Introduction
The concept of service tax payable Malaysia is governed under the Service Tax Act 2018, which outlines when tax becomes due, how taxable value is determined, and what documentation is required. This guide summarises valuation rules, invoicing requirements, notes issuance, and bad debt refund procedures to support proper SST compliance.
What Is Service Tax Payable?
Service tax is charged on taxable services at 6%, except for certain credit card services which are subject to RM25 per card per year. Tax becomes payable based on the time of payment received or, for imported services, the earlier of invoice receipt or payment date.
Service Tax Valuation Rules
1. Value of Taxable Service
Under the SST framework, the value of taxable services must reflect market value if:
- The service is provided at a discounted value to a related party, or
- The value is otherwise not reflective of commercial pricing.
Market value ensures tax is charged fairly even if the invoice is artificially low.
When Is Service Tax Due?
A. Local Taxable Services
Service tax becomes due when payment is received from the customer for taxable services provided by a registered person.
B. Imported Services (Reverse Charge Mechanism)
For non-registered persons acquiring imported services, service tax is due at the earlier of:
- Date of invoice from foreign service provider; or
- Date of payment to the foreign provider.
This is known as self-accounting for imported services.
C. 12-Month Rule
If payment is not received within 12 months from invoice date, service tax becomes due immediately on the following day, even if the customer has not paid.
Service Tax Rate (SST)
- Standard rate: 6%
- Credit/charge card services: RM25 per year (principal & supplementary cards)
Formula:
Service Tax Payable = Service Tax Rate × Value of Taxable Service
Disbursement vs Reimbursement (Tax Treatment)
Understanding the difference determines whether SST applies.
Disbursement (Not Subject to Service Tax)
A disbursement is payment made by a service provider on behalf of the client as an agent.
It is not subject to service tax.
Criteria (must meet ALL):
- Expense incurred on behalf of client
- Client is the recipient (invoice issued to client)
- Payment authorised by client
- Client knows the service is provided by a third party
- Exact amount is recovered with no markup
- Expense is additional to the service provided
If all conditions are met → No SST.
Reimbursement (Subject to Service Tax)
A reimbursement occurs when the provider incurs expenses as principal, then recovers from customer.
Criteria (ALL must apply):
- Expense incurred as principal
- Client is not the service recipient (invoice in provider’s name)
- Provider is fully responsible to pay
- Payment is not authorised by client
- Client is unaware of third-party involvement
- Provider may alter or add value
- Payment is for service to client
If these conditions apply → SST applies.
Invoice Requirements for SST
Registered persons must issue invoices containing the following:
- Invoice serial number
- Invoice date
- Name, address, SST registration number
- Description of taxable service
- Discounts (if any)
- Amount excluding tax
- Service tax rate and amount shown separately
- Total amount including tax
- Foreign currency amounts converted into MYR at selling rate
- Language must be Malay or English
If exemption applies → must include recipient’s Service Tax Number.
Credit Notes & Debit Notes
Credit notes and debit notes may adjust earlier invoiced amounts.
Credit Note Issued When:
- Invoiced amount reduced
- Transaction cancelled
Debit Note Issued When:
- Invoiced amount increased
- Adjustment due to change in tax rate or business correction
Both documents must contain:
- “Credit Note” / “Debit Note” label
- Serial number and date
- Registered person’s details
- Reason for issuance
- Description of taxable service
- Quantity and amount
- Amount excluding tax
- Tax rate and amount
- Original invoice number and date
Adjustments must be reflected in the SST-02 return for that taxable period.
Refund of Service Tax on Bad Debts
Registered persons may claim a refund if:
- Service tax has been paid to Customs
- Taxable value has been written off as bad debt
- No payment received from debtor
- Reasonable recovery efforts have been made
Deadline:
Refund must be claimed within 6 years from the date service tax was originally paid.
Refund Amount
A. Full Refund
If no payment was received → entire service tax paid may be refunded.
B. Partial Refund Formula
Refund = (A / B) × C
Where:
- A = Payment received
- B = Value of service + service tax payable
- C = Service tax payable
Key Takeaways
- Service tax becomes payable when payment is received or, for imports, the earlier of invoice/payment.
- Value must reflect market value for related party transactions.
- Disbursements are not taxable, reimbursements are taxable.
- Invoices and notes must contain mandatory fields under SST regulations.
- Bad debts allow refund claims within 6 years.
ANC Group – Your Personal Tax Advisor
Tax consulting is the core service of ANC Group. Our tax professionals provide clients with comprehensive tax support and guidance. We offer tax consulting and compliance services for expatriates, entrepreneurs, and listed and non-listed companies.
Our tax consulting services include business tax, transaction tax, personal tax, and corporate income tax. We don’t just guide you in interpreting and applying complicated taxation rules, but to explore new opportunities and business trends.
ANC Group keep you abreast with Malaysia tax updates and any changes in the local regulations.
We work closely with industry specialists, authorities, and associated professionals within ANC Group to provide the best-in-class integrated tax planning solutions. ANC specialists coordinate the accounting and taxation services to bring your business to success.
If you need professional tax advisory services regarding the Malaysia Income Tax Act 1967, our team is ready to assist you. Contact us here to discuss how we can support your business.
