Are You Subject to Service Tax in Malaysia?

Please take note : With effective 1 September 2019, The Royal Malaysian Customs Department has further increased Food and Beverage’s industry’s threshold to RM1,500,000. If you need further information and assistance, please contact us. 

Registration of Service Tax

Any person who carries on a business of providing taxable service and exceeds the threshold of RM500,000 shall apply for registration under Section 13(1) of the STA 2018 as a registered person in the Form SST-01.

The effective date of registration shall be the first day of the month following the month the notification of liability is received or any earlier date agreed by the Director General but not earlier than the date he becomes liable to be registered.

Taxable Services

The taxable services which are subject to service tax are:

• Group A – Accommodation
• Group B – Food and Beverage
• Group C – Night-clubs, Dance Halls, Health and Wellness Centres, Massage Parlours, Public Houses and Beer Houses
• Group D – Private Club
• Group E – Golf club and golf driving range
• Group F – Betting and gaming services
• Group G – Professional services
• Group H – Credit card and charge card
• Group I – Other service providers

The threshold for the group above are RM500,000, except for:-
(a) Group B – food and beverage operator which is RM 1,500,000; 
(b) Group H – credit card and charge card has no threshold; and
(c) Group I – customs agent which has no threshold. 

The threshold required for the preceding 12 months of the sales, and for those commenced operation for less than 12 months [Historical Method], the threshold is determined with reference to the total value of taxable services beginning from the date of commencement of operation and taxable service for future 12 months [Future Method].

Taxable Period for Service Tax

The first taxable period of every taxable person shall begin from the date he should have been registered under s.13 of the Service Tax Act 2018 and end on the last day of the following month and the subsequent taxable period shall be a period of two months ending on the last day of any month of any calendar year.

For example, if my accounting year end is December 2019 and I just registered for service tax in July 2019 in which approval was granted in the same month. My first taxable period may only be one month which is August 2019, submit in September 2019. Whereas subsequent taxable periods will be:

• September and October, submit in November 2019
• November and December, submit in January 2020

The taxable period end of the day will coincide with my financial year end. If you wish to have a different taxable period, you can always write in an application for a different taxable period, but that would subject to Director General’s approval.

Service Tax Mechanism

Issuance of invoice to customer

Registered service provider is required under the Act to issue invoice (not tax invoice) either in hardcopy or electronically to the customer in respect of any transaction relating to the sale of taxable services.

The invoice must comply with the following requirements:

1. Invoice serial number
2. Date of invoice
3. Name, address and identification number of registered service provider
4. A sufficient description of taxable services are provided
5. Any discount offered
6.  The total amount payable excluding service tax, the rate of service tax and the total service tax chargeable shown as a separate amount
7. Total amount payable inclusive of total service tax chargeable
8. Any amount expressed in a currency other than ringgit shall be expressed in Ringgit at the selling rate of exchange prevailing in Malaysia at the time of sale of taxable services
9. National Language or English language. Sorry, mandarin not allowed

Issuance of credit note

A registered service provider who sells taxable services can issue a credit note, if there is a deduction to the amount or cancelled of service tax payable after the service tax return for the taxable period has been furnished to the Director General in:-

• Due to a change in the rate of tax in force under section 10 of the Service Tax Act
  2018; or
• Due to any adjustment in the course of business

Issuance of debit note

A registered service provider can also issue a debit note if there is any additional amount of service tax payable after service tax return submitted. Usually it refers to undercharge of invoices.

Items should be included in credit note and debit note

A credit note or debit note must contain the following particulars

1. The words “credit note” or “debit note” in a prominent place;
2. The serial number and date of issue;
3. The name, address and identification number of the registered person;
4. The reason for the issuance;
5. A description which identifies the taxable services;
6. The quantity and amount for each taxable service;
7. The total amount excluding tax;
8. The rate and amount of tax; and
9. The number and date of the invoice.

In the event the service tax adjustment exceeds the actual service tax payable, the balance will be carried forward to subsequent taxable period until entire amount has been deducted.

Director’s Responsibility under Service Tax Act 

s.34 of Service Tax Act 2018 stipulates that directors, partners are jointly and severally liable for service tax, surcharge, penalty, fee or other money payable by the company. This means the service tax incurred by a registered manufacturer can be recovered from the :

1. Directors of the company
2. Compliance officers who is appointed as partners of the Limited Liability Partnership (LLP)
3. Partners of the firm in regards to partnership
4. Office-bearers of the society; or
5. Persons responsible for management of the body of persons

In the case where a company is wound up under the Companies Act, the director will still be liable for service tax, surcharge, penalty, fee or other money payable if the company’s assets are insufficient to settle the amount.

Service Tax Obligation and Penalties

Preservation of documents

Every registered service provider has the duty to keep complete and true records up to date for all transactions which will affect his liability to service tax. Similar to income tax act, these records shall be preserved for a period of 7 years from the issuance date. Failure to comply with such requirement constitutes an office and liable to a fine not exceeding RM 50,000 or an imprisonment for a term not exceeding 3 years or both

The records must be kept in Malaysia unless otherwise approved by the Director General. The required records are: –

• All records of provision of taxable services by or to that taxable person including invoices, receipts, debit notes and credit notes; and
• All other records as director general may determine.

Basic records to keep include:

1. Invoices and payment receipt;
2. Daily, Monthly or Yearly Sales Report;
3. Debtor Aging Listing;
4. Credit / Debit Note Listing;
5. Audited Financial Statement;
6. Bank statement; and
7. Contractual Agreement and Progressive Report

Submission of service tax

A taxable person has to furnish a service tax return and account for service tax in Form SST-02 every two months according to his taxable period which is defined as two calendar months. For example January and February, submit in March. March and April, submit in May. Vice Versa.

The submission can be done electronically at MySST or the taxable person can download and print the Form SST-02 from the MySST portal. The manual return shall be furnished by post to the Customs Processing Centre (CPC).

If you have made any mistake in the SST-02 form and wish to make amendment, you can do so before the payment and due date of the submission.

A registered person who fails to submit service tax returns within the stipulated period shall be guilty of an offence under subsection 26(6) of the STA 2018 and shall be liable to a fine not exceeding RM 50,000 or an imprisonment for a term not exceeding 3 years or to both such imprisonment and fine.

If the amount of service tax due and payable is not paid wholly or party by taxable person after the due date, there will be no prosecution but you will be liable to a penalty of:

• 1st 30 days : 10%
• 2nd 30 days : additional 15%
• For the 3rd days : additional 15%

Will subject to a maximum penalty of 40% after expiry of 90 days. Assuming the tax payable is RM 100.

• 1st 30 days = RM 100 + RM 10
• 2nd 30 days = RM 100 + RM 10 + RM 15
• 3rd 30 days = RM 100 + RM 10 + RM 15 + RM 15

Exemption from Payment of Service Tax for Registered Service Provider 

There are 2 groups not required to pay service tax:-

1. The taxable person specified in Group G – professional services in the First Schedule to the Service Tax Regulation 2018 [P.U. (A) 214/2018] except employment agency and private agency and make payment to another.
2. Group I – Advertising only

The Conditions of Exemption for Group G 

Conditions for Group G to get exempted are:-

• The taxable person exempted above mentioned is a registered person.
• The Group G of registered person sold services (under the same item) to another Group G registered person (under the same item).
• For example Engineer provide services to Engineer – the amout of service tax can be exempted. If Accountant provide services Engineer, the service which is not the same item, is not exempted. 

The Conditions of Exemption for Advertising

• The taxable person exempted above mentioned is a registered person.
• The field of registered person provide services to the another registered person. For example advertising company A provide advertising services to advertising company B. The amount of taxable service also include the production cost incurred. 

If you need our assistance in Service Tax Planning and Advisory, feel free to contact us at 011-1217 8183.