Tax compliance is a crucial aspect for businesses operating in Malaysia, particularly for foreign companies, digital service providers, and businesses offering goods and services. The Malaysian government imposes several types of taxes, including Digital Service Tax (DST), Withholding Tax (WHT), and Sales & Service Tax (SST), which affect both local and foreign entities.
Understanding these tax obligations is essential to ensure compliance, avoid penalties, and optimize tax efficiency.
At Amaze Advisory, we assist businesses in navigating Malaysian tax regulations, ensuring proper registration, reporting, and compliance with the latest tax laws.
1. Digital Service Tax (DST) in Malaysia
What is Digital Service Tax (DST)?
Digital Service Tax (DST) is a 8% tax imposed on digital services provided by foreign service providers to Malaysian consumers. This tax applies to online platforms, subscription-based services, cloud computing, and software providers offering services in Malaysia.
Who is Liable for DST?
DST applies to:
- Foreign service providers (FSPs) offering digital services to Malaysian customers.
- Malaysian businesses purchasing digital services from FSPs (e.g., software subscriptions).
Examples of Taxable Digital Services
| Category | Example |
|---|---|
| E-commerce platforms | Shopify, Amazon, eBay (if digital services are sold). |
| Online advertising | Google Ads, Facebook Ads, LinkedIn Ads. |
| Software as a Service (SaaS) | Microsoft 365, Adobe Cloud, CRM platforms |
| Streaming & digital content | Netflix, Spotify, Disney+, Coursera, Udemy |
DST Registration & Compliance
DST applies to:
- Foreign digital service providers must register with the Royal Malaysian Customs Department (RMCD).
- Submit quarterly tax returns and remit DST payments.
- Failure to comply may result in penalties and restrictions on service operations.
2. Withholding Tax (WHT) in Malaysia
What is Withholding Tax?
Withholding Tax (WHT) is a tax deducted at source when Malaysian businesses make payments to foreign entities for certain types of services and income.
Who is Liable for Withholding Tax?
- Malaysian companies making payments to non-resident individuals or businesses.
- Payments for professional services, royalties, technical fees, and interest income.
Withholding Tax Rates in Malaysia
| Type of Payment | WHT Rate | Applicable to |
|---|---|---|
| Royalties | 10% | Intellectual property, patents, trademarks |
| Technical Services | 10% | IT support, consulting, professional fees |
| Interest Payments | 15% | Loan interest paid to foreign lenders |
| Dividens | 0% | No withholding tax on dividends |
Withholding Tax Payment & Compliance
- Tax must be deducted at the time of payment and remitted to the Malaysian Inland Revenue Board (LHDN).
- Failure to deduct and remit WHT results in penalties and additional tax liabilities.
- Double Taxation Agreements (DTAs) may reduce the WHT rate for certain countries.
For more information on withholding tax, you can check out our article on Withholding Tax Exemptions in Malaysia
3. Sales & Service Tax (SST) in Malaysia
What is SST?
The Sales & Service Tax (SST) is a consumption tax in Malaysia that applies to certain e-commerce transactions and technology services. Introduced as a replacement for Goods & Services Tax (GST), SST is levied on both sales of goods and provision of services, impacting businesses in the digital and tech sectors.
Who Needs to Register for SST?
- Manufacturers & Importers (for sales tax) with annual revenue > RM500,000.
- Businesses providing taxable services with revenue above RM500,000 (Certain industries have higher thresholds).
Examples of Taxable Goods & Services Under SST
- Taxable Goods (Sales Tax 10%) – Electronics, furniture, vehicles.
- Taxable Services (Service Tax 8%) – Restaurants, IT services, legal & accounting firms.
SST-Taxable Transactions
| Type of SST | Applicable Transactions | Tax Rate |
|---|---|---|
| Service Tax | IT consulting, cloud hosting, managed services | 8% |
| Sales Tax | Hardware, software sold as a physical product | 5% or 10% |
| Sales Tax on Low Value Goods (LVG) | Imported goods valued at RM500 or below | 10% |
Sales Tax on Low Value Goods (LVG) – Key Considerations
Malaysia’s Sales Tax on Low Value Goods (LVG) applies to imported goods valued at RM500 or below, targeting foreign sellers, online marketplaces, and e-commerce platforms.
| Aspect | Details |
|---|---|
| Tax Rate | 10% |
| Threshold for Registration | Annual sales exceeding RM500,000 |
| Goods covered | Imported goods valued at RM500 or below, excluding prohibited/restricted items |
| Who Needs to Register? | Foreign sellers, online marketplaces, and intermediaries meeting the sales threshold |
| Collection & Payment | Registered sellers must charge and remit 10% sales tax to the Royal Malaysian Customs Department (RMCD) |
SST Compliance Requirements
- Businesses must register for SST if they exceed the RM500,000 threshold (Certain industries have higher thresholds).
- Bi-Monthly SST filings must be submitted to RMCD.
- Non-compliance leads to penalties, fines, or business restrictions.
Conclusion: Ensure Tax Compliance for Your Business in Malaysia
Understanding and complying with Digital Service Tax (DST), Withholding Tax (WHT), and Sales & Service Tax (SST) is essential for businesses operating in Malaysia. Non-compliance can lead to hefty penalties, business disruptions, and legal issues.
At Amaze Advisory, we provide comprehensive tax advisory services, ensuring that businesses remain compliant with Malaysian tax laws while optimizing their tax obligations.
Get Started with Amaze Advisory Today!
Phone: +6013-284 7678 / +6013-323 7678
Website: www.amazeadvisory.com
