EY: Indirect Tax Alert – Amendments to the Service Tax Regulations and Order

– Service Tax (Amendment) Regulations 2020

• Expansion of group relief facility to include the provision of digital services
  • Companies are now able to apply group relief (i.e., intra-group exemption) on the provision of digital services to any company within the same group of companies, under Group G: Professionals, First Schedule of the Service Tax Regulations 2018.
  • Where a company acquires digital services from any company other than a Foreign Registered Person (“FRP”) within the same group of companies outside Malaysia, such services shall not be considered as imported taxable services.

• Amendments to the provision of digital services
• The provision of digital services has been amended to include the provision of an electronic medium that allows the suppliers to provide supplies to customers. The provision of an electronic medium and digital services which were previously categorized as separate items under Group G: Professionals, First Schedule of the Service Tax Regulations 2018 have been folded and combined accordingly.
• Furthermore, the provision of digital services will not be considered as a taxable service if such service relates to matters outside Malaysia.

– Service Tax (Digital Service) (Amendment) Regulations 2020

• Introduction of group relief facility on digital services provided by an FRP to a group of companies

• The amendments allow an FRP to apply group relief (i.e., intragroup exemption) on the provision of digital services to any company in Malaysia within the same group of companies, and such digital services shall not be subject to service tax.
• However, should the FRP also provide the same digital services to any company outside the group of companies in Malaysia (i.e., third party), such digital services provided to both companies outside and within the same group of companies will be subject to service tax.
• For the purpose of assessing whether a company is considered as being in the same group of companies with the FRP, the regulations laid down in Paragraphs 4, 5, 6 and 7, First Schedule of the Service Tax Regulations 2018 shall be referred to.

– Service Tax (Person Exempted from Payment of Tax) (Amendment) Order 2020

• Amendment to the service tax exemption conditions for a person who acquires digital services from an FRP

• The amendment pertains to the service tax exemption for any person who, in carrying on his business, acquires digital services from an FRP.
• One of the conditions for the exemption, that the acquisition of digital services is not for personal consumption, has been removed.