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Goods and Services Tax
  • General
    1. Is the implementation date for GST remains on 1 April 2015?
    Yes, with effect from 1 April 2015.
    2. Will there be any relevant new requirements retrospective and apply to the business?
    No. The law is applied with effect from 1 April 2015.
    3. What benefits do businesses get from GST?
    GST is more transparent and can avoid double charging. Businesses no longer need to pay sales tax at 10% and services tax at 6%.
    4. What is the difference between Service Tax Act & GST?
    Sales Tax Act 1972 (SaTa) and Service Tax Act 1975 (SeTa) will be repealed when GST is implemented with effect from 1 April 2015. GST is multilevel while SaTa and SeTa is only at one level. GST provides greater transparency. Both are consumption tax.
    5. Will the GST rate be increased in the near future?
    As of now, Malaysia's GST rate is among the lowest between the ASEAN members at 6% which will be implemented with effect from 1 April 2015. For reference, the GST in:-
    1. Philippines – 12%; 
    2. Indonesia – 10%; 
    3. Vietnam – 10%; 
    4. Cambodia – 10%; 
    5. Laos – 10% ; 
    6. Singapore – 7%; and 
    7. Thailand – 7%.
    6. Will GST lead to inflation?
    Based on the current analysis, there may be an estimated increase in the Consumer Price Index of 1.8% for the whole of Malaysia.
    7. How does the government ensure service provider and manufacturer does not manipulate Sales and Service Tax (SST) and GST to gain more profit? What are the measure that government will take to avoid this unscrupulous manipulation and profit taking advantage?
    GST will replace Sales and Service Tax, which will be repealed with effect from 1 April 2015. In relation to the price manipulation, Ministry of Domestic Trade and Consumer Affairs will monitor this issue through the Competition and Price Control and Anti-Profiteering Act 2011 (the Act), which will curb profit taking advantage. In addition, Jabatan Customs and KPDNKK will issue the consumer and shoppers guide. The guide will provide the price effect before and after GST.
     
    Consumer associations will act as a limb to provide information to consumers. Hypermarts will also be called to provide "trend setter" analysis. More importantly vendors to be told not to simply increase prices. The vendors are eligible to apply for sales tax refund on products that are not sold upon the implementation of the GST.
    8. What is the definition of importation (not the transfer of ownership)?
    "Import" under section 2 of Customs Act 1967 is defined as the grammatical variations and cognate expressions mean to bring or cause to be brought into Malaysia by land, sea or air provided that goods bona fide in transit, including goods for transhipment, shall not, for the purpose of levy of customs duties, be deemed to be imported unless they are or become uncustomed goods.
    9. How to determine whether a customer is based in a designated area. Do we refer to the permanent address or correspondence address?
    It refers to the customer's business registered address where they are established.
    10. Will there be any circular issued by the customs or Labuan FSA on GST treatment for Labuan entities?
    Currently, there is no specific circular or order issued for Labuan IBFC. However, Customs has issued a Guidelines on GST treatment for Designated Area which includes Labuan. The Guidelines is downloadable from the Customs website at www.gst.customs.gov.my under the "specific guides" section.
    GST TREATMENT
    11. How true is this statement, "you will pay GST for everything you buy in GST year".
    GST will only be charged if it is a:-
    • Taxable supply 
    • Made by a taxable person whose turnover exceeds RM500,000 per year 
    • In the course of furtherance of business 
    • In Malaysia
    12. It is stated in the Guide on Insurance and Takaful that "GST is chargeable on all taxable supplies of goods and services in Malaysia, including importation of goods and services. (Para 2)". Can we clarify does the importation of services includes Management Services provided by the home and zonal office? If so, how do we account for it?
    The GST treatment for taxable supplies of goods and services including management services depends on the place of supply as shown below:-
    Location
    Goods
    Services
    World to Designated Area (DA)
    Not subject to GST
    Not subject to GST
    World to Principal Customs Area (PCA)
    Subject to GST
    Imported services
    DA to World
    Zero rated
    Zero rated
    DA to PCA
    Subject to GST
    Standard rated
    DA to DA
    Not subject to GST
    Not subject to GST
    PCA to World
    Zero rated
    Zero rated
    PCA to PCA
    Standard rated
    Standard rated
    PCA to DA
    Zero rated
    Standard rated
    13. A group of related companies where the bigger entity signs a rental agreement with a landlord for an office premise. Subsequently, the entity will charge rental to the other subsidiary companies which have common ultimate shareholders. It is for the recovery of expense and no mark up or profit element. The accounting entries will be as follows:-
    • Dr Rental (net) 70,000.00 
    • Dr Receivables 30,000.00 
    • Dr Input Tax (net) 4,200.00 
    • Dr Input Tax (Receivables) 1,800.00 
    • Cr Cash 106,000.00
    Is the reimbursement of the shared cost subjected to GST?
    It is not subject to GST because the supply between the members of the group is disregarded.
    14. What is the GST treatment for company reimbursing the employees for various business related expenses, e.g. mobile phone subscriptions, petrol claims, Medical claim and other expenses for official purpose? Often times the Invoice / Official Receipts is issued in the name of the staff.
    Generally, the expenses incurred would be under the name of the company and for the purposes of business, hence, there is not GST.
    15. Is annual trip or dinner considered as an employee benefit? If yes, is it subject to GST?
    It is not subject to GST since it is a benefit to the employee only.
    16. A person has sole proprietor business with annual income more than RM500,000 and at the same time rent out his own properties. Is it the rental income entitle for GST?
    Rental income from residential purposes is exempted from GST.
    17. Is purchase of air tickets from Labuan travel agents subject to GST? How about purchase of air ticket for travelling from Labuan to oversea via online purchase from designated areas?
    Yes, it is subject to GST as per the gazette order "Goods and Services Tax (imposition of tax for supplied in respect of designated areas) Order 2014".
    18. The operations of Labuan companies are completely free from exchange control regulations and hence their books and records are generally denominated in foreign currency.
    However for GST purposes, any tax invoices issued in foreign currencies must be converted to MYR. In addition, any transactions required to be reported in the GST returns must also be reported in MYR.
    In this regard, please clarify whether Labuan companies can be given a concession to
    • Issue tax invoices in foreign currencies and report GST in foreign currencies? 
    • If this concession cannot be granted, then could the authorities allow the Labuan companies to convert the GST reportable amounts using a monthly exchange rate whilst leaving the tax invoices in foreign currencies? 
    • What is the timeline for such settlement? 
    • What if customers do not pay or short-pay the GST timely?
    The GST payment must be made in Ringgit Malaysia and the GST settlement must be submitted not later than the last day of the month following the end of the taxable period.
     
    For purposes of conversion to Malaysian Ringgit, the monthly average rate can be utilised. Late payment or ‘short-payment' of GST will be subjected to penalty under the GST Act 2014.
    19. Does GST apply to the marketing office in KL which only facilitates meetings with clients and established contact with potential clients?
    The Kuala Lumpur Marketing Office is not a fixed establishment ie an agent or a branch. It only undertakes marketing activities. Hence, registration is not required as a GST registrant. They are not entitle to claim for input tax.
    INPUT TAX RECOVERY
    20. How long does it take for Customs to process and make refund to the Labuan entity?
    It takes 14 working days if the transaction is done via online. While manual submission is 28 working days.
    21. Will the purchases made by Labuan entities from anywhere outside of Labuan subjected to GST? If yes, can the Labuan entity claim back the 6% input tax by registering itself with Royal Malaysian Customs Department (RMCD)?
    Yes, it is subject to GST on taxable supply. The claim of input tax can only be undertaken if the Labuan entity is a GST registered person.
    GST REGISTRATION
    22. Please advise the procedure to register for GST and if there are any relevant charges?
    There are no charges for registration. Please refer to Custom's portal at www.gst.customs.gov.my and go to Tax Payer Access Point (TAP).
    23. What is the requirement for group registration? For example, a home office in Singapore providing reinsurance services to a Labuan company, which is a branch.
    Only wholly taxable supplies (standard rated and zero rated) can apply for group registration and if there are more than one company. Since the parent company is based in Singapore (not in Malaysia), the group do not qualify for group registration.
    24. When will it be ready for Labuan entities to register for GST? Labuan companies' number start with LL cannot enter at all upon GST registration.
    Anytime until 31 December 2014. As confirmed by Customs, the system has been upgraded to cater for registration by Labuan entities.
    25. Contact information of the customs officers whom the Labuan entities can resolve directly should there be any questions or issues.
    • Customs Call Centre (CCC) – Monday to Friday (8.30a.m-5.00pm) Tel: 03- 78067200 , Fax: 03- 78067599 , Email: ccc@customs.gov.my 
    • GST Hotline – Monday to Friday (8.00a.m-5.00pm) Tel: 1-300-888-500 or 03-8882 2111 / 2222 / 2608
    • GST PORTAL
    FILING OF GST RETURNS AND PAYMENT
    26. What is the GST filing procedures?
    Please refer to Custom GST website at www.gst.customs.gov.my or contact the Customs officers. For information the last day for filing return shall not be later than the last day of the month following after the end of the taxable period.
  • Labuan Banks and Islamic Banks
    REGISTRATION
    1. For the initial registration, the revenue/turnover for taxable supplies for the past 12 months have to be reviewed and if that exceeds the threshold of RM500,000, registration is mandatory. However what if the amount for the past 12 months does not reach the threshold but come next year, due to improving business environment, it might exceed the RM500,000 threshold. Would we be penalised for not registering in the first place?
    No penalty will be imposed unless the entity fails to register within 28 days from the end of the month where the taxable 12 months turnover exceed or is expected to exceed RM500,000. The effective date of registration will be on the first day of the following month.
     
    However, business below threshold of RM500,000 may apply for voluntary registration and it is subject to the approval of the Director General of Customs Malaysia.
    2. Due to accounting policy, most fees are accrued or recognised over the life of the loan, for example five years. As such, a USD200,000 upfront fee amounts to USD40,000 a year. This does not breach the RM500k but the total fees of USD200,000 (~RM600,000) does.

    The above situation does not trigger the GST registration requirement. However, come next year, a new loan transaction with a USD200,000 upfront fee was closed. As a non GST registrant, the bank is unable to charge GST on the new transaction to bill to the client. What should the bank do in such case?
    Calculation of turnover for registration is based on the total value of the taxable supplies for a 12 month period. With effective from 1 April 2015, registration is mandatory within 28 days from the end of the month where taxable turnover exceed or expected to exceed the threshold of RM500,000. The effective date of registration will be on the first day of the following month.
     
    In addition, it is advisable to include a clause on possible GST charges in the correspondence documents.
    3. Does the Labuan entities with an annual sales turnover of RM500,000 and above need to be a GST registrant? Is there any exemption for Labuan Banks to be registered for GST?
    There is no exemption. Registration is mandatory for businesses with taxable turnover that has exceeded the prescribed threshold of RM500,000.
    GST TREATMENT
    4. A Malaysian Resident Client approaches a Singapore Bank (oversea) to structure / arrange a transaction and was charged a fee. Thereafter a Labuan / Malaysian Bank is invited to participate in these transaction. In return, the Labuan / Malaysian bank receives a portion of the total fee by structuring / arranging with the Singapore Bank.
    Is GST applicable to the above scenario? If yes, are the Labuan/Malaysian bank required to charge GST separately to the Malaysian client for the portion of fees received.
    The GST treatment for the services provided between the Malaysian/Labuan banks with the Singapore bank is zero rated.
    5. If a customer in DA goes to a Labuan offshore bank or a Labuan branch of an on-shore bank for banking services, is this services subjected to GST?
    If the Labuan bank or the Labuan branch of an on-shore bank is located in DA, it is not subject to GST.
    6. Should the Labuan Banks include GST on fees charged to a Malaysia / Labuan client?
    The Labuan bank have to charge GST if it is
    • Taxable supply; 
    • Made by a taxable person whose turnover exceeds RM500,000 per year; 
    • In the course of furtherance of business; 
    • In Malaysia; and 
    • 12-months turnover threshold exceeding RM500k
    7. Would Labuan Banks be charged GST by Malaysia / Labuan vendors?
    Depending on the place of supply, if the services are solicited from:
    • Malaysia (PCA) – it is subject to GST; and 
    • Labuan vendors (Within DA) – it is not subject to GST.
    8. Does GST apply to offshore bank tariffs and charges based in Labuan? If it does, how does the GST help in promoting Labuan as an offshore banking center? For example, UK VAT does not need to be charged on most intellectual or intangible services supplied to a customer who belongs in Jersey. This include royalties, licenses, consultants, accountants, banking and insurance if the service relate to land or property situated in the UK, VAT still needs to be charged.
    Any supply within Labuan ie Designated Area is not subject to GST. Supply of services from Labuan to the world will be zero-rated.
    9. For BVI/Cayman Islands incorporated companies (owned by Malaysian) operating in KL, do we classify them as Malaysian entity or an oversea company? Similar scenario, what if it operates out from Labuan?
    GST is charged on all taxable supplies of goods and services in Malaysia (KL/Labuan) unless exempted. The BVI/Cayman Islands incorporated companies will be treated as a supplier in Malaysia if it has a fixed establishment in Malaysia.
    10. In a Labuan banks' context, is the bank required to charge GST on income/expenses (eg commissions, fees, director fees, brokerage fee) incurred to customers (eg borrowers, other financial institution, depositor, etc)
    The GST treatment for any income/expenses will be based on the place of services provided as follows:
    Location
    Services
    World to DA
    Not subject to GST
    World to PCA
    Imported services
    DA to World
    Zero rated
    DA to PCA
    Standard rated
    DA to DA
    Not subject to GST
    PCA to World
    Zero rated
    PCA to PCA
    Standard rated
    PCA to DA
    Standard rated
    11. If a Labuan bank outsource its back office services (e.g. IT services) to the conventional bank in KL (HQ), what is the GST treatment for the services rendered by Labuan Banks to customers? Is it viewed as originating in/from Labuan or from the PCA?
    The outsourcing functions from Labuan bank to PCA is subject to GST at standard rated. The services rendered by the Labuan bank to its customer in PCA is subject to GST at standard rated. If the customer is in Labuan, there is no GST.
    12. When a Labuan bank in Labuan uses the banking services of an on-shore bank based in Labuan, are these banking services charges subjected to GST?
    No, it is not subject to GST as the services transacted are within DA.
    13. In the case of fee amortisation for banking services, what is the GST treatment for fee received prior to 1 April 2015? (depending of the counter-party designation)?
    Fees charged prior to 1 April 2015 are not subject to GST. However, with effect from 1 April 2015, the fees are subject to GST. The party which is liable depends on the clause in the agreement.
    14. A Labuan Bank bought two units of Alpha Condo at the cost of RM1 million and after two years sell it for RM2 million. Is the transaction subject to GST? If yes, can the Labuan Bank claim the input tax credit? How about the rental income for the two years period, is it entitle for GST?
    There is no GST in the Designated Area.
  • Labuan International Commodity Trading Company
    REGISTRATION
    1. Do Labuan traders undertaking import and export activities to/from DA, with annual taxable threshold exceeding RM500,000 required to register for GST?
    Registration is mandatory for businesses with turnover that exceeding RM500,000 per year. In general, the determination of threshold of the turnover is as follows:
    Import activities to DA
    From
    Goods
    Services
    World to DA
    Not subject to GST
    Not subject to GST
    PCA to DA
    Zero rated
    Standard rated
    DA to DA
      Not subject to GST
      Not subject to GST
    Export activities from DA
    From
    Goods
    Services
    DA to World
    Zero rated
    Zero rated
    DA to PCA
    Subject to GST
    Standard rated
    DA to DA
      Not subject to GST
      Not subject to GST
    GST TREATMENT
    2. Is it an exempted supply (ie. no GST charged) if we trade with other LITCs (e.g. MRLL with PETCO) in regards of the physical cargo movement?
    The Goods and Service Tax (Imposition of tax for supplies in respect of designated area) Order 2014 stipulated that the supply of petrol, diesel and liquefied petroleum gas within or between the DA and the importation of such goods into the DA are subject to GST at standard rate.
     
    However, if the purchase and sale does not involve any physical cargo movement of goods in/through Malaysia, it is out of scope from GST requirements.
    3. Is GST applied on the goods purchased from bonded area (Tanjung Pelepas, Johor)?
    The GST treatment for goods purchased from bonded area, which is a PCA, to:-
    • DA – Goods purchased from PCA to DA are zero-rated unless stated in the "Goods and Service Tax (Imposition of tax for supplies in respect of designated area) Order 2014" which include petrol, diesel, liquefied petroleum gas, freight services and telecommunication services. 
    • PCA – subject to GST at standard rated. 
    • World – zero rated.
    GST REPORTING AND SETTLEMENT
    4. LITC can only deal in any currency other than Ringgit. However, GST is dominated in Ringgit only. This will lead to exchange differences and cause a huge impact as the amount involved is large.
    The GST must be paid in Ringgit Malaysia. For purpose of conversion, the monthly average rate can be utilised.
  • Trust Company
    REGISTRATION
    1. A Labuan Company undertaken one or two unexpected transactions with residents. Does the company still have to register for GST?
    Registration is mandatory if the transactions are
    • Taxable supply; 
    • Made by a taxable person whose turnover exceeds RM500,000 per year; 
    • In the course of furtherance of business; and 
    • In Malaysia.
    2. A Labuan company procure goods/services from Indonesia and subsequently sell to Singapore. However, only the invoice was billed to the Labuan company in Labuan which is then reissued to the Singapore company. Does the Labuan Company need to register if the minimum threshold is reached?
    The supply of goods/services is out of scope.
    GST TREATMENT
    3. What is the GST treatment on the following instances:
    • Goods or services provided by Labuan companies in Labuan to Malaysian entities located in Labuan or other parts of Malaysia 
    • Goods or services provided by Labuan companies in Malaysia such as KL etc to other Labuan companies
    • Supplies of goods or services by a Labuan company in Labuan to Malaysian entities located in Labuan is considered as dealing within DA. Hence, it is not subject to GST. However, supplies of goods and services from DA to PCA is subject to GST at standard rated.
    • Labuan companies in Malaysia (PCA) supply goods and services to Labuan companies in:-
    Location
    Goods
    Services
    World
    Zero rated
    Zero rated
    Malaysia
    Standard rated
    Standard rated
    DA
    Zero rated
    Standard rated
    4. If a Malaysian client (who owns a Labuan Company but he is residing in KL) requests a trust company to prepare a Board resolution to open a bank account in KL, would such services to the Labuan Company (which is registered in Labuan and within the "designated area") be subjected to GST.
    The registered address of the Labuan Company is in Labuan. Hence, it is not subject to GST as the services are provided within DA.
    5. A contractor does all the fabrication work in Labuan and sell the goods to an oil and gas related company in Labuan. But the goods was to be dispatched to oil rig sites at the sea of Sabah coastal areas or Brunei bay, is the sales subject to GST?
    Goods supplied within DA is not subject to GST except supply of petrol, diesel, and Liquefied petroleum gas as per the Goods and Services Tax (imposition of tax for supplied in respect of designated areas) Order 2014. Goods supply from DA to PCA will be subjected to GST. If the supply of goods is from DA to the world, it will be zero-rated.
    6. If the Labuan company (DA) supplies to a rig just outside of the Labuan waters (e.g. food), is these subject to GST?
    Yes, it is subject to GST as the dealing is undertaken outside of DA.
    7. A Labuan company undertaking offshore supplies. In this instance, does the DA GST guide include the water covering the Brunei base?
    The definition of Labuan refers to the island of Labuan and its independent islands namely, Rusukan Besar, Rusukan Kecil, Keraman, Burong, Papan and Daat. Brunei base is not part of DA.
    8. A Labuan company supplying goods to ships in a Labuan port. Is this subject to GST?
    No, since it is within DA.
    9. Since any supply made within or between DA is not subject to GST, what is the GST treatment if the Labuan Company (place of supply in Labuan) has a marketing office in KL?
    The marketing office is purely for client facilitation including meeting of clients only. It is not considered as a fixed establishment since it is not an agency or branch. Hence, it is not subject to GST.
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