On 20 August 2019, the Royal Malaysian Customs Department published a service tax guide on digital services. The purpose of the guide is to provide a general understanding of the relevant treatment under Sales Tax and Services Tax Legislation and to provide a better general understanding of taxpayers’ tax obligations.

“Digital service” means any service that is delivered or subscribed over the internet or other electronic network and which cannot be obtained without the use of information technology and where the delivery of the service is essentially automated.

Service tax is imposed on prescribed services called “taxable services” if provided in Malaysia. Service Tax is a consumption tax governed by the Service Tax Act 2018 and its subsidiary legislation. The effective date of the Service Tax Act 2018 is 1st September 2018. A person who provides taxable services exceeding a specified threshold is required to be registered under the Services Tax Act 2018 and is known as a “registered person” who is required to charge service tax on his taxable services made to his customers.

Effective 1st January 2020, service tax shall be charged and levied on any digital service provided by a foreign registered person (FRP) to any consumer in Malaysia. Digital service has the meaning assigned to it under Section 2, STA. The rate is 6%. In order to ensure equal treatment within the industry, taxable services acquired by businesses in Malaysia from foreign service provider (FSP) falls under the scope of imported taxable services effective from 1 January 2019. Malaysia has amended the current service tax legislation to make FSP who provide digital services to consumer liable to be registered as FRP. FSP is mandatory to be registered when the total value of digital services provided to a consumer in Malaysia exceeds RM500,000 per year.