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September 16, 2020 Malaysia updates service tax guide on digital services Executive summary From 1 January 2020, a registered foreign person1 (RFP) is required to charge service tax at a rate of 6% on digital services provided to consumers in Malaysia.2 Details of new group relief provisions and clarification on several aspects of the new law are set out in an updated Royal Malaysian Customs Department (Customs) Guide on Digital Services (the Guide) published on 1 August 2020.3 This Alert summarizes key highlights of the Guide. Detailed discussion The Guide provides further guidance on a range of issues, including:
Implications The new group relief rules have the effect of narrowing the scope of Malaysia’s service tax on digital services to business to consumer transactions and business to business transactions outside an FSP’s group of companies, from 14 May 2020. FSPs relying on the exemption should be mindful of future transactions with service recipients outside its group of companies and have controls in place to maintain compliance with the group relief conditions. Endnotes 1. A foreign service provider (FSP) is required to register for service tax as an RFP when the total value of digital services provided to consumers, businesses and individuals alike, in Malaysia exceeds US$119,500 (MYR500,000). 2. See EY Global Tax Alert, Malaysia releases services tax guide on digital services, dated 26 September 2019 for a summary of key aspects of the 20 August 2019 guide. 3. The full text of the Guide is available on the Customs’ MYSST portal. 4. Pursuant to Regulation 5A, Service Tax (Digital Services) Regulations 2020. 5. Pursuant to Service Tax Policy No.4/2020 – Service Tax on Online Distance Learning Services. _____________________________________________________________________________________________________________ For additional information with respect to this Alert, please contact the following: Ernst & Young Tax Consultants Sdn Bhd, Kuala Lumpur
Ernst & Young LLP (United States), Malaysia Tax Desk, New York
Ernst & Young LLP (United States), Asia Pacific Business Group, New York
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