Indirect Tax Alert: Updates to the Guide on Digital Services by Foreign Service Provider

The Royal Malaysian Customs Department (“RMCD”) has released an updated Guide on Digital Services by Foreign Service Provider (“FSP”) as at 1 August 2020, via the MySST portal, to provide further guidance on Service Tax on Digital Services (“SToDS”) matters in Malaysia.

EY outlines key highlights of the updated Guide below:

Types of digital services that are not subject to service tax As prescribed in the Service Tax Policy No.4/2020 – Service Tax on Online Distance Learning Services, effective 1 January 2020, the following digital services provided by a FSP are not subject to service tax:

►    Online distance learning – preschool education, primary and secondary education or tertiary education including vocational education and professional training which is recognized by the relevant authority in such country; and

►    Online newspapers, online journals and periodicals – printed digital version of newspapers (i.e. under the tariff codes of 4902.10 and 4902.90) and online journals and periodicals (i.e. under the tariff codes of 4902.90.10 00 and 4902.90.90 00)

Clarification on a FSP who sells digital services on behalf of a service provider through an online platform An online platform operator who makes transactions for the provision of digital services on behalf of any service provider would be considered a FSP if the online platform operator satisfies any of the following conditions:

►    Authorized to set the terms and conditions of the underlying transactions;

►    Has a direct or indirect involvement in the payment processing;

►    Has a direct or indirect involvement in the delivery of the digital service;

►    Provides customer support services in relation to the supply or provision of digital services; or

►    Issues invoices or any other documents to the consumer, to whom the supply is identified as made by the online platform operator

Digital service provided within the same group of companies Pursuant to Regulation 5A, Service Tax (Digital Service) Regulations 2020, where a foreign registered person (“FRP”) provides digital services to a company in Malaysia within the same group of companies with the FRP, such services shall not be subject to service tax, effective 14 May 2020.   

However, where the FRP provides the same digital services to any company outside the group of companies, such digital services provided within or outside the group of companies will be subject to service tax.


Calculating the value of digital services for registration purposes


The updated Guide also provides additional guidance and examples for calculating the value of digital services for registration purposes, for the following categories:

►    Online platform operator (who qualifies as a FSP); and

►    A FSP who sells directly to consumers in Malaysia and indirectly through an online platform operator

Issuance of debit notes and credit notes ►    FRPs who issue debit notes shall declare the service tax amount in the taxable period in which the debit notes are issued or payments are received.

►    FRPs who issue credit notes in relation to a digital service which was previously accounted for shall amend the DST-02 return related to the period for which service tax has been paid. A refund application is required to be submitted in order to claim such service tax.

Refund of service tax, penalty, fee or other money ►    The Director General (“DG”) may grant a refund of service tax, penalty, fee or other money, for the following:

►    Where a person has overpaid or erroneously paid; or

►    Where a person is entitled to the refund according to Section 34(6) or 40(3) of the Service Tax Act 2018

►    The application for a refund shall be made through the MySToDS system by completing the DST-ADM01 Form, and submitting the same with the relevant supporting documents.

►    The refund should be applied for separately according to the respective taxable periods and should be applied for within one year after the overpayment or erroneous payment has occurred, or upon the entitlement of a refund.

►    For any service tax, penalty, fee or other money which has been erroneously refunded by the DG, the DG shall demand the whole or part of the amount from the person and such demand must be made within six (6) years from the date when the refund was made.

The full version of the above-mentioned Guide issued by the RMCD can be found in the official link of the MySST Portal.