A person that provides management services and exceeds the registration threshold is liable to charge service tax, pursuant to the Sales Tax Regulations 2018. The Regulations (prior to Budget 2019) provide the following:
Any person who provides management services, excluding the management services provided by—
(a) any developer, joint management body or management corporation to the owners of a building held under a strata title;
(b)any person who is licensed or registered with the Securities Commission Malaysia for carrying out the regulated activity of fund management under the Capital Markets and Services Act 2007; or
(c) any person, Government agency, local authority or statutory body for the purposes of religious, welfare, bereavement, health or public transport services.
Provision of all types of management services including project management or project coordination, excluding provision of such services in connection with:
(i) goods or land situated outside Malaysia; or
(ii) other than matters relating to matters specified in (i) outside Malaysia.
The Regulations seems broadly worded, with little specifics regarding the definition of management services and the type of management services that are subject to service tax.
RMCD guidance on management services
The Royal Malaysian Customs Department (RMCD), in its Guide on Management Services, provided its interpretation and clarification of the abovementioned legislation as follows:
Management services covers the organisation and coordination of activities of a business in order to provide services to the clients and these services are not categorised under any specific taxable services (i.e. prescribed services). These activities consist of organising, supervising, monitoring, planning, controlling and directing business’s resources in terms of human, financial, technology, physical and other resources.
The written contractual agreement between the person and client will be used to determine whether the services provided can be classified as management services. In a situation where no contractual agreement exists, the services may be treated as management services if such services meet the abovementioned definition.
The Guide provides that the following are taxable services (however, the list below is not exhaustive):
Any person who provides all types of management services including project management or project coordination excluding certain services is subjected to service tax.Taxable management services include:
i. Provision of project management services
ii. Provision of services to manage training programs by third parties
iii. Secretarial services by the secretary of the company
iv. Provision of event management services
v. Debt collection and receivables management services
vi. Warehousing management services including comprehensive supplies recoupment activities, warehousing, maintenance, order, packaging, delivery and etc.
vii. Building maintenance services
viii. Management services for admission of potential students from overseas to higher education centres in Malaysia
ix. Provision of outsourced management services by third parties.
x. Provision of parking management services
xi. Provision of sports facilities management services.
It is worth noting that RMCD guides are not rulings and are neither binding on the RMCD or on any party that follows the recommendations provided in the guides.
The specification of management services in the Guide on Management Services (and not the legislation) serves as mere guidance. It allowed the RMCD to work under a broadly defined legislation, which could lead to unfair interpretations against the taxpayers.
After Budget 2019
Pursuant to the Budget 2019, the Service Tax Regulations 2018 were amended, based loosely on the Guide on Management Services, to specifically set out the types of management services that are considered as taxable services, which as follows:
i. Project management services, full or part of the project
ii. Tourism management services
iii. Logistics management services
iv. Maintenance management services
v. Warehousing management services
vi. Collection and debt management services
vii. Car park management services
viii. Sports facilities management services
ix. Secretarial management services
x. Any management services other than specified in (i) to (ix) made on behalf of another person,
excluding the provision of such services in connection with:
xi. goods or land situated outside Malaysia; or
xii. matters outside Malaysia other than matters stated in (xi).
The amended Regulations also include a general category for management services made on behalf of another person.
The inclusion of a specific list of taxable management services should provide more certainty to taxpayers. Those who fall in the abovementioned list should review their contracts to determine if they are indeed providing management services.