Malaysia’s New Digital Service Tax: Impacting Foreign Providers

• Starting January 1, 2020, foreign digital service providers must pay digital service tax (DST) of six percent in Malaysia.
• Businesses showing a yearly turnover of more than 500,000 ringgit (US$120,000) are obligated to pay the DST.
• Investors should track Malaysia’s regulatory policies on digital services to stay compliant.

Starting January 1, 2020, the government will impose a digital services tax (DST) of six percent on foreign digital service providers (FSPs) in Malaysia. Other than Malaysia, Singapore also recently imposed a DST in January of this year.

Investors should study the guide on digital services published by the Royal Malaysian Customs Department (RMCD). The guide defines the various criteria for digital services to be subject to DST as well as the procedure for the submission of DST tax returns.

The government hopes the introduction of the DST will level the playing field for local companies – in addition to gaining more tax revenue from its US$36 billion digital economy.

Defining digital services

The RMCD guide defines digital services as any service that is subscribed or delivered over the internet or other electronic networks with minimal human intervention from the service provider.

The guide provides a few examples of digital services which include:

• Online licensing of software;
• Firewalls;
• Mobile applications and video games;
• Provision of e-books, films, music, streaming services, subscription-based media;
• Search engines and social networks;
• Website hosting services, cloud storage services;
• Online advertising platforms;
• Internet-based communications; and
• Online learning services.

The guide also defines FSPs as:

• A person who sells digital products to consumers in Malaysia;
• A person who sells digital products through intermediaries; or
• An online platform that sells digital products on behalf of an overseas provider.

Revenue threshold

Foreign digital service providers who have reached 500,000 ringgit (US$120,000) in annual turnover must register to collect and remit the six percent service tax.

Applications for submission began October 1, 2019.

Registered FSPs must issue invoices and file tax returns on a quarterly basis, ending on the last day of any month of any calendar year.

Defining consumers

The RMCD guide defines a consumer as any business or individual that fulfils any two of the following criteria:

• Makes payment an FSP through a credit card or debit facility provided by a financial institution under the country’s Ministry of Finance;
• Resides in Malaysia; or
• Acquires the digital service through an internet protocol (IP) address registered in Malaysia.

To determine whether the consumer resides in Malaysia, the guide advises FRPs to consider:

• The consumer’s billing address in Malaysia; and
• The consumer’s home address in Malaysia.

Investors should seek the help of registered local advisors to ensure they stay compliant with this latest tax regime.

• Previous Article Goods and Services Tax in Singapore: New Obligations for Digital Service Providers
• Next Article Laos to Implement New Income Tax Rates