Service Tax Changes and Transitional Rules in Malaysia

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Published by Biztraker on February 19, 2024

Service Tax Changes and Transitional Rules in Malaysia

The Royal Malaysian Customs Department (RMCD) has recently issued two guides outlining the proposed changes involve both an increase in the tax rate and an expansion of taxable services, effective March 1, 2024. Please note that these guides are subject to change before finalisation.

1. RMCD’s Draft Guide on Transitional Rules for the Change in Service Tax Rate from 6% to 8% (as of February 7, 2024):

New Rate: 8% (up from 6%)

Effective Date: March 1, 2024

Taxable Services Remaining at 6%

Food and beverages (Group B)

Telecommunication services (Group I)

Parking (Group I)

Logistics services (new taxable service in Group J)

Other Taxable Services: All other prescribed services not mentioned above will be subject to 8% (e.g., accommodation, clubs, professional services like legal, accounting, IT, digital services, etc.)

Transitional Rules:

Tax rate based on service performance date: 6% before March 1, 8% after March 1.

Services spanning March 1: prorated based on date performed.

Invoices issued before March 1: For services provided after March 1: issue debit note for additional 2% tax. This excludes digital services provided by foreign registered persons (FRPs).

Acquisition of imported taxable services: Same rules as above.

Important: Previously proposed 6-month grace period for invoices with 6% tax is no longer in effect.

2. RMCD's Guide on Transitional Rules for Digital Services Taxed at 8% on FRPs (as of February 14, 2024):

Effective Date: 8% tax from March 1, 2024.

Transitional Rules:

Tax rate based on service provision date: 6% before March 1, 8% after.

Similar pro-rata rule applies for services spanning March 1.

Exception for payments received before March 1 (services provided later): Service Tax remains at 6%.

Please note that these guides are still subject to changes until the relevant legislation is gazetted. Please stay informed and consult the official resources and seek professional advice if needed to ensure your business is prepared for the upcoming changes in Service Tax.

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