Q&A Report Malaysian GST: Turning Promises into Hard Realities by April 2015 27 March 2014 Host: Robert Tsang Presenter: Kah Seong Fan 1. Does the Goods and Services Tax (GST) identification number of customer need to be shown on tax invoice? Pursuant to the tax invoice guide, the person issuing tax invoice (i.e., supplier) is not required to mention the GST identification number of the person to whom the goods or services are supplied (i.e., the customer / client) in the full tax invoice or in the simplified tax invoice issued. However, in the case of a self-billed invoice, the GST identification number of both the supplier and the customer must be mentioned. 2. Whilst the record keeping requirement is 7 years, what is the statutory time bar for the GST audit? Pursuant to the provisions in the draft GST Bill, the assessment shall not be made more than 6 years from the date on which the tax was due and payable or from the date on which the refund was made, as the case may be. However, where the Director General is of the opinion that any form of fraud or wilful default has been committed by or on behalf of any person in connection with or in relation to tax, the Director General may, for the purposes of making good any loss of tax or payment of refunds of tax attributable to the fraud or wilful default, make an assessment at any time. 3. Do the supplies made to cruise liner qualify for zero-rating? Goods (such as merchandise) supplied for sale on board to the cruise liner may involve a supply made in Malaysia (for domestic route) or a supply made outside Malaysia (for International route). Please refer to the below illustrations for the GST treatment. Illustration 1 Supply made outside Malaysia A Malaysian cruise liner supplies souvenirs (as merchandise for sale by retail) on board while the liner is on a voyage from Port Klang, Malaysia to Singapore. 2014. For information, contact Deloitte Touche Tohmatsu Limited. 1
Since the place of supply is taking place outside Malaysia (i.e., between the point of departure (Port Klang, Malaysia) and the point of arrival at Singapore), such supplies will be treated as made outside Malaysia and out of scope for GST. Illustration 2 Supply made in Malaysia A Malaysian cruise liner supplies souvenirs (as merchandise for sale by retail) on board while the liner is on a voyage from Penang Port to Port Klang, Malaysia. Since the place of supply is taking place in Malaysia (i.e., between the point of departure (Port Penang, Malaysia) and the point of arrival Port Klang, Malaysia), such supplies will be treated as made in Malaysia and will be subject to GST at standard rate. 4. After GST returns are submitted, is there a mechanism to revise and amend subsequently? Where a registered person has made an error in declaring the GST return he can correct the errors / mistakes by making amendments in the returns (GST-03). For a non-taxable person, the amendment should be made in GST-04 Form. Any amendments made not later than the return due date will not be subject to late payment penalty. 5. The tax burden for company A is zero because the company paid GST RM6 to tax authority and the company can reclaim RM6 from the tax authority? Yes, that is right. Under the reverse charge mechanism, Company A (in the example) will account RM6 as output tax and at the same time account an input tax of RM6 in the GST return. As a result, there will be no outflow of cash to the Customs. 6. Who will be providing the serial tax invoice number to a company? The excise duties mentioned in the slide are referring to input GST incurred from imported goods? The supplier would need to provide the serial number from its accounting system for each of the tax invoice issued by him for the supply made. In the slide, the excise duties referred to are not from the input GST on imports. They are duties paid by the tax payer. But, in the refund case, the Customs will first use the refund to set off other duties that are payable by a tax payer for items such as import duties or excise duties. 7. Will the sale of imported goods within a bonded warehouse by a non-malaysian seller cause it to be exposed to permanent establishment risk? This is very difficult as it will depend on the activities that the person is carrying out in the bonded warehouse and could it be substantial enough to warrant it to create a taxable presence for the income tax purpose. 2014. For information, contact Deloitte Touche Tohmatsu Limited. 2
8. How can input tax be offset against output tax subject to a time limit of 6 months from the date the return is required to be made? Are there any penalties for filing an erroneous / amended return? Period to claim input tax If the input tax is not claimed in the taxable period in which he is supposed to claim because of insufficient of tax records (e.g., there is no tax invoice), then such input tax can be claimed within a period of 6 years after the date of supply to or imporation by a taxable person. Penalty on erroneous / amended return The above claim will be different from an amendment made due to an error or mistake after the return due date. Such amendment may be subjected to late payment penalty. 9. Can you claim input tax on out of scope supplies? Generally, a person making out of scope supply is not entitled to claim input tax credit. Some input tax on purchases for certain categories of out of scope supply as provided in the GST bill could be given a full recovery. 10. What about entertainment by way of meals to employees? Is this counted as a gift? No, entertainment by way of free meals to employees should not be considered as a gift. 11. What is the likelihood of an extension, say a further 3 months? There is a possibility. 12. Do exempt government departments need to register? If the supply made by the government departments are all exempted (and not the type which are competing with the commercial traders) under the proposed GST regime, the government department is not required to register for GST purpose. 13. Are goods imported into Malaysia which are not sold in the Malaysian market (i.e., re-exported overseas), exempted from Malaysian GST? If goods are imported under the Approved Traders Scheme (ATS), GST is suspended at the time of importation, but the approved person needs to declare the suspended GST and the value of import in the return for the taxable period where the importation took place. A person is eligible to apply for ATS, subject to certain prescribed conditions. 2014. For information, contact Deloitte Touche Tohmatsu Limited. 3
If goods are imported via a bonder warehouse under warehousing scheme, GST is suspended until the goods are released for home consumption into Malaysia from the warehouse. 14. When does the Government expect to issue all the GST guides? Customs has issued more than 50 guides and is expected to issue around 30+ guides by the end of May 2014. 15. Is service (e.g., professional advice) performed in Malaysia to non-resident outside of Malaysia considered out-of-scope supplies? Generally, all exported services are zero-rated, provided the conditions to be specified in the Goods and Services Tax (Zero Rate Supplies) Order are met. These services are generally referred to as international services. Examples of exported services are as follows (a) Any supply of services to a person who belongs outside Malaysia not being any supply of services related to land and goods situated in Malaysia and he is not in Malaysia at the time the services are performed (b) Services of any of the following descriptions which are performed wholly outside Malaysia (i) Cultural, artistic, sporting, tourism, educational or entertainment services (ii) Exhibition or convention services (iii) Services ancillary to, including that of organizing the performance outside Malaysia of the services referred to in para (a) and (b) (c) A supply of telecommunication services by a telecommunication supplier who belongs in Malaysia to a telecommunication supplier who belongs in a country outside Malaysia (d) A supply of telecommunication services provided by a telecommunication supplier who belongs in Malaysia to its subscriber in relation to outbound roaming outside Malaysia, when the subscriber makes an outgoing call or receives an incoming call (e) Services supplied (i) under a contract with a person who belongs in a country other than Malaysia; and (ii) which directly benefit a person who belongs in a country other than Malaysia, relating to the co-location in Malaysia of computer server equipment belonging to the person referred to in para (a) or (b). 2014. For information, contact Deloitte Touche Tohmatsu Limited. 4
16. With respect to sales in U.S. dollar, can a company use its own in-house exchange rate for the month, which is based on the Reuters? No, a company cannot use its own in-house exchange rate for sales in the foreign currency unless it has obtained prior approval from the Customs. Company will need to convert the foreign currency into Ringgit Malaysia by using the selling rate of the exchange prevailing in Malaysia at the time when the supply takes place. 17. When will the GST laws be finalized? The GST Bill 2014 has been tabled in the Parliament for reading on 31 March 2014 and passed in the lower house on the 7 April 2014. 18. What is "last sales"? Under the warehousing scheme, if there is more than one supply (for imported goods) within a warehouse, then only the last supply is subject to GST. The last supply is subject to GST because it is treated as taking place at the duty point. The value of such supply shall be treated as including any duties (whether customs duty or excise duty or both, if any). The GST on the supply shall be payable at the duty point together with the duties, if any. The intermediate supplies within the warehouse shall be disregarded for GST purposes. 19. Is the reverse charge mechanism applicable for all imported services? For example, inter-company rendering services like cost recovery vs. overseas vendor providing services. Pursuant to the proposed GST framework, imported services means services that are made by a supplier who belongs in a country other than Malaysia or who carries on business outside Malaysia to a recipient who belongs to Malaysia and such services are consumed in Malaysia. So technically it could cover the inter-company cross charges and recoveries. We need to examine all the cross and inter co charges from overseas. Consumed in Malaysia in relation to imported service means any service which is used, utilized, or enjoyed in Malaysia. Accordingly, the imported services (either from the third party or inter-company) if consumed in Malaysia, the service recipient will need to account for GST under the reverse charge mechanism. 20. Is Sunday considered as the last working day? ATS only applicable to companies within Free Industrial Zones (FIZ)? If not located in there, is ATS still applicable? Sunday is not considered a last working day. ATS is not restricted to companies located in FIZ. 2014. For information, contact Deloitte Touche Tohmatsu Limited. 5
The following taxable persons who are registered would be eligible to apply for ATS, subject to approval given by Royal Malaysian Customs (RMC) a) All companies located within the FIZ as defined under Section 2 of the Customs Act 1967 and gazetted under Schedule 2 of the Free Zones Regulations 1991 b) All Licensed Manufacturing Warehouse (LMW) operators licensed under Section 65 / 65A of the Customs Act 1967 c) International Procurement Centres (IPCs) and Regional Distribution Centres RDCs) approved by the Malaysian Industrial Development Authority (MIDA) d) Toll manufacturers registered under the Approved Toll Manufacturer Scheme (ATMS) e) Jewellery manufacturers registered under the Approved Jeweller Scheme f) Companies with turnovers above RM25 millions and more than 80% of their supplies made are zero-rated 21. Under the reverse charge mechanism, any registration / invoice requirements on the overseas service supplier? No tax invoice is required either from the overseas service provider or the service recipient, under the reverse charge mechanism. 22. On ATS, is it applicable to transhipment supplier, meaning that Malaysia company buys overseas and asks the overseas supplier to ship directly to overseas customers? Supply made by an overseas supplier to an overseas customer i.e., where the supply of goods involves their removal from a place outside Malaysia to another place outside Malaysia, the goods shall be treated as supplied outside Malaysia and are out of scope. There is no requirement for the ATS for these transactions. 23. For invoices in U.S. dollar, will the client have to pay in Malaysian Ringgit after the implementation of GST? Post GST implementation, company can receive the payment in foreign currency. However, for calculating output GST tax liability, company will need to convert the foreign currency into Ringgit Malaysia by using the selling rate of the exchange prevailing in Malaysia at the time when the supply takes place. 24. Do the zero rated supplies (e.g., international airline ticket) require an official tax invoice? Or does the e-ticket generated be sufficient? A tax invoice is not required to be issued for the zero rated supplies. However, If a tax invoice is issued for zero-rated supply, the supplier must indicate that GST 2014. For information, contact Deloitte Touche Tohmatsu Limited. 6
is charged at zero percent (0%). 25. Is the trade between Freezone manufacturers and Freezone suppliers subject to GST? The above is considered local sales. 26. In the case of re-insurance companies, normally the brokers raise the invoices. Under the GST regime, how will this change? Please also explain further regarding self-billing rules? Agent / brokers in the post GST regime is considered making a taxable supply of services and is required to be licensed it their revenue is greater than RM500,000 p.a. Insurers or takaful operators may adopt self-billing subject to approval by the Director General for the supply of insurance / takaful agency services (agents / broker commission) subject to the following conditions a) Allowable between the insurer / takaful operator and their agent where both are registered persons b) The insurer / takaful operator determines and verifies the final value of the commission paid to the agent c) The insurer / takaful operator prepares the tax invoice on behalf of the agent, for services provided by the agent d) The insurance / takaful agent agrees not to issue tax invoice for their services to the insurer / takaful operator 27. Does providing property insurance or casualty insurance in Malaysia results into exempt supplies? No, since the proposed exempt supplies list covers only the provision of any life insurance or life reinsurance and not the general insurance. 28. Should we claim input tax at the time of booking the invoice in the accounting system or at the time of paying the invoice? In general, a registered person is required to account for GST based on invoice basis. Under the invoice basis, he is eligible to claim input tax on the date of tax invoice issued even though he has not made any payment in respect of the supply acquired. However, the law also states that he does not pay the invoices after 6 months he must drawback the input tax claimed in the GST return. 2014. For information, contact Deloitte Touche Tohmatsu Limited. 7
29. For the non-taxable supply, is the purchase required to be reported in the month return? In certain cases, a non-taxable person is liable to account tax in a declaration form by using the GST-04 Form. Examples of non-taxable persons who are required to furnish GST declaration are a) Any person who imports services for the purposes of business b) Any agent acting in his own name as an auctioneer c) Any person approved under the Approved Toll Manufacturer Scheme as recipient of processed goods from toll manufacturer Any non-taxable person who is required to furnish GST declaration must pay the amount of tax due and payable by him not later than the last day on which he is required to furnish the declaration. 30. Is there a simplified tax invoice for a small amount (e.g., restaurant bill)? There are instances where the Director General may, upon request in writing allow registered persons to issue simplified tax invoice to their customers. Issuance of this invoice normally involves retailers who generate large volume of invoices such as hypermarkets, mini markets, restaurants, beauty salons, petrol kiosks, motor workshops, and other point of sales outlets. A simplified tax invoice can be issued regardless of any sales amount and can take the form of an invoice, receipt, voucher or any other similar document provided it contains the particulars approved by the Director General. 31. For gift rules, if the Malaysian company does not claim input credit on the purchase of gift, will the company need to account for deemed GST on gift of goods? A taxable person is still required to account for output tax when the goods are given as gifts even though input tax incurred on the goods is not claimed. 32. Would conditions need to be met for voluntary registration? A person may apply for voluntary registration even though the value of his taxable supplies does not exceed the prescribed threshold of RM500,000. A person can also be registered if he intends to make any taxable supplies provided he can satisfy the Customs that he is committed to doing business by submitting the following documents a) Details of business arrangements (e.g., business plans, plants, and location) b) Copies of contract for establishment of premises such as rental of premises / construction of pipelines / purchase of equipments c) Details of any patents d) Details of business purchases; or e) Other documentary evidence A person making wholly exempt supplies is not allowed to be registered 2014. For information, contact Deloitte Touche Tohmatsu Limited. 8
voluntarily under GST. If he makes wholly out of scope supplies, he may be allowed to register subject to Customs approval. If you have any questions regarding our presentation, please contact us: Robert Tsang Kah Seong Fan Asia Pacific Indirect Tax Leader Tax Director Email: robtsang@deloitte.com Email: kfan@deloitte.com Deloitte Southeast Asia Deloitte Kuala Lumpur, Malaysia Disclaimer This communication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms, or their related entities (collectively, the Deloitte Network ) is, by means of this communication, rendering professional advice or services. No entity in the Deloitte Network shall be responsible for any loss whatsoever sustained by any person who relies on this communication. About Deloitte Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee ( DTTL ), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as Deloitte Global ) does not provide services to clients. Please see www.deloitte.com/about for a more detailed description of DTTL and its member firms. 2014. For information, contact Deloitte Touche Tohmatsu Limited. 9