tax not being applicable, except for petroleum-related activities.

Designated Areas (DA)

SST Treatment for Designated Area Services

Services provided within and between these Designated Areas are generally exempt from service tax unless otherwise prescribed by the Minister.

Exemptions and Applicability

Exemptions from sales tax are granted, with certain exceptions when importing into these SST Treatment Designated Areas:

  • The import of petroleum (Labuan)
  • Import of marble, petroleum, and anchovies (Langkawi)
  • Import of petroleum and motor vehicles (Tioman)

Sales Tax Exemptions in Goods Removal

In the context of goods removal, the following scenarios determine sales tax applicability:

  • From Production Concentration Area (PCA) to Designated Area (deemed export, no sales tax)
  • From Designated Area to PCA (deemed export, subject to sales tax)
  • To or from Designated Area to Designated Area (no sales tax)
  • To or from Designated Area to Special Area (no sales tax)

Service Tax Provisions

In the provision of services:

  • From PCA to Designated Areas will be subjected to service tax unless prescribed by the Minister.
  • From Designated Areas to PCA will be subjected to service tax.
  • To or from SST Treatment in Designated Areas to Special Areas will not be subjected to service tax.

SST Treatment in Special Areas (SA)

Overview of SST Treatment in Special Areas

SST treatment within Special Areas (SA) encompasses tax exemptions for designated regions such as free zones, licensed warehouses, licensed manufacturing warehouses, and joint development areas. Manufacturing activities within these areas are generally exempt from the proposed Sales Tax Act 2018.

Special Areas (SA)

Sales Tax Exemptions for Importing into Special Areas

Importing goods into these special areas is typically exempt from sales tax, with the exception of goods in the free zone, which may be subject to sales tax under the Proposed Special Area Order.

SST Treatment for Services in Special Areas

Services provided between and within SST Treatment in Special Areas are generally exempt from service tax unless specified by the Minister.

Service Tax Provisions

  • From Principle Custom Area (PCA) to Special Areas (SA) will not be subjected to service tax, except if prescribed by the Minister.
  • From Special Areas (SA) to Principle Custom Area (PCA) will be subjected to service tax.
  • To or from Special Areas (SA) to Designated Areas (DA) will not be subjected to service tax.
  • From PCA (other than Special Areas) to Free Zones or Licensed Manufacturing Warehouse will be subjected to service tax.

Sales Tax Exemptions in Goods Removal

1. Goods Transported from Principle Custom Area (PCA) to Special Areas (SA)

The goods are transported to SA.
Example: The buyer purchases taxable goods from a registered manufacturer in PCA and transports them to SA. No sales tax is charged on the goods transported to SA.
The goods transported within PCA and subsequently transported to SA.
Example: The buyer purchased taxable goods from a registered manufacturer in PCA through a trader in PCA, and subsequently, the trader transports the goods to a SA. Sales tax will be charged on the taxable goods sold to the trader, while no sales tax will be imposed on the goods transported to SA by the trader.

2. Goods Transported from Special Area to PCA

    • Sales tax is chargeable on taxable goods transported from Special Areas to PCA, akin to importing goods into Malaysia.
The goods transported from SA to PCA.
Example: The buyer purchased the goods from the seller in SA and transported the goods to PCA. Sales tax shall be charged on the taxable goods transported from SA to PCA.
Goods transported from SA to PCA.
Example: :The buyer purchased the goods from SA through the trader in PCA and subsequently the goods are transported to the buyer in PCA. Sales tax shall be charged on the taxable goods imported from the SA into PCA.

3. Goods Transported Between Special Areas

    • Based on subsection 57(a) of the Sales Tax Act 2018, no sales tax is chargeable on taxable goods transported between Special Areas, except for goods prescribed in the Sales Tax (Imposition of Sales Tax in respect of Special Area) Order 2023.
The goods transported from SA to SA.
Example: Example 6: The buyer purchased the taxable goods from the seller in SA and the goods are directly transported from SA to the buyer in another SA. No sales tax shall be charged on the goods transported from SA to another SA.
The goods are transported between SA.
Example: The buyer purchased the taxable goods from SA through trader in PCA and the trader transported the goods direct from SA to the buyer in another SA. No sales tax shall be charged on the goods transported from SA to another SA.
The goods are transported into PCA and subsequently transported to another SA.
Example: The buyer purchased the taxable goods from the seller in SA through the trader in PCA and subsequently the trader transported the goods to buyer in another SA. Sales tax shall be charged on the goods transported to the trader and no sales tax shall be charged on the goods transported by the trader to the buyer in another SA.

4. Goods Transported from Designated Areas (DA) to Special Areas (SA)

    • No sales tax is chargeable on taxable goods transported from DA to Special Areas, except for goods prescribed in the Sales Tax (Imposition of Sales Tax in respect of Special Area) Order 2018.
    • Example: The buyer purchases taxable goods from DA, and the goods are directly transported from DA to SA. No sales tax is charged on the goods transported from DA to SA.
The goods transported from DA to SA.
Example: The buyer purchased the taxable goods from the seller in DA and the goods are directly transported from DA to the buyer in SA. No sales tax shall be charged on the goods transported from DA into SA.
The goods transported from DA to SA.
Example: The buyer purchased the goods from DA through trader in PCA and the seller directly transported the goods from DA to the buyer in SA. No sales tax shall be charged on the taxable goods transported from DA into SA.
The goods transported from DA to PCA and subsequently transported to SA.
Example:The buyer purchased the taxable goods from DA through the trader in PCA and the trader transported the goods from DA to PCA and subsequently transported the goods to the buyer in SA. Sales tax shall be charged on the goods transported from DA into PCA and no sales tax shall be charged on the goods transported from PCA to SA.

Conclusion:

In conclusion, the comprehensive exploration of SST treatment within Designated and Special Areas unravels the complexities surrounding the taxation landscape in Malaysia. From the unique exemptions in Labuan, Langkawi, and Tioman to the nuanced considerations in free zones and licensed warehouses, businesses are equipped with valuable insights to make informed decisions. The delineation of sales tax exemptions, service tax provisions, and the intricate scenarios of goods movement provides a roadmap for businesses to optimize their operations while adhering to the stipulations of the Service Tax Act 2018 and the Sales Tax Act 2018. Armed with this knowledge, businesses can navigate the intricacies of SST treatment, fostering compliance and strategic decision-making in the ever-evolving world of taxation.

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Frequently Asked Questions (FAQs)

The Sales Tax Act 2018 is Malaysian legislation that imposes taxes on the sale, disposal, and import of taxable goods.

Designated Areas include Labuan, Langkawi, and Tioman in Malaysia.

Yes, with the exception of petroleum-related activities.

Special Areas include free zones, licensed warehouses, licensed manufacturing warehouses, and joint development areas.

Generally, services within Special Areas are exempt from service tax unless prescribed by the Minister.

Importing is generally exempt from sales tax, but goods in free zones may be subject to sales tax under the Proposed Special Area Order.

Removal from PCA to Designated Areas (deemed export) and removal between Special Areas.

Sales tax is charged when taxable goods are transported from Special Areas to PCA, similar to importing.

Generally not, except if prescribed by the Minister.

No sales tax is chargeable on taxable goods transported between Designated Areas and Special Areas, except for goods prescribed in the Sales Tax (Imposition of Sales Tax in respect of Special Area) Order 2018.

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