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Overview of Service Tax in Malaysia

Overview of Service Tax in Malaysia

Service Tax is an integral component of Malaysia’s indirect tax system. It is a consumption tax imposed on prescribed services (refer to previous article Appendix 1 – Summarised First Schedule of STR 2018) provided in Malaysia by taxable persons, as well as on certain imported and digital services supplied by foreign service providers.

Introduced under the Service Tax Act 2018 (referred to as “the Act”), the regime is designed as a single-stage tax, levied once at the point of provision of taxable services. The administration and enforcement of Service Tax are under the authority of the Royal Malaysian Customs Department (“RMCD”).

Key features of the Service Tax Framework

The Service Tax regime is characterised by several features that define its scope and operation:

Taxable services: Only services specifically listed in the legislation (refer to previous article Appendix 1 – Summarised First Schedule of STR 2018) are subject to Service Tax. Common examples include professional services, telecommunications, accommodation and etc.
Standard rate: Effective 1 March 2024, the general Service Tax rate increased from 6% to 8%, while certain categories of services, such as foods and beverages, telecommunication services and parking space services remain taxed at 6%.
Taxable persons: Service providers exceeding the prescribed registration threshold (refer to previous article Appendix 1 – Summarised First Schedule of STR 2018) must register with RMCD and account for Service Tax.
Taxable period: Service tax is accounted for on a bi-monthly basis. The first taxable period begins from the following month after the person becomes liable to register and subsequent periods cover every two-month cycle, unless otherwise varied by the Director General of Customs.
Broader scope: The tax also applies to imported taxable services and digital services supplied by foreign providers.

Applicability to Businesses in Malaysia

Service Tax applies directly to taxable persons, that provide taxable services to customer in Malaysia, who exceed the statutory registration threshold (refer to previous article Appendix 1 – Summarised First Schedule of STR 2018). These businesses are obligated to charge, collect and remit Service Tax to RMCD.

Effective from 1 January 2019, any taxable service provided by an overseas supplier and consumed by a Malaysian business entity, whether a taxable person or non-taxable person, is subject to Service Tax at 6% or 8%, (refer to previous article Appendix 1 – Summarised First Schedule of STR 2018).

The Malaysian business entity is responsible for remitting the Service Tax to the RMCD by the following deadlines:

a) For taxable persons (SST-02): By the last day of the month following the end of the taxable period in which payment is made or the invoice is received, whichever occurs first.

b) For non-taxable persons (SST-02A): By the last day of the month following the month in which payment is made or the invoice is received, whichever occurs first.

Effective from 1 January 2020 Foreign Service Provider (FSP), which provide services in relation to Group G – Digital Service is mandatory to be registered when the total value of digital services provided to a consumer in Malaysia exceeds RM500,000 per year. If Malaysian business entity has been charged service tax on digital services by FSP, then the business entity is exempted from liability to account service tax on imported taxable services by virtue item 3, Service Tax (Persons Exempted From Payment of Tax) Order 2018.

Administration and Compliance

Taxable persons are required to comply with statutory obligations under the Act. The table below summarises the key obligations and their purposes:

Obligation	Description
Registration	Register with RMCD once the annual turnover threshold for provision of services to customers in Malaysia is exceeded. (Refer to previous article Appendix 1 – Summarised First Schedule of STR 2018).
Charging tax	Charge Service Tax, 6% or 8% (refer to previous article Appendix 1 – Summarised First Schedule of STR 2018), on all taxable services provided to customers in Malaysia.
Issuing tax invoices	Issue proper tax invoices for all taxable services in accordance with Section 21 of the Act.
Filing returns	Submit Service Tax returns to RMCD within 1 month after the end of taxable period.
Payment of tax	Remit collected Service Tax to RMCD within 1 month after the end of taxable period.
Non-compliance consequences	Failure to comply may result in penalties being imposed by the RMCD.

Conclusion

Service Tax in Malaysia is a structured and targeted consumption tax, designed to ensure effective taxation of prescribed services while adapting to modern developments such as imported and digital services.

For businesses operating in Malaysia, understanding the scope of taxable services, applicable rates and compliance obligations is essential to ensure full compliance with the Service Tax regime.

For more details, please visit the official website of the Royal Malaysian Customs Department: https://mysst.customs.gov.my/

KAIZEN Group, together with its associate firms in Malaysia, can help the clients to perform these compliances formalities so as to maintain the Malaysia company in good standing. Please call and talk to our professional accountants in Kaizen for further clarification.

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Overview of Service Tax in Malaysia

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