At present, services supplied by foreign companies to Malaysian businesses (i.e., B2B supplies) are subject to GST under the existing reverse-charge provisions in the Goods and Services Tax Act 2014. However, services supplied by such foreign companies to Malaysian consumers for non-business purposes (i.e., B2C supplies) are not subject to GST under the existing Malaysian laws.
The OECD BEPS Action 1 final report recognised that the implementation of the destination principle to determine the place of taxation of cross-border suppliers for GST collection, would lead to a more effective and efficient collection of tax on digital services. Under the destination principle, non-resident suppliers are required to register and account for GST in the customers' country of residence.
During the recent National GST Conference 2018 held on 27 - 28 February 2018, the Royal Malaysian Customs ("Customs") announced that proposed amendments to the GST laws are currently being considered, to impose GST on certain digital services supplied by foreign companies to Malaysian customers. According to the presentation by Customs, the new laws are intended to apply to digital services supplied by foreign suppliers to Malaysian consumers.
The amendments were initially proposed to be tabled before Parliament for debate in October 2017, but were postponed pending further discussions between the Ministry of Finance and relevant authorities on the suitable mechanism to be implemented.
Some of the key points that are expected to be addressed in the draft regulations include the scope of the digital services, the procedures to determine whether a consumer is a Malaysian consumer, as well as the registration and compliance regime that will be applicable to the non-resident suppliers.