Over the last three weeks, there has been significant developments with regards to the Malaysian service tax regime, namely three new service tax policies were published, and three guidelines of the Royal Malaysian Customs Department (“RMCD”) has been subjected to substantial updates. This e-alert, summarizes the recent updates.
A) Repair & Maintenance
- The new document reiterates that the exemption for repair and maintenance is available only for goods or equipment that are fixed to the structure of the building, and not available for loose furniture or movable items which may be placed within a residential property.
- The exemption applies only to repair and maintenance, while other services such as cleaning service in relation to residential property remain taxable.
- Clauses pertaining to intragroup exemptions have been removed from the RMCD guidelines. This is in line with the provisions of the law at material times.
- Business-to-business (B2B) exemption is maintained and subject to meeting the relevant criteria.
- Any charges with respect to extended warranty is a taxable service, and hence subject to service tax of 8% if the manufacturer, distributor or any person providing such service exceed the annual threshold of RM500,000 with respect of taxable service (not including revenue from sale of goods etc.).
B) Logistics Services
Given the sophistication within logistics sector and the potential implications on the cost of living and competitiveness of exporters (and hence investments), the Government has improved exemptions for the logistics as outlined below. Businesses must be diligent in ensuring compliance given that most of the exemptions are subject to multiple conditions.
- Grouping of services in relation to delivery/transportation with services in relation to warehousing, port-related services etc. to widen the scope of B2B exemption.
- Re-introduction of the exemption for service provided within or between in Special Area(“SA”) or Designated Area(“DA”) or between SA and DA, or vice versa. The RMCD Guide dated 5th April imply that the entitlement for this exemption is not solely based on the physical place of service but instead the principal place of business of both service provider and the customer is of relevance. The reference to principal place of business of the parties curtails the scope of the exemption to a large extent in many practical cases, and hence businesses should ensure carefully designed systems and controls are put in place to ensure compliance.
- Exemption with regards to door-to-door delivery services are granted subject to meeting the following stringent conditions:
- Delivery of goods from outside Malaysia to inside Malaysia or from inside Malaysia to outside Malaysia without involving a third party.
- The service of delivery of goods from consignor to recipient is provided by service provider(s) of the same network.
- Goods are transported using the same airway bill, bill of lading or consignment note from consignor to recipient.
- Use of the same invoice for delivery charges from consignor to recipient (single billing invoice).
- Ocean freight charges related to transport between Peninsular Malaysia and Sabah, Sarawak or Labuan (and vice versa) or within East Malaysia are exempted. For avoidance of doubt, this exemption does not extend to the transportation of goods via inland waters (e.g., river) within East Malaysia.
- Exemption for logistics services in relation to transit activities, i.e., for goods arriving in Malaysia to be subsequently transported to a destination outside Malaysia via land, sea, or air transport.
The exemptions are retrospective from 1st March 2024, but there is no refund for taxes paid.
C) Brokerage and underwriting service
While there has been no update on this since 26th February 2024, many industries are increasingly realizing the widespread impact of the imposition of service tax on brokerage services.
Additional complexity arises given that brokerage and underwriting fee are not eligible for intragroup exemption or B2B exemption, while some other taxable services such management services could qualify for such exemptions.
Hence, businesses must carefully distinguish between management services and brokerage to avoid any doubt or dispute with regards to the application or non-application of service tax.
D) Food & Beverage
- The 6% rate is maintained for all non-alcoholic beverages (regardless of whether prepared or bottled), while alcoholic beverages are at 8% service tax.
- Should the F&B outlet charge for event space, it would be subjected to 8% service tax.
