Tuesday, 11 August 2015

Malaysian GST: Cross-border services issues

An article by: Thenesh KannaaPartner of TraTax Malaysia
(Speaker for the upcoming Wolters Kluwer workshop, Getting GST Right for Cross-Border Services held in Kuala Lumpur)

From an economic policy-making perspective, Goods and Services Tax (GST) is a consumption tax and thus the 6% tax should be levied only when the goods or services are consumed in Malaysia. This is known as the destination principle. This may appear to be a straightforward principle, but the application of the principle is an area that requires careful attention to avoid costly mistakes.

Common but difficult practical questions faced by many accountants are:

  (1) Is this service charge to a foreign company zero-rated or should I impose 6% GST?
  (2) Is this payment to a foreign company subject to reverse charge?
  (3) How do I treat cross-border disbursements and reimbursements?

Not arriving at the right answer for any of the questions would lead to serious consequences. For example, if one answers the first question incorrectly, he would be either incorrectly zero rating or incorrectly charging GST; both are offences under the GST Act 2014. There are several provisions that provides zero-rating for international services. The most commonly used provision is para 12, Second Sch of the Zero-Rated Supply Order, which provides for a supply to be zero-rated if all of the following conditions are satisfied:

   (1) There must be a contract pursuant to which the supply in question is made;
   (2)  Such contract must be with a person (“customer”) who belongs in a country other than Malaysia;
   (3) The service must directly benefit a person (“recipient”) who belongs in a country other than Malaysia; and
   (4)  The recipient must be outside Malaysia when the service is performed.

Do note though that there are supplies specifically excluded from the scope of para 12. If para 12 is not satisfied, zero-rating is still possible when criteria in another para of the zero-rating order are satisfied. 

Need to know more? I will be running a course next week (19 Aug) with Wolters Kluwer Malaysia on Getting GST Right for Cross-Border Services. At this course, you will learn practical applications of zero-rating for international services as well as reverse charges on imported services. 

For more information, you may contact Sarah at 03-2024 8608 or download the registration form from the Wolters Kluwer website HERE.

Thenesh Kannaa is involved in the GST implementation of Malaysian organisations from diverse industries – including manufacturing, services, trading, construction, property development, healthcare, telecommunications and statutory bodies. Thenesh is a frequent speaker at conferences and seminars organised by the professional accounting bodies, Bar Council's Kuala Lumpur state committee, statutory bodies as well as private institutions. He is a member of the Chartered Tax Institute of Malaysia's Editorial Committee and the Technical Committee for Indirect Taxes. Thenesh is co-author of Wolters Kluwer's Malaysia Master GST Guide (2nd Ed., 2015), as well as other books on direct taxes.


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