Malaysia’s government will impose a 6% digital service tax on foreign service providers beginning 1 January 2020, following the passing of the Service Tax (Amendment) Bill 2019 on 8 April 2019.  The government has set the threshold for imposition of this digital service tax at RM 500,000.

“Digital service” is defined as “any service that is delivered or subscribed over the Internet and other electronic network and which cannot be obtained without the use of information technology and where the delivery of the service is essentially automated.  This will include online services such as music, video, software subscription and digital advertising services.

“Foreign service provider” is defined as “any person who is outside of Malaysia providing any digital service to a consumer and includes any person who is outside Malaysia operating an online platform for buying and selling goods or providing services (whether or not such a person provides any digital service) and who makes transactions for provision of digital  services on behalf of any person”.

It was also reported that the Malaysian government has the power to enforce the law even if the digital service providers are in other countries due to the government-to-government (GTG) cooperation among countries involved in the Organisation for Economic Cooperation and Development (OECD).

Takeaway

If you are a foreign service provider who provides digital service to the customers in Malaysia and meets the threshold above, be prepared to look into registering, charging and remitting the 6% service tax as you’ll be required to do so starting 1 January 2020.

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This update was written by Shawn Ho and Ee Lyne Chong from our corporate, property and tax practice group.  Our corporate team advises on legal compliance, corporate governance, shareholder and founder arrangements, joint venture and partnership structures and corporate tax matters. Have a question? Contact us.

 

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