Malaysian Finance Ministry to impose 6% Tax on Digital Services

Malaysian Finance Ministry to impose 6% service tax on overseas digital services with effect from 1 January 2020. Digital services affected would be those which need ‘minimal or no human intervention’ and may include streaming services or other subscriptions delivered over the internet that cannot be obtained without the use of information technology (IT). Those digital services requiring some form of human intervention to make the service delivered to the customers would not fall under the services being affected by a new digital tax regime. But there is no clear guideline or definition for ‘minimal human intervention’.

The Foreign Service Providers (FSP) subject to the new law would be a person:

• residing outside Malaysia, selling digital products directly to the customers
• operating an online platform for the sale and purchase of digital services
• who issues an invoice for the sale under the name of the platform operator (the person itself).

Customers affected by the new regime will include the persons:

• residing in Malaysia
• making payments to the FSPs using credit or debit facility provided by financial institutions  under the Malaysian Finance Ministry
• Consumes the digital service using an internet protocol address registered in Malaysia or an international mobile phone country code assigned to Malaysia

Registration is required for all FSPs with an annual turnover of RM 500, 000 from digital services and was allowed to register with the Customs Department from 1 October 2019. The invoices issued, the receipts or any similar documents should include the details required by the new digital service tax regime such as date of invoice, FSP’s service tax registration number, sufficient description to the digital service provided, rate of service tax, the total amount payable excluding tax and the total service tax charged.

FSPs need to consider the new rules carefully to assess if they fall under the new Malaysian digital service tax regime. The ministry also made it clear that the consumers and service providers will not be burdened with double taxation.