Service tax on imported taxable services and digital service tax

A 6% service tax on imported taxable services (ITS) was imposed with effect from Jan 1, 2019. Another service tax known as the digital service tax (DST) will be coming on Jan 1, 2020.

Service tax is a tax imposed on sales of “taxable services”, for example, on food and drinks served by restaurants.

Taxable services include a long list of professional services but when rendered by overseas providers, it is often exempted from service tax because the service provider is not in Malaysia. To level the playing field, so to speak, the government has decided to impose a 6% service tax on ITS.  

This service tax on ITS at 6% should be “accounted for” by a Malaysian business when it purchases “taxable services” from a foreign service provider (FSP). This means that the user should collect the tax from himself and pay it over to the Customs i.e. the user is the tax collector. Being a service tax specifically for businesses, this ITS service tax should not affect non-business consumers.  

As an example, if a Malaysian property developer were to engage the services of an American architect at a fee of RM200,000, the developer has to calculate 6% service tax amounting to RM12,000 on this fee and pay this 6% service tax to the Malaysian Customs at the time when it pays the fee to the American architect. The obligation to account for the service tax is on the developer and not on the American architect. The developer may also be liable to deduct withholding tax from the fee but this subject will not be discussed here. Continue reading >>>