*LATEST UPDATE: NO MORE DIGITAL SERVICE TAX FOR EXABYTES DIGITAL SERVICES
What is Withholding Tax?
Withholding tax is an amount withheld by the party making payment (payer) on income earned by a non-resident (payee) and paid to the Inland Revenue Board of Malaysia.
‘Payer’ refers to an individual/body other than individual carrying on a business in Malaysia. He is required to withhold tax on payments for services rendered/technical advice/rental or other payments made under any agreement for the use of any moveable property and paid to a non-resident payee.
‘Payee’ refers to a non-resident individual/body other than the individual in Malaysia who receives the above payments.
Source: http://www.hasil.gov.my/bt_goindex.php?bt_kump=2&bt_skum=6&bt_posi=1&bt_unit=5&bt_sequ=1&bt_lgv=2
What is Service Tax on Imported Services?
With effect from 1 January 2019, Perkhidmatan Bercukai Diimport (PBD) is subject to service tax.
Any individual who operates a business in Malaysia (including in Kawasan Ditetapkan (KD) and Kawasan Khas (KK)) and obtains taxable services from overseas service providers must pay service tax.
The terms ‘any individual’ refers to all registered and unregistered businesses under the Service Tax Act 2018.
Perkhidmatan Bercukai Diimport (PBD) refers to taxable services under [Schedule One], Service Tax Act 2018. Overseas service providers are entities that provide services in terms of merchandise, land, or others related to Malaysia or for the people residing in Malaysia.
How do the Withholding Tax and Service Tax on Imported Services affecting the Media Spend Budget?
Please note that our digital advertisement (Google, Facebook and LinkedIn) budget for media spending needs to curve out 14% for taxes compliance, with immediate effect (ie 1 Feb 2019).
Illustration:
Initial allocated RM10,000/month for media spending;
Revised allocation is RM8,772/month for media spending.
Products:
All related to Google, Facebook and LinkedIn.
Tax Implications:
1. Withholding tax: In general, all payment to the overseas supplier is required to withhold 10%. However, for payment to Singapore (Google) and Facebook (Ireland) is 8%, as Malaysia has a Double Taxation Agreement (DTA) with the respective countries.
2. Service Tax on Imported Services: Individual or company who acquire imported services from an overseas company is subject to service tax at 6%.
Total 14% additional taxes on our media spending to Google, Facebook and LinkedIn.
For further information, please click the links below:
Link for Publication on Taxes Guidance:
(i) Guidance on Payment Types subjects to Withholding Tax form IRB website: http://www.hasil.gov.my/bt_goindex.php?bt_kump=2&bt_skum=6&bt_posi=1&bt_unit=5&bt_sequ=1&bt_lgv=2
(ii) Guidance on Tax Treatment on Digital Advertising from IRB website: http://lampiran1.hasil.gov.my/pdf/pdfam/PN_NO_1_2018.pdf
(iii) Double taxation Agreement from IRB website: http://www.hasil.gov.my/bt_goindex.php?bt_kump=5&bt_skum=5&bt_posi=4&bt_unit=1&bt_sequ=1&bt_lgv=2
(iv) Guidance on Imported Services from SST Custom Website: https://mysst.customs.gov.my/assets/document/Industry%20Guides/GI/Panduan%20Perkhidmatan%20Bercukai%20Diimport.pdf
Feel free to download the PDF for an example of pre and post changes on taxes: Implication of Taxes to Digital Advertising
great blog with informative stuff. keep up the good work guys.
Thanks Rajan, we will continue producing more informative content in future.
Very informative, still lot facebook marketer not aware of this tax
Yup, it’s affecting both Facebook Ads and Google Ads as well in Malaysia.
Hi Martin,
With reference to your comment “However, for payment to Singapore (Google) and Facebook (Ireland) is 8%, as Malaysia has a Double Taxation Agreement (DTA) with the respective countries.” You might want to refer to this http://lampiran1.hasil.gov.my/pdf/pdfam/DoubleTaxationAgreementRates.pdf
For Singapore, royalties (license fee, the right to access etc) DTA rate is 8%, for technical services it should be 5%.
For Ireland, royalties =8% correct, but for technical services remain at 10%.
Hi Fiona, you are correct. Thanks for more input about the taxation info. Our article more towards royalty targeting on Facebook, Google and LinkedIn Ads.
Hi, payment to Facebook Ads and Google Ads usually by prepayment account. May I know how to withhold the 8% to pay IRB? Or payee need to flowout another 8% to pay IRB?
Hi Lydia, due to the tax is a sensitive matter, I suggest you better ask your tax consultancy or accounting for a better answer. https://mysst.customs.gov.my/ is one of the sources to clarify your questions.
Hi, the 6% service tax is through IRB as well? How we pay that 6%?
Hi Cheah, this question a bit complicated depend on when you come from. For more accurate and up-to-date answers, I recommend refer back to the official SST website: https://mysst.customs.gov.my/
Hi, how about payment for subscription of e-catalog from non-resident company. Do we need to paid withholding tax and service tax?
Hi Nurul, I suggest you can ask the question to https://mysst.customs.gov.my/ or your finance/tax department as we just a digital marketing agency.
Hi Experts,
If I’m procuring a electronic delivery of software license from US based company to our Malaysian (Sdn Bhd) company, and reselling it to a local Malaysian customer, am I required to pay tax as per below illustration, please confirm.
Purchase from US
WHT @10%, SST @6%
Reselling it to Malaysian customer
SST @ 6%
Thanks in advance.
Hi Samuel Joseph, we are not expert in taxation but a digital marketing agency. Regarding your question, I suggest can ask to https://mysst.customs.gov.my/ or other financial/tax agency.
Hi. Painting an example whereby there is subscription license fee on digital services of S$1000 provided by a Singapore company. Above that there is 6% SToDS. So, total invoice is S$1,060. Upon settlement, should WHT based on S$1,060?
Hi Jessica, we are not expert in taxation but a digital marketing agency. Regarding your question, I suggest can ask to https://mysst.customs.gov.my/ or other financial/tax agency.
Hi,
Is it mean a Malaysia Company payment to Facebook will being imposed 6% digital tax and at the same time still need to pay the 10% withholding tax?
Hi Rachel, we are not expert in taxation but a digital marketing agency. Regarding your question, I suggest can ask to https://mysst.customs.gov.my/ or other financial/tax agency.