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Overview of Specific GST Guide in Malaysia
Bad Debt relief
Bad debt is amount owed that cannot be collected and all reasonable efforts to collect it have been done. A person is entitled for a bad debt relief subject to the following conditions:
(a) GST is already paid;
(b) the person has not received any payment or part payment 6 months from date of supply or debtor has become insolvent (bankrupt, wound up or receivership) before the six months has elapsed;
(c) sufficient efforts have been made to recover the debt;
(d) the supply is made by a GST registered person to another GST registered person;
(e) if the supply is a supply of goods, the ownership of goods has been transferred to the debtor; and
(f) prepares, keeps and updates full records of list of debtors involved in the claim under section 58 Goods And Services Tax Act 2014 including records as prescribed in regulation 74, Goods And Services Tax Regulations 2014.
The bad debt relief shall be claimed immediately in the taxable period after the expiry of the sixth month from the date of supply.
If the bad debt relief is not claimed by the supplier in the immediate taxable period immediately after the expiry of the sixth month, then the taxable person has to notify the Director General (DG) within 30 days after the expiry of the sixth month on his intention to claim at a later date.
In the event where a bad debt relief has been made by the Director General and subsequently payment has been received by the person, he has to repay to the Director General.
The transfer or disposal of business assets by the person carrying on the business is not a supply of goods if it is made as:
- A gift in the course or furtherance of the business to the same person in the same year where the total cost to the donor is not more than RM500;
- or a gift to an actual or potential customer of the business, of an industrial or commercial sample in a form not ordinarily available for sale to the public.
The maximum limit of gift is set at RM500 to the same person in the same year. Therefore, a gift for business purposes where the total cost to the donor is not more than RM500 is not a supply for GST purposes.
Gifts in the form of cash, vouchers and cheques are neither supplies of goods nor services, however, if cash benefit given is considered as a sponsorship in kind, such situation is treated as a supply and subjected to GST.
Sponsorship in kind means there is a material benefit provided to the sponsor in return of the sponsorship received such as advertising during commercial break of a direct telecast, then the sponsorship is considered as a consideration in return of advertising services.
Under Para 5(4) of First Schedule, GSTA 2014, gifts of goods without consideration is not deemed as a supply if the acquisition of the goods is of the following nature;
i. goods acquired from a non-taxable person,
ii. goods acquired of an exempt supply,
iii. goods acquired free of charge.
Any gifts exceeding RM500 is treated as a deemed supply, and GST output tax is charged and borne by the GST Registered Company / Person. Output tax is deemed to be an expense to the Company, however, is not deductible by virtue of paragraph 39(1)(p) of the ITA.
The transfer or disposal of business assets by the person carrying on the business either to himself or to any other party, not for a consideration, is a supply of goods if he is entitled to a credit (input tax claim). If he is not entitled to a credit (input tax claim), then it is not a supply of goods (no output tax need to be accounted for if the input tax is not entitled).
Employee benefits are referred to any goods or services provided free to employees. Employee benefits (EB) include any right, privilege, service or facility provided free of charge to employees. Goods and services acquired and given as
employee benefits are considered as used “for the purpose of business”.
Generally, a taxable person is entitled to claim GST incurred on goods and services acquired by him which is used for the purpose of his business in the making of taxable supplies and the taxable person is required to account for output tax on the supplies. Similar treatment applies to employee benefits. However, for employee benefits, anything that is stated in a contract of service of employees, contract of employment or company policy such as in company’s handbook to be given free to the employees, output tax need not be accounted for irrespective of its value. Input tax incurred in the acquisition of goods or services is claimable.
Any goods worth RM500.00 or less given to the same person in the same year is not a supply and hence is not subject to GST. There is no restriction on the series of gift as long as the total value on the series of gift given to same person in the same year does not exceed RM500.00.
Employer is not entitled to claim input tax credit on purchases in relation to exempt supply, however, if the value of the exempt supply is less than 5% of total supplies made for the month, you are eligible to claim the input tax incurred attributable to those exempt supplies under the De Minimis Rule as per Regulation 37 GSTR 2014.
For further information, please refer to Guide on Employee Benefits
Passenger motor car
Generally, GST Input credits for expenses in relation to the Passenger motor car fall into Malaysia GST Blocked Input Tax. The Input tax incurred by a taxable person in respect of the following supplies shall be excluded from any credit under GST:
(a) the supply to or importation by him of a passenger motor car;
(b) the supply of goods or services relating to repair, maintenance and refurbishment of a passenger motor car;
(c) the hiring of a passenger car.
According to Malaysia GST Guide on Input Tax Credit Para 10, A passenger motor car means a motor car which is legally licensed and constructed, modified or adapted for the purpose to carry or capable to transport and commonly available or used on public roads in Malaysia. The specification and features of a passenger motor car is to have seats of not more than nine passengers including the driver and the unladen weight of which does not exceed three thousand kilograms but does not include:
(a) hire and drive car which is licensed under Land Public Transport Act 2010 and Tourism Vehicle Licensing Act 1999;
(b) a motor vehicle supplied to or imported by a taxable person for the purposes of being let on hire or sold by that taxable person who is a dealer of motor vehicle licensed under the Second-Hand Dealers Act 1946;
(c) an approved vehicle used for driving instructional purposes by a driving school or driving institute permitted under Motor Vehicles (Driving Schools) Rules, 1992;
(d) a motor car which forms part of the stock in trade of a motor manufacturer or a motor dealer; or
(e) any motor car which is used exclusively for the purposes of business as approved by the Director General which includes:
- test drive car ‐ a car used for a limited period in order to assess its performance and reliability. (Only for car dealer); or
- cars used for security purposes – a car used by security officers only for patrol in the company’s compound to protect the business premise; or
- cars used in providing technical assistance ‐ a car used mainly in providing technical assistance to company’s clients e.g. maintenance services, breakdown services, repair services; or
- serve as an integral part in the running of a business (cannot continue business without them). It is a business that requires the use of passenger motor cars e.g. leasing of cars, taxi rental business;
- and must fulfill all the following conditions: –
- the motor car is registered in the name of the company;
- the motor car is not let on hire;
- there is no intention to make the motor car available for private use;
- the motor car is kept at business premises, used for business trips and must not be taken home overnight by any employee; and
- the motor car has the business’s name (e.g. Company Logo, business address, etc.).
Meanwhile, we also further understand that there are motor cars exclusively used for business purpose which DG may not approve, such as: –
(a) Assigned Car
Assigned car is a car that is assigned to an individual for their full-time use within the parameters of the company’s policies and procedures. It is a privilege given to the individual which comes with the post e.g. cars for directors.
(b) Pooled Car
Pooled cars are cars that are readily available exclusively for business use by a number of employees.
(c) Cars used in sales and marketing
The car is commonly used in retail business to promote sales and marketing e.g. cars used by salesman in marketing new products.
(d) Demo or display car used to promote new model and usually display in a show room.
According to DG’s Decision 3/2015, in the case of ‘retailers’, they must use a GST compliant point of sale (POS) system or a GST compliant cash register to issue GST tax invoices beginning 1st October 2015.
The ‘retailers’ in this item refers to the following categories of businesses –
(a) Hardware shop.
(b) Restaurant including coffee shop.
(c) Mini market, grocery and sundry shop.
(d) Book store.
(f) Places of entertainment.
Self Billed Invoice
According to DG’s Decision 3/2015, any registered person (recipient) who meets the requirements and conditions stipulated in section 33 GSTA and regulation 22 GSTR to use a self-billed invoice, may apply for DG’s approval by submitting a Self-Billed Invoice Declaration.
The Self-Billed Invoice Declaration form can be down-loaded from GST portal via Legislation and Guide field.
The Declaration must be affirmed before a Commissioner of Oath and to be submitted to the nearest customs office together with the list of the suppliers who have agreed to a self-billed invoice. The copy of the Declaration is to be kept by the recipient as internal records.
Once the Declaration has been submitted to the nearest customs office, the recipient may issue a self-billed invoice without any further approval from DG.
Additional Declaration must be made and submitted if there is additional supplier.
For further information, please refer to Royal Malaysian Customs Goods and Services Tax GST Guide on Guide on Tax Invoice and Records Keeping.
Importation of goods
All documents related to importation must be kept for a period of seven years. Any failure to do so is an offence under GST Act 2014. Documents that have to be kept are as follows:
(a) Import declaration (K1)
(b) Commercial invoice
(c) Bill of lading
(d) Shipping note
(e) Insurance note
(f) Payment document, such as documentary credit, debit advice, bank statement, etc.
(g) Sale invoices
(h) Debit and Credit note
(i) Shortage/short-landed certificate
(j) Tally sheet from Port Authority
(k) Other related documents
For further information, please refer to Royal Malaysian Customs Goods and Services Tax GST Guide on Guide on Import.
Custom Malaysia has updated silently the DG’s Decision 4/2014 Item 6 and the amendments were effective from 28 October 2015. This DG’s decision clarifies the GST treatments for Individual supplies commercial properties i.e. whether an individual has to charge GST when making a supply of his commercial property?
According to the DG decision 4/2014 (amended 28 October 2015),
(1) GST shall be charged by a taxable person in the course or furtherance of business on any taxable supply of goods or services made in Malaysia (section 9 GSTA).
(2) Taxable person means any person who is or is liable to be registered under section 2 GSTA. A person is liable to be registered if his total taxable supply of the current month and the next eleven months exceeds RM500,000.
(3) Any individual who is not a GST registered person is treated as carrying out a business if he at any one time owns – (wef 28/10/2015)
- more than 2 commercial properties;
- more than one acre of commercial land; OR
- commercial property or commercial land worth more than 2 million ringgit at market price;
(4) Any individual mentioned in paragraph (3) is liable to be registered as a GST registered person if – (wef 28/10/2015)
- he has the intention to supply any of his commercial properties or commercial land; AND
- the total value of such supply exceeds the prescribed threshold (RM 500,000) in 12 months periods.
(5) ‘at any one time’ mentioned in paragraph (3) means at any point of time in his lifetime commencing after the effective date. (wef 28/10/2015)
(6)Any individual is treated as carrying out a business and making a supply of taxable service if: (wef 28/10/2015)
- he is supplying any lease, tenancy, easement, licence to occupy or rent ; AND
- his annual turnover for such supply has exceeded the prescribed threshold in the period of 12 months.
For more information, please refer to Commercial Property More Than RM2 Million have to Registered for GST in Malaysia.
Accounting on Payment Basis
Every taxable person shall account for GST on an accrual or invoice basis. However, the Director General may allow a registered person to account for tax on a payment basis. A person may apply in writing to the Director General to account tax on a payment basis.
Persons approved under this scheme:
- Account for tax on the day on which payment or other consideration is received.
- Claim input tax on the date on which payment is made or other consideration is given
Payment basis is applicable only to certain group of registered person due to the nature of business and the nature of the accounting system employed by that person. (such as local authority, restaurant operator, mini market operator).
Basic condition for application is as follows:-
- Taxable turnover during the next year is not more than RM 1 million
- 80% or more transaction / sales are made in cash
- Supplies are of high volume but of low value
If a supply of goods is on a sale or return or similar terms, the time of supply will be such time when the consignee issues a statement of sales to the consignor stating that the goods had been sold or twelve months from the date the goods were sent to the consignee, whichever is the earlier. Applying the 21 days rule, if a tax invoice was issued within 21 days from the date the consignee issued the statement of sales or after twelve months the goods were removed, then the time of supply is the date of the tax invoice.
Second-hand Goods under Margin Scheme
When a GST registered person supplies second-hand goods under the Margin Scheme, his supply is treated as taking place at the earlier of the following times:
(i) when the goods are removed or made available;
(ii) when an invoice is issued by him; or
(iii) when a payment is received by him.
Currently, the scheme is applicable for second hand motor vehicle dealer only. Click here for more information.
For further information, please refer to GST Guide on Relief for Secondhand Goods (Margin Scheme).
An agent is generally an intermediary who is authorized by another party to do something on that party’s behalf (principal) in arranging supplies of goods or services. The supplies that he arranges are made by or to the client he represents.
Under the general principles of agency, a principal cannot avoid his liability to account for GST on his supplies or to pay GST on his purchases by using an agent. The agent only facilitates the sales in return for an agreed amount as a commission for his agency services.
The type of agents includes:
– Agents acting on behalf of the principals
– Agents who act in their own name
– An agent importing goods on behalf of a non-taxable person.
– An agent acting on behalf of a person who does not belong in Malaysia
– Importation of goods by a GST registered foreign principal
For further information, please refer to Guide on Agents
Auctioneer is a person who acts as an agent to sell goods or property in an auction. An auctioneer may be an individual, a company or an auction house established for the purpose of carrying out auction, who would receive a commission or fee for carrying out the auction. Typically, an auctioneer may charge commission to both the buyer and seller. In Malaysia, auctioneers are regulated by the respective state authorities.
For further information, please refer to Royal Malaysian Customs Goods and Services Tax GST Guide on Auction Services.
A licensed warehouse is a designated area, approved by the Royal Malaysian Customs (RMC) under Section 65 of the Customs Act 1967, for storing dutiable goods. However, since 1981, its function has been enhanced for other activities such as break bulking and trading to facilitate commercial activities as well as to make it a distribution hub within the ASEAN region. Its creation also help to reduce port congestion and for convenience of the importers.
There are several categories of warehouse under the Customs Act, subject to approval, such as public warehouse, private warehouse, PEKEMA (Association of Malay Importers and Traders of Motor Vehicles of Malaysia) warehouse and public agent warehouse. Each category has different criteria and different type of goods to be kept but all of them need to be licensed under Section 65 of the same act.
In general, under the GST system, goods are subject to GST upon importation. The payment of GST by importers at the point of importation would cause difficulties in terms of cash flow as they have to pay the tax upfront. Thus, a
special scheme known as a Warehousing Scheme is introduced to assist them to alleviate cash flow problems. Generally, GST on all goods imported and deposited in a public licensed warehouse is suspended.
This scheme is provided for importers or owners of the goods as the users of a licensed warehouse since it provides storage facilities with payment of GST suspended. No application is required for users to enjoy this scheme.
For further information, please refer to Guide on Warehousing Scheme
Approved Trader Scheme (ATS)
Basically, all exports are zero-rated, meaning that exporters do not collect output tax on their supplies. All major re-exporters will have positive input tax refund as they do not have collection or have minimal collection of output tax to help them offset against the GST paid on their imports. This would create a cash flow problem for them because they would have to pay GST upfront. Hence, Approved Trader Scheme (ATS) is introduced as stipulated in section 71 of the Goods and Services Act (GSTA) 2014 which allows the Director General (DG) to suspend payment of tax chargeable on the goods imported by an approved person under ATS. This alleviates the cash flow problem faced by importers who mainly re-export their supplies.
Any taxable person approved under the ATS (ATS approved person) will be allowed to suspend GST payable on imported goods at the point of importation. The total amount of suspended GST on all goods imported has to be accounted for in a specific column in the GST return in the taxable period when the importation takes place. ATS approved person must be on a monthly taxable period.
Generally, the registered person who is under Approved Toll Manufacturer Scheme and/or Approved Jeweller Scheme, they will apply for Approved Trader Scheme as well.
For further information, please refer to Guide on Approved Trader Scheme
Approved Toll Manufacturer Scheme
Approved Toll Manufacturer Scheme (ATMS) is a scheme which allows any approved registered person (toll manufacturer) as defined under section 72 of the Goods and Services Tax Act (GST Act) 2014 who meets all the conditions imposed under regulation 91 of the Goods and Services Tax Regulations (GSTR) 2014 to disregard any value added activity (contract services) on the goods belonging to a person who does not belong in Malaysia (overseas principal).
For further information, please refer to Royal Malaysian Customs Goods and Services Tax GST Guide on Approved Toll Manufacturer Scheme.
Approved Jeweller Scheme (AJS)
The manufacturing of jewellery from precious metals requires substantially high input cost on raw materials but sales of jewellery are generally slow moving. This results in manufacturers of jewellery having to bear high input tax upfront while the speed of output tax collection from their sales are not in tandem with their input tax payments. As a consequence of this, the jewellery manufacturers would be burdened with cash flow problems as the rate of their output tax collection would not be able to correspond with that of their input tax liabilities.
The AJS is introduced under the Goods and Services Tax Act 2014 (GST Act 2014), in particular section 73 of the GST Act 2014 to help jewellery manufacturers, including toll manufacturers to overcome cash flow problem as implication of the huge payment of input tax coupled with slow or no output tax collections.
For further information, please refer to Guide on Approved Jeweller Scheme.
Flat Rate Scheme
Flat Rate Scheme is spelled out under section 74 of the Goods and Services Tax 2014. Flat Rate Scheme is introduced to help any person who is a qualified person and in carrying on a business involving the prescribed activities (at least 80% of his total supply of goods in a year involves one or more prescribed activities) such as small scale farmers, fishermen and livestock breeders in reducing the cost of production where input tax incurred on acquisition of goods or services for furtherance of their businesses is not claimable. The Flat Rate Scheme (FRS) is applicable to farmer/fisherman/livestock breeder who is not registered under GST because his yearly turnover is below the prescribed threshold limit (RM500,000) and he is not voluntarily registered under GST.
For further information, please refer to Royal Malaysian Customs Goods and Services Tax GST Guide on Agriculture, Fisheries and Livestock Industry.
Transfer of Business as a Going Concern (TOGC)
The transfer of business as a going concern from one registered person to another registered person is not treated as a supply for GST purposes. As GST is not chargeable on the supply, there is no input tax to be claimed by the transferee (purchaser). However, any GST incurred by both transferor (seller) and transferee which is incidental to the transfer of going concern such as legal and accounting fees in carrying out the transfer is eligible for input tax credit attributable to the taxable supplies made.
TOGC may involve the transfer of a whole or part of a business as a going concern from a taxable person to another taxable person and in the case where only part of the business is transferred, that part of the business must be able to operate on its own. TOGC may include the following:-
(a) The business assets of a taxable person are taken over by another taxable person due to death or retirement;
(b) A taxable person sells his business assets or part of his business to another taxable person who carries on the business as a going concern; or
(c) The entity of a business has changed, for example, partnership becoming a private limited company.
For further information, please refer to Guide on Transfer of Business as a Going Concern
Overview of Goods and Services Tax (GST) in Malaysia
GST List of Zero-Rated Supply, Exempted Supply and Relief in Malaysia
Do I Need to Register For GST in Malaysia?
Malaysia Tourist Refund Scheme in Malaysia
GST Margin Scheme for Second Hand Car Dealer in Malaysia