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Digital Service Tax in Malaysia – Taxes on the Digital Economy

Digital Service Tax in MalaysiaBeginning 1 January 2020, the Malaysian government will be imposing the digital service tax (DST) in Malaysia, applicable on all digital services imported by consumers in Malaysia under the Business-to-Consumer (B2C) regime.

This move was in line with the Government’s plan to level the playing field in Malaysia between local and foreign suppliers. The announcement regarding the digital service tax in Malaysia was made during the 2019 Budget reveal. Aside from levelling the playing field, this move towards imposing taxes on the digital economy follows suit with what several other countries worldwide are already doing.

The introduction of the digital service tax in Malaysia will now mean that any service which is delivered or subscribed over the internet or other similar electronic networks which is provided by either a foreign or local registered person to any consumer will be liable for taxes.

A foreign registered person is any foreign service provider registered with the Royal Malaysian Customs (RMC). This provider can be anyone who is outside Malaysia that still provides a digital service to the consumer, including online platforms which buy or sell goods or provide a service of some sort.

Currently, the digital service tax in Malaysia sits at a proposed rate of 6%. Foreign service providers who intend to provide these services in Malaysia will be liable for registration if the total value of digital services which are provided to the consumer exceeds the prescribed threshold of RM500,000. All foreign service providers will be required to apply for the services tax registration beginning 1 October 2019. All registrations will be processed online.

The procedure for the submission of DST tax returns by foreign registered persons providing digital services in Malaysia involves the following steps:

  • DST returns must be declared every 3-months as per the taxable period.
  • Returns must be submitted no later than the last day of the following month after the taxable period.
  • Returns must be submitted regardless of whether taxes have been paid or not.
  • Returns must be submitted electronically.

The taxable period for digital service tax in Malaysia for foreign registered persons will be at a 3-month period. All foreign registered persons providing digital services to the consumer must issue an invoice or document which contains the prescribed particulars of the consumer. This requirement must be met for invoices to be issued under the digital service tax. Payment for the service tax shall be made to the Director General electronically.