The Royal Malaysian Customs Department (“RMCD”) issued an updated Guide on Parking Space Services on 4 June 2026, replacing the previous guide dated 29 February 2024.<div><br><div>The updated guide provides important clarification on the Service Tax treatment of paid parking facilities, valet services, parking management arrangements and payment-system operators.</div><div><br></div><div>For businesses involved in operating or managing parking facilities in Malaysia, understanding who is actually providing the taxable service and how the arrangement is structured is critical to determining the correct Service Tax treatment.</div><div><br></div><div><b>What counts as a taxable parking service</b></div><div>Generally, any person, government agency, local authority or statutory body that operates or provides paid parking spaces for motor vehicles may be regarded as providing a taxable parking service under Group I which is generally subject to Service Tax at 6%.</div><div><br></div><div>This covers both:</div><div><ol><li><span style="font-size: 0.875rem;">On-street parking: Parking facilities located within a road reserve and generally regulated by the relevant local authority; and</span><br></li><li><span style="font-size: 0.875rem;">Off-street parking: Parking facilities outside the road reserve, including parking within buildings or at specifically designated parking sites.</span><br></li></ol></div><div><br></div><div>The method used to collect payment does not change the underlying Service Tax treatment. Paid parking may therefore remain taxable whether payment is made through:</div><div><ul><li><span style="font-size: 0.875rem;">Touch ‘N Go;</span><br></li><li><span style="font-size: 0.875rem;">Auto-pay machines;</span><br></li><li><span style="font-size: 0.875rem;">Parking meters;</span><br></li><li><span style="font-size: 0.875rem;">Tickets or coupons;</span><br></li><li><span style="font-size: 0.875rem;">Mobile applications or other digital payment platforms; or</span><br></li><li><span style="font-size: 0.875rem;">Other payment mechanisms.</span><br></li></ul></div><div><br></div><div>Valet and jockey services provided as part of parking services are also treated as taxable parking services and are generally subject to Service Tax at 6%.</div><div><br></div><div><b>Registration threshold: The RM500,000 test</b></div><div>An operator providing taxable parking services is generally required to register for Service Tax where the value of the relevant taxable services exceeds the prescribed threshold of RM500,000 within a 12-month period.</div><div><br></div><div>However, businesses providing more than one type of taxable service should exercise caution when determining whether the registration threshold has been exceeded.</div><div><br></div><div>The treatment depends on the relevant taxable service category and registration rules applicable to the business. Taxable revenue from different activities should not simply be aggregated automatically without first determining the applicable service group and threshold treatment.</div><div><br></div><div>For example, the RMCD guide illustrates a parking operator earning RM400,000 from parking services and RM150,000 from food and beverage services. The operator is not required to register in respect of its parking services merely because the combined revenue exceeds RM500,000, as its taxable parking services have not reached the prescribed RM500,000 threshold.</div><div><br></div><div>Businesses with multiple revenue streams should therefore assess their registration position carefully based on the nature and classification of each taxable service.</div><div><br></div><div><b>Not every parking-related charge is a parking service</b></div><div>One useful clarification in the updated guide is that certain charges imposed by a parking operator are not regarded as parking-space services, including:</div><div><ul><li><span style="font-size: 0.875rem;">Charges for issuing parking cards;</span><br></li><li><span style="font-size: 0.875rem;">Charges for reserved-parking signage, vehicle number-plate signs or steel barriers;</span><br></li><li><span style="font-size: 0.875rem;">Administrative charges for reactivating a blocked season pass; and</span><br></li><li><span style="font-size: 0.875rem;">Penalties for replacing lost parking cards.</span><br></li></ul></div><div><br></div><div>The distinction is important because operators should not assume that every charge connected with a parking facility automatically follows the same Service Tax treatment as the underlying parking fee.</div><div><br></div><div><b>Parking operator vs parking management company</b></div><div>Another important distinction arises where a third party is appointed to manage a parking facility.</div><div><br></div><div>Consider a local authority that remains the parking operator and charges customers for parking but appoints a separate company to maintain and operate the parking facility.</div><div><br></div><div>The two transactions have different Service Tax treatments:</div><div><ol><li><span style="font-size: 0.875rem;">Parking fee charged to the customer: </span><span style="font-size: 0.875rem;">The parking service provided by the operator to the customer is generally subject to 6% Service Tax under Group I.</span></li><li><span style="font-size: 0.875rem;">Management fee charged by the parking management company: </span><span style="font-size: 0.875rem;">The service provided by the third-party company to the parking operator may instead constitute a parking management service, which falls under a separate taxable service classification, Group G, and is generally subject to 8% Service Tax.</span></li></ol></div><div><br></div><div>The contractual arrangement and the actual role performed by each party are therefore critical.</div><div><br></div><div>Businesses should establish clearly who is the parking operator, who collects the parking revenue, who invoices the customer and who merely provides management services.</div><div><br></div><div><b>Payment-system providers are treated differently</b></div><div>A further distinction applies where a company is appointed solely to manage or provide the payment system for a parking facility.</div><div><br></div><div>According to the RMCD guide, such services may fall under information technology services, Group G, which is generally subject to 8% Service Tax, rather than parking services.</div><div><br></div><div>This means that three parties involved in the same parking operation may potentially have three different Service Tax treatments:</div><div><ol><li><span style="font-size: 0.875rem;">The parking operator providing parking to customers;</span><br></li><li><span style="font-size: 0.875rem;">The parking management company managing or maintaining the parking operation; and</span><br></li><li><span style="font-size: 0.875rem;">The technology provider managing the parking payment system.</span><br></li></ol></div><div><br></div><div>Businesses should therefore avoid applying a blanket “parking service” classification to every party involved in the arrangement.</div><div><br></div><div><b>Key takeaway for parking operators</b></div><div>The Service Tax treatment of a parking operation is not determined simply by whether the business is connected to “parking”.</div><div><br></div><div>The key questions are:</div><div><ol><li><span style="font-size: 0.875rem;">Who is actually providing the parking service to the customer?</span><br></li><li><span style="font-size: 0.875rem;">Who collects and earns the parking revenue?</span><br></li><li><span style="font-size: 0.875rem;">Is another party merely managing the parking facility?</span><br></li><li><span style="font-size: 0.875rem;">Is a separate provider only supplying or managing the payment technology?</span><br></li><li><span style="font-size: 0.875rem;">Has the relevant registration threshold been correctly assessed?</span><br></li><li><span style="font-size: 0.875rem;">Are ancillary charges being classified correctly?</span><br></li></ol></div><div><br></div><div>A parking operator, management contractor and technology provider may each be subject to different Service Tax classifications and rates, even though they are all involved in the same parking ecosystem. Businesses should review their contractual arrangements, revenue streams, invoicing practices and SST classifications to ensure that Service Tax is being applied and reported correctly.</div></div>

<i>Technical Insights by <b>Pugaleshwaran Raja Kumaran,</b> Executive Director, Tax at ThinkTx</i>

Service Tax on Paid Parking in Malaysia: What Operators Need to Know

The Royal Malaysian Customs Department (“RMCD”) issued an updated Guide on Information Technology Services on 26 February 2026, replacing the previous guide dated 9 August 2019.<div><br><div>The updated Guide provides further clarification on the scope and Service Tax treatment of Information Technology (“IT”) services, including software and system development, cloud services, data center services, IT consultancy, maintenance services, equipment rental, business-to-business (“B2B”) exemptions and imported taxable services.</div><div><br></div><div>In view of these developments, businesses providing or acquiring IT-related services should reassess their existing arrangements to ensure that the relevant services are appropriately classified, the applicable Service Tax treatment is correctly determined, and the corresponding registration and reporting obligations are duly complied with.</div><div><br></div><div><b>Service tax treatment of IT services</b></div><div>IT services are prescribed as taxable services under Item (h), Group G of the First Schedule to the Service Tax Regulations 2018. The scope encompasses the provision of all types of IT services, including the distribution or resale of IT services on behalf of another person.</div><div><br></div><div>An IT service provider is generally required to register for Service Tax where the total value of taxable services exceeds the prescribed threshold of RM500,000 within a 12-month period. For registration threshold purposes, the total value of taxable services comprises the aggregate value of the relevant taxable services under Group G, rather than IT service revenue being considered independently.</div><div><br></div><div><b>Scope of information technology services</b></div><div>The updated Guide adopts a broad definition of IT, encompassing the use of computers, storage, networks, physical devices, infrastructure and processes for the creation, processing, storage, protection and exchange of electronic data.</div><div><br></div><div>The scope of IT services includes, among others:</div><div><ul><li><span style="font-size: 0.875rem;">Computing services;</span><br></li><li><span style="font-size: 0.875rem;">Coding and programming;</span><br></li><li><span style="font-size: 0.875rem;">Application and software development;</span><br></li><li><span style="font-size: 0.875rem;">System and network integration;</span><br></li><li><span style="font-size: 0.875rem;">Website development;</span><br></li><li><span style="font-size: 0.875rem;">Data processing and administration;</span><br></li><li><span style="font-size: 0.875rem;">Data, system and software maintenance;</span><br></li><li><span style="font-size: 0.875rem;">Data center services;</span><br></li><li><span style="font-size: 0.875rem;">Data subscriptions;</span><br></li><li><span style="font-size: 0.875rem;">Data, system and software security;</span><br></li><li><span style="font-size: 0.875rem;">Advisory and consultancy services relating to data, systems or software;</span><br></li><li><span style="font-size: 0.875rem;">System development advisory and consultancy;</span><br></li><li><span style="font-size: 0.875rem;">Cloud services;</span><br></li><li><span style="font-size: 0.875rem;">Artificial intelligence (“AI”); and</span><br></li><li><span style="font-size: 0.875rem;">Internet of Things (“IoT”) services.</span><br></li></ul></div><div><br></div><div>The updated Guide provides greater clarity in respect of contemporary technology-related activities, particularly data center services, data subscriptions, cybersecurity-related services and advisory or consultancy services relating to data, systems and software.</div><div><br></div><div><b>Classification of IT and related services</b></div><div>The updated Guide further clarifies the categories of activities that constitute taxable IT services. These include the provision of software by software developers, development of online platforms, development or customization of computer systems, software installation, software support and maintenance, cloud services, managed data center services, IT administration, IT consultancy and IT management services.</div><div><br></div><div>However, not all services associated with technology are necessarily classified as IT services under the same taxable service category. Certain related services may fall within separate Service Tax classifications. For example:</div><div><ol><li><span style="font-size: 0.875rem;">IT-related training may fall within consultancy, training and coaching services;</span><br></li><li><span style="font-size: 0.875rem;">Physical security services relating to IT equipment or servers may fall within security services;</span><br></li><li><span style="font-size: 0.875rem;">Hardware maintenance and repair may fall within maintenance or repair services; and</span><br></li><li><span style="font-size: 0.875rem;">Rental or leasing of IT equipment and certain co-location arrangements may fall within Group K – rental or leasing services.</span><br></li></ol></div><div><br></div><div>Accordingly, proper classification is essential in determining the applicable Service Tax treatment, registration requirements, exemptions and reporting obligations.</div><div><br></div><div><b>Distinction between IT services and rental or leasing services</b></div><div>A significant distinction highlighted in the updated Guide concerns the treatment of IT services as compared with rental or leasing services. The rental or leasing of computers, hardware and servers, including personal computers, laptops, projectors, printers and network equipment, is classified as a taxable rental or leasing service under Group K, rather than an IT service under Group G. Similarly, charges relating to the storage or co-location of a customer’s hardware or servers may fall within Group K. This distinction is particularly relevant to data center operators that provide multiple service components under a single commercial arrangement.</div><div><br></div><div>While managed data center and connectivity services may constitute taxable IT services, the rental of rack space and hardware may be subject to Service Tax under the separate rental or leasing service category (Group K). Businesses providing bundled technology and infrastructure solutions should therefore assess the individual components of their contractual arrangements to determine the appropriate Service Tax classification and treatment.</div><div><br></div><div><b>Treatment of hardware, software and bundled arrangements</b></div><div>The updated Guide also provides clarification on arrangements involving combinations of hardware, software and related services. The applicable Service Tax treatment depends on the nature and substance of the arrangement. For instance, the sale of a computer together with embedded software may constitute a sale of goods and may not, in itself, constitute a taxable IT service. In contrast, software supplied separately may constitute a taxable IT service. Where a contract involves the provision of an integrated computer system comprising hardware, software, integration, maintenance and training, the relevant service components may be subject to Service Tax, while the hardware component may require separate treatment.</div><div><br></div><div>Accordingly, businesses should carefully consider the contractual terms, scope of supply and invoicing arrangements when determining the appropriate tax treatment of bundled arrangements.</div><div><br></div><div><b>IT services relating to matters outside Malaysia</b></div><div>The updated Guide also addresses circumstances in which IT services provided from Malaysia may not be subject to Service Tax where the services relate to:</div><div><ol><li><span style="font-size: 0.875rem;">Goods or land situated outside Malaysia; or</span><br></li><li><span style="font-size: 0.875rem;">Matters outside Malaysia.</span><br></li></ol></div><div><span style="font-size: 0.875rem;"><br></span></div><div><span style="font-size: 0.875rem;">For example, the Guide illustrates that software maintenance performed remotely from Malaysia in respect of a server located outside Malaysia may not be subject to Service Tax where the service relates to goods situated outside Malaysia. Similarly, IT services relating specifically to matters outside Malaysia may fall outside the scope of Service Tax, subject to the particular facts and circumstances.</span><br></div><div><br></div><div>Businesses providing cross-border IT services should therefore assess the underlying subject matter to which the service relates, rather than relying solely on the location of the service provider or customer in determining the applicable Service Tax treatment.</div><div><br></div><div><b>B2B Exemption for IT Services</b></div><div>The Service Tax framework provides a B2B exemption mechanism to mitigate cascading Service Tax within an IT service supply chain, subject to the prescribed conditions. Broadly, the exemption may apply where:</div><div><ol><li><span style="font-size: 0.875rem;">The service received falls within the same taxable IT service category;</span><br></li><li><span style="font-size: 0.875rem;">The recipient is a registered person providing IT services;</span><br></li><li><span style="font-size: 0.875rem;">The supplier is also a registered IT service provider; and</span><br></li><li><span style="font-size: 0.875rem;">The IT service received is not intended for the recipient’s own consumption.</span><br></li></ol></div><div><br></div><div>The “own consumption” requirement is a critical condition. Where a registered IT service provider engages another registered IT service provider to perform IT services that are subsequently incorporated into or provided as part of the services supplied to its customer, the B2B exemption may potentially apply, subject to the relevant requirements.</div><div><br></div><div>Conversely, where the IT services are acquired for the recipient’s own internal use, the B2B exemption would generally not apply solely by virtue of both parties being registered persons. Accordingly, registration status alone does not establish entitlement to the B2B exemption. The nature, purpose and ultimate use of the services must also be considered.</div><div><br></div><div><b>Service tax treatment of imported IT services</b></div><div>The updated Guide also reiterates the Service Tax obligations applicable to IT services acquired from overseas service providers. Where a person carrying on business in Malaysia acquires taxable IT services from a person outside Malaysia, the Malaysian recipient may be required to account for and pay Service Tax on the imported taxable services. Such services may include, among others, overseas software services, cloud services, IT support, software development, data services and other qualifying IT services.</div><div><br></div><div>For imported taxable services, Service Tax generally becomes due at the earlier of:</div><div><ol><li><span style="font-size: 0.875rem;">The date payment is made; or</span><br></li><li><span style="font-size: 0.875rem;">The date the invoice for the service is received.</span><br></li></ol></div><div><br></div><div>Businesses should therefore maintain appropriate procedures to identify and assess overseas IT expenditure, particularly where such expenditure is processed through accounts payable or procurement functions without a separate Service Tax review.</div><div><br></div><div><b>Exemption for imported IT services</b></div><div>The exemption applicable to imported IT services should be distinguished from the B2B exemption applicable to domestic IT services. A registered IT service provider may qualify for an exemption from Service Tax on IT services acquired from an overseas provider where the prescribed conditions are satisfied, including where:</div><div><ol><li><span style="font-size: 0.875rem;">The Malaysian recipient is a registered IT service provider;</span><br></li><li><span style="font-size: 0.875rem;">The imported IT service corresponds with the IT service distributed or resold by the Malaysian provider; and</span><br></li><li><span style="font-size: 0.875rem;">The imported IT service is not acquired for the Malaysian provider’s own consumption.</span><br></li></ol></div><div><br></div><div>The Guide also addresses group relief for imported taxable services acquired by a Malaysian company from an overseas company within the same group, subject to satisfying the applicable statutory requirements under Paragraph 4 to 7 of the First Schedule to the Service Tax Regulations 2018. Accordingly, the availability of an exemption should be assessed based on the specific nature and purpose of the imported service and the relevant statutory conditions, rather than on the existence of a B2B or intragroup relationship alone.</div><div><br></div><div><b>Key compliance considerations</b></div><div>The updated Guide reinforces the importance of assessing the substance of IT arrangements rather than relying solely on general contractual descriptions. A single commercial arrangement may comprise several components that are subject to different Service Tax treatments. For example, a data center arrangement may comprise managed IT services, connectivity, co-location and equipment rental, while a technology implementation project may comprise software licensing, system development, hardware, installation, consultancy, maintenance and training.</div><div><br></div><div>Businesses should therefore consider reviewing:</div><div><ol><li><span style="font-size: 0.875rem;">The nature and classification of each service provided or acquired;</span><br></li><li><span style="font-size: 0.875rem;">The applicable Service Tax rate and registration requirements;</span><br></li><li><span style="font-size: 0.875rem;">The computation of the relevant registration threshold;</span><br></li><li><span style="font-size: 0.875rem;">The eligibility and documentation supporting B2B exemptions;</span><br></li><li><span style="font-size: 0.875rem;">The classification of rental, leasing and co-location arrangements;</span><br></li><li><span style="font-size: 0.875rem;">The treatment of bundled hardware and service arrangements;</span><br></li><li><span style="font-size: 0.875rem;">Imported taxable service obligations arising from overseas IT expenditure;</span><br></li><li><span style="font-size: 0.875rem;">The availability of exemptions or group relief; and</span><br></li><li><span style="font-size: 0.875rem;">The accuracy and consistency of SST-02 reporting.</span><br></li></ol></div><div><br></div><div><b>Conclusion</b></div><div>The updated Guide on Information Technology Services dated 26 February 2026 provides important clarification on the application of Malaysia’s Service Tax framework to an increasingly complex and evolving technology sector. The appropriate Service Tax treatment should not be determined solely on the basis that an activity is generally regarded as “IT-related”. Businesses should assess the specific nature and substance of each service, the applicable taxable service classification, the contractual arrangement and the manner in which the service is ultimately used.</div><div><br></div><div>Businesses providing or acquiring IT services should therefore undertake a review of their existing service arrangements, revenue streams, overseas IT expenditure, B2B exemptions and Service Tax reporting to ensure consistency with the prevailing Service Tax legislation and RMCD guidance. As technology arrangements increasingly encompass multiple elements, including software, cloud infrastructure, data services, hardware, consultancy, maintenance and rental, the accurate classification of each component remains fundamental to ensuring appropriate Service Tax compliance and mitigating potential tax exposures.</div></div>

<i>Technical Insights by <b>Pugaleshwaran Raja Kumaran</b>, Executive Director, Tax at ThinkTx</i>

Service Tax on IT Services in Malaysia: Key Changes & Compliance Considerations

<b>KEY TAKEAWAYS</b><div><ul><li><span style="font-size: 0.875rem;">Digital currency is not treated as conventional currency for tax purposes</span><br></li><li><span style="font-size: 0.875rem;">The key distinction is whether a gain is revenue or capital in nature</span><br></li><li><span style="font-size: 0.875rem;">LHDN applies the “Badges of Trade”</span><br></li><li><span style="font-size: 0.875rem;">Crypto-to-Crypto exchanges can constitute a disposal</span><br></li><li><span style="font-size: 0.875rem;">Using digital currency to pay for goods or services may also constitute a disposal</span><br></li><li><span style="font-size: 0.875rem;">Salary or business income received in digital currency remains taxable</span><br></li><li><span style="font-size: 0.875rem;">Digital currency mining can give rise to taxable income</span><br></li><li><span style="font-size: 0.875rem;">Airdrops and hard forks are generally not taxable upon receipt – subject to important exceptions</span><br></li><li><span style="font-size: 0.875rem;">Acquisition cost must be determined in Ringgit Malaysia and FIFO is the default principle</span><br></li><li><span style="font-size: 0.875rem;">Comprehensive records are essential</span><br></li></ul></div><div><br></div><div>Digital assets have become an increasingly significant component of investment and commercial activity in Malaysia. Digital currencies and tokens such as Bitcoin and Ethereum are now acquired, traded, exchanged and used in an expanding range of transactions.</div><div><br></div><div>From a Malaysian tax perspective, however, the relevant question is not simply whether a person has made a gain from digital currency. The nature of the activity, purpose of acquisition, frequency of transactions, source of the income and circumstances surrounding the disposal may all influence the applicable tax treatment.</div><div><br></div><div>On 5 December 2025, the Inland Revenue Board of Malaysia (“IRBM”) issued the Second Edition of its Guidelines on the Tax Treatment of Digital Currency Transactions, replacing the first edition issued on 26 August 2022. The updated Guidelines provide further clarification on the Malaysian income tax treatment of digital currency and digital token transactions, including trading, investment, mining, crypto-to-crypto exchanges, business receipts, remuneration, airdrops and hard forks.</div><div><br></div><div><b><i>Here are 10 key considerations taxpayers should understand.</i></b></div><div><br></div><div><b>1. Digital currency is not treated as conventional currency for tax purposes</b></div><div>For purposes of the Guidelines, digital currencies and digital tokens generally refer to digital financial assets based on distributed ledger technology and cryptographically secured representations of value or contractual rights capable of being transferred, stored or traded electronically. The Guidelines specifically refer to digital currencies such as Bitcoin and Ethereum, as well as other digital currencies with similar characteristics.</div><div><br></div><div>For tax purposes, digital currency is regarded as an intangible asset. Accordingly, the Malaysian tax treatment is determined based on the nature of the asset, transaction and underlying activity rather than treating digital currency in the same manner as conventional legal tender. An important starting point is therefore to note that holding or transacting in digital currency does not, by itself, determine whether a tax liability arises. The underlying facts and nature of the transaction must first be established.</div><div><br></div><div><b>2. The key distinction is whether a gain is revenue or capital in nature</b></div><div>One of the most important considerations in determining the tax treatment of digital currency is whether the gain is revenue in nature or capital in nature. A person actively trading digital currencies may be regarded as carrying on a revenue-generating activity. Gains arising from such trading activities may therefore be subject to income tax. Conversely, where digital currency is genuinely held as an investment and the subsequent disposal represents a realization of that investment, the gain may be capital in nature.</div><div><br></div><div>For example, an individual who purchased two units of digital currency for investment, subsequently disposed of them in a single transaction and derived a gain of RM16,000. The gain is regarded as capital in nature and generally is not subject to tax. The distinction, however, is highly fact-specific. A taxpayer cannot determine the tax treatment merely by describing himself or herself as an “investor” rather than a “trader”. The IRBM will consider the actual facts and circumstances surrounding the activities undertaken.</div><div><br></div><div><u>Capital Gains Tax</u></div><div>Following amendments under the Finance (No. 2) Act 2023, Malaysia introduced CGT from 1 January 2024 for specified categories of taxpayers and capital assets. The updated Guidelines clarify that where digital currency situated in Malaysia is disposed of and the gain is capital in nature, such gain is generally not within the Malaysian CGT regime applicable to movable property in Malaysia, as that regime generally covers shares in unlisted Malaysian-incorporated companies for the relevant taxpayer categories.</div><div><br></div><div><b>3. LHDN applies the “Badges of Trade”</b></div><div>To determine whether digital currency activities amount to trading or investment, the IRBM applies established “badges of trade” principles. The Appendix to the updated Guidelines identifies several relevant factors. These include:</div><div><ul><li><span style="font-size: 0.875rem;">Nature of the asset: Including the quantity of digital currency acquired;</span><br></li><li><span style="font-size: 0.875rem;">Period of ownership: Shorter holding periods may be more indicative of trading;</span><br></li><li><span style="font-size: 0.875rem;">Frequency of transactions: Repeated and frequent transactions may indicate a trading pattern;</span><br></li><li><span style="font-size: 0.875rem;">Supplementary work: Activities undertaken to enhance marketability or attract buyers;</span><br></li><li><span style="font-size: 0.875rem;">Circumstances of realization: For example, a forced disposal due to an unexpected need for cash may be less indicative of trading;</span><br></li><li><span style="font-size: 0.875rem;">Motive: Particularly whether a trading intention existed at the time of acquisition;</span><br></li><li><span style="font-size: 0.875rem;">Method of financing: Short-term financing may be more indicative of trading than long-term financing; and</span><br></li><li><span style="font-size: 0.875rem;">Other relevant factors: Including feasibility studies, documentation and other evidence demonstrating the taxpayer’s intention.</span><br></li></ul></div><div><br></div><div>Importantly, no single badge is conclusive. As expressly stated in the Guidelines, the determination must take into account all relevant factors. This means, for example, that merely holding cryptocurrency for a short period does not automatically make a person a trader. Equally, holding an asset for a longer period does not automatically establish that a gain is capital in nature. The overall pattern and commercial substance of the activity must be considered. The Appendix of the Guidelines sets out these factors and expressly confirms that no single badge determines the outcome.</div><div><br></div><div><b>4. Crypto-to-Crypto exchanges can constitute a disposal</b></div><div>A common misconception is that a taxable event can only arise when digital currency is converted into Ringgit Malaysia or other fiat currency. That is not necessarily the case. The exchange of one digital currency for another constitutes a transaction that may give rise to a gain or loss. For example, from Bitcoin to Ethereum, requires consideration of the disposal of the original digital asset and the acquisition of the new asset. The taxability of any resulting gain or loss depends on whether the relevant digital currency is held on revenue or capital account. Where the taxpayer is carrying on a digital currency trading business, gains arising from such exchanges may form part of taxable business income. Where the asset is held as a genuine capital investment, the applicable capital treatment must instead be considered. Accordingly, the absence of a cash withdrawal or conversion into Ringgit Malaysia does not, by itself, mean that the transaction has no tax consequences.</div><div><br></div><div><b>5. Using digital currency to pay for goods or services may also constitute a disposal</b></div><div>Digital currency used as a means of payment may also have tax implications. Where a business accepts digital currency as payment for goods or services, the transaction should generally be accounted for in the same manner as an ordinary business transaction. The business should recognize the relevant sale or income based on the appropriate value in Ringgit Malaysia.</div><div><br></div><div>Where the transaction is agreed based on a specified quantity of digital currency, the value of the goods or services is determined based on the value of the digital currency at the point of the transaction. For example, an IT consultant who receives 10 Ether as payment for services. Where one Ether is valued at RM18,970 at the time of payment, RM189,700 is recognized as the consultant’s income.</div><div><br></div><div>For the person using digital currency to make payment, however, the disposal is not necessarily taxable in every case. For example, an individual purchasing Bitcoin solely to immediately pay for a discounted event ticket. The disposal is not necessarily subject to tax, although the position may differ if the acquisition was connected with trading or another income-producing purpose. Accordingly, the purpose for which the digital currency was acquired and held remains relevant.</div><div><br></div><div><b>6. Salary or business income received in digital currency remains taxable</b></div><div>Receiving income in digital currency does not convert otherwise taxable income into non-taxable income. Where an employee receives salary or wages in digital currency, the remuneration remains taxable as employment income. The applicable value is determined based on the employment contract and the value of the employment services performed. The employer’s existing obligations under the Monthly Tax Deduction (“MTD”) rules continue to apply.</div><div><br></div><div>Similarly, where a business receives digital currency as consideration for goods or services, the appropriate Ringgit Malaysia value must generally be recognized as business income. The principle is straightforward where the form in which payment is received does not, by itself, alter the underlying character of the income. Whether payment is received in Ringgit Malaysia, Bitcoin, Ether or another digital asset, the tax treatment follows the nature of the underlying income.</div><div><br></div><div><b>7. Digital currency mining can give rise to taxable income</b></div><div>A person carrying on a mining business or mining activity may be subject to income tax under the existing provisions of the Income Tax Act 1967. Expenses incurred in relation to a mining business may be deductible, subject to the applicable tax deduction rules, and qualifying losses may also be available for tax purposes.</div><div><br></div><div>However, the subsequent disposal of digital currency obtained through mining requires a further analysis. The tax treatment of gains arising on disposal depends on whether those gains are capital or revenue in nature, determined by reference to the relevant badges of trade.</div><div><br></div><div>Furthermore, a miner may be engaged to mine digital tokens on behalf of another person. Fees received for providing such mining services may constitute taxable income.</div><div><br></div><div><b>8. Airdrops and hard forks are generally not taxable upon receipt - Subject to important exceptions</b></div><div>Digital tokens may be received without direct payment through mechanisms such as airdrops or hard forks. According to the Guidelines, tokens received free of charge as part of promotional or marketing activities, or through the splitting of an existing digital currency, are generally not regarded as income at the time of receipt. However, this treatment is not absolute. Where tokens are provided in exchange for specific goods or services, the receipt may be subject to tax based on the nature of the underlying arrangement. The subsequent disposal must also be considered separately. Where a gain arising from the later disposal is revenue in nature, the gain may be taxable. Where the disposal occurs in Malaysia and the gain is capital in nature, it may not be subject to tax, subject to the applicable rules.</div><div><br></div><div><b>9. Acquisition cost must be determined in Ringgit Malaysia and FIFO is the default principle</b></div><div>For Malaysian tax purposes, the acquisition cost of digital currency must be determined in Ringgit Malaysia. Where digital currency is held by a company, it must similarly be valued in Ringgit Malaysia for tax purposes. Acquisition cost is generally determined using the First-In, First-Out (“FIFO”) principle, unless the taxpayer is able to substantiate another basis.</div><div><br></div><div>Where the acquisition cost cannot be determined, the digital currency should be valued using fair value at the prevailing rate on the transaction date, based on an acceptable and verifiable digital currency exchange. The adjusted basis of an investment may also include amounts incurred in acquiring the digital currency, including:</div><div><ul><li><span style="font-size: 0.875rem;">Acquisition price;</span><br></li><li><span style="font-size: 0.875rem;">Fees;</span><br></li><li><span style="font-size: 0.875rem;">Commissions; and</span><br></li><li><span style="font-size: 0.875rem;">Other acquisition-related costs.</span><br></li></ul></div><div><br></div><div>This can have a material impact on the calculation of taxable gains. For taxpayers with significant transaction volumes across multiple exchanges and wallets, establishing a reliable cost basis retrospectively and maintaining accurate records contemporaneously is important.</div><div><br></div><div><b>10. Comprehensive records are essential</b></div><div>Digital asset taxation is heavily dependent on evidence. The Guidelines identify various records that taxpayers should maintain in relation to digital currency transactions, including:</div><div><ul><li><span style="font-size: 0.875rem;">Records establishing the nature of transactions, including relevant whitepapers;</span><br></li><li><span style="font-size: 0.875rem;">Records supporting digital currency values based on online exchanges;</span><br></li><li><span style="font-size: 0.875rem;">Transaction dates;</span><br></li><li><span style="font-size: 0.875rem;">Details of counterparties, including digital currency addresses;</span><br></li><li><span style="font-size: 0.875rem;">Purchase and transfer receipts;</span><br></li><li><span style="font-size: 0.875rem;">Exchange records;</span><br></li><li><span style="font-size: 0.875rem;">Agent records;</span><br></li><li><span style="font-size: 0.875rem;">Wallet-related information and software records;</span><br></li><li><span style="font-size: 0.875rem;">Bank statements; and</span><br></li><li><span style="font-size: 0.875rem;">Receipts and invoices relating to business expenditure.</span><br></li></ul></div><div><br></div><div>For taxpayers using multiple exchanges, self-custody wallets or decentralized finance (“DeFi”) protocols, maintaining a complete transaction trail can be particularly challenging. A practical recordkeeping process should therefore include regular exports of exchange transaction histories, wallet transaction records and contemporaneous valuation evidence. The critical point is that a taxpayer who considers a gain to be non-taxable because it is capital in nature must still be able to substantiate that position. Where records are incomplete, demonstrating acquisition cost, holding periods, transaction patterns and investment intention may become significantly more difficult during a tax audit.</div><div><br></div><div><b>Common digital currency transactions</b></div><div><ul><li><span style="font-size: 0.875rem;">Long-term investment followed by an isolated disposal: Gain may be generally considered as capital in nature.</span><br></li><li><span style="font-size: 0.875rem;">Frequent buying and selling for profit: May constitute trading. Gains may be taxable as business income.</span><br></li><li><span style="font-size: 0.875rem;">Crypto-to-crypto exchange: Disposal requiring consideration of whether resulting gain/loss is capital or revenue in nature.</span><br></li><li><span style="font-size: 0.875rem;">Digital currency mining: Mining business/activity may be taxable. Subsequent disposal requires separate capital/revenue analysis.</span><br></li><li><span style="font-size: 0.875rem;">Salary paid in digital currency: Taxable as employment income. Employer obligations continue to apply.</span><br></li><li><span style="font-size: 0.875rem;">Business accepting digital currency: Ringgit Malaysia value generally recognized as business income.</span><br></li><li><span style="font-size: 0.875rem;">Airdrop or hard fork: Generally, not taxable upon receipt where received for free. Exceptions apply where linked to goods/services.</span><br></li><li><span style="font-size: 0.875rem;">Using digital currency for personal purchase: Not necessarily taxable, depends on purpose of acquisition and surrounding facts.</span></li></ul></div><div><br></div><div><b>Conclusion</b></div><div>The updated IRBM’s Guidelines reinforce an important principle that there is no single tax treatment that applies to every digital currency transaction. The fact that a taxpayer has made a gain does not automatically mean that the gain is taxable. Conversely, describing digital assets as a “long-term investment” does not, by itself, establish that a gain is capital in nature.</div><div><br></div><div>The appropriate tax treatment depends on the nature of the activity, intention at acquisition, transaction pattern, holding period, source considerations, and the surrounding facts and circumstances. For taxpayers with significant digital asset activity, the key considerations should therefore be:</div><div><ul><li><span style="font-size: 0.875rem;">Classification: Are the activities investment or trading in nature?</span><br></li><li><span style="font-size: 0.875rem;">Transaction analysis: Have disposals, exchanges, business receipts and other digital asset events been correctly identified?</span><br></li><li><span style="font-size: 0.875rem;">Valuation: Can acquisition costs and Ringgit Malaysia values be reliably substantiated?</span><br></li><li><span style="font-size: 0.875rem;">Documentation: Are sufficient records available to support the tax position adopted?</span><br></li></ul></div><div><br></div><div>As digital asset transactions become increasingly complex, particularly across multiple exchanges, wallets and decentralized platforms, a defensible Malaysian tax position requires more than simply calculating the difference between cash deposited and cash withdrawn. It requires a transaction-level assessment supported by appropriate documentation and a clear understanding of the underlying nature of the activity.</div>

Digital Currency & Tax in Malaysia: 10 Key Considerations Under the IRBM’s Updated Guidelines

<b>Introduction</b><div>Service tax is an indirect tax imposed on specific services, with service providers being responsible for collecting and remitting the tax to the Royal Malaysian Customs Department (RMCD). The recent amendments to the service tax regulations, which now includes logistics services, have brought the tax back into the public spotlight despite its introduction in September 2018.</div><div><br></div><div><b>Amendments to the Service Tax Policy for Logistics Services</b></div><div>The RMCD has announced several improvements to its service tax policy for logistics services in Service Tax Policy No. 4/2024 dated 29th March 2024. These changes aim to:</div><div><ul><li><span style="font-size: 0.875rem;">Eliminate double taxation	</span><br></li><li><span style="font-size: 0.875rem;">Eliminate cascading effects in the logistics supply chain	</span><br></li><li><span style="font-size: 0.875rem;">Provide tax exemptions for export-oriented companies</span><br></li></ul></div><div><br></div><div>The Ministry of Finance (MOF) has refined the scope of service tax exemptions to alleviate the direct impact on people's living costs and the cascading tax incidences in the logistics sector. The Government aims to mitigate the tax's effect on people's cost of living and maintain the competitiveness of the nation's service sectors by providing service tax exemptions for logistics sector and maintenance services. To further preserve the country's competitiveness, the Government will also not impose service tax in free zones.</div><div><br></div><div><b>Additional Service Tax Exemption Scope for Logistics Sector</b></div><div>In order to ease the tax impact on daily logistics operating activities, and ultimately the consumers, the Government has agreed on the following:</div><div><ul><li><span style="font-size: 0.875rem;"><b>Amendments to Group J: Logistics Services in First Schedule, Service Tax Regulations 2018, whereby Item 1(a) in relation to logistics services, and Item 1(b) pertaining to delivery or distribution or transporting services have been merged into a single item. </b></span><span style="font-size: 0.875rem;">By combining these two items into one, the exemption scope for Business-to-Business (B2B) activities has widened, whereby logistics service providers classified under Item 1(a) are now no longer required to incur service tax for acquiring delivery, distribution or transporting services that previously had been listed under Item 1(b). </span><span style="font-size: 0.875rem;">Prior to this amendment, logistics service providers under Item 1(a) were entitled to tax exemptions for acquiring services under the same item only.</span></li><li><span style="font-size: 0.875rem;"><b>All services under Group J: Logistics Services provided in or between Special Area / Designated Area, between Special Area and Designated Area, or vice versa are not subject to service tax, except for Customs Agent services which remains taxable for service tax.</b> Kindly refer to diagrams in the link below. </span></li></ul></div><div><br></div><div>Special Areas include:</div><div><ol><li><span style="font-size: 0.875rem;">Any Free Zone under Subsection 2(1) of the Free Zones Act 1990;</span><br></li><li><span style="font-size: 0.875rem;">Any Licensed Warehouse under Section 65 of the Customs Act 1967;</span><br></li><li><span style="font-size: 0.875rem;">Any Licensed Manufacturing Warehouse under Section 65A of the Customs Act 1967; and</span><br></li><li><span style="font-size: 0.875rem;">Joint Development Area under Section 2 of the Malaysia – Thailand Joint Authority Act 1990.</span><br></li></ol></div><div><br></div><div>Free Zone means any part of Malaysia declared under the provisions of Subsection 3(1) of the Free Zones Act 1990 to be:</div><div><ol><li><span style="font-size: 0.875rem;">A Free Commercial Zone; or</span><br></li><li><span style="font-size: 0.875rem;">A Free Industrial Zone.</span><br></li></ol></div><div><br></div><div>The following are the Free Zones in Malaysia:</div><div><i>(kindly refer to the table in the link below) </i></div><div><br></div><div>Furthermore, Designated Areas include:</div><div><ol><li><span style="font-size: 0.875rem;">Tioman	</span><br></li><li><span style="font-size: 0.875rem;">Labuan	</span><br></li><li><span style="font-size: 0.875rem;">Langkawi</span><br></li></ol></div><div><span style="font-size: 0.875rem;"><br></span></div><div><ul><li><span style="font-size: 0.875rem;"><b>Exemption for ocean freight charges for all goods delivered by sea mode, limited to these routes / destinations</b>:</span><br></li></ul></div><div><ol><li><span style="font-size: 0.875rem;">Peninsular Malaysia to Sabah / Sarawak / Labuan;</span><br></li><li><span style="font-size: 0.875rem;">Sabah / Sarawak / Labuan to Peninsular Malaysia; and</span><br></li><li><span style="font-size: 0.875rem;">Between Sabah, Sarawak and Labuan.</span><br></li></ol></div><div><br></div><div>These enhancements are additions to the widening of service tax exemption scope for logistics sectors as announced on 11th March 2024.</div><div><br></div><div><b>Additional Service Tax Exemption Scope for Maintenance Services</b></div><div>The Government has also agreed to provide service tax exemptions for maintenance services for the following items:</div><div><ul><li><span style="font-size: 0.875rem;">Maintenance services related to land or buildings for residential purposes provided by developers, joint management bodies or resident associations	</span><br></li><li><span style="font-size: 0.875rem;">Repairs of residential buildings	</span><br></li><li><span style="font-size: 0.875rem;">Sinking funds</span><br></li></ul></div><div><span style="font-size: 0.875rem;"><br></span></div><div>With this, all maintenance and repair services at residential premises such as roof upgrades or for any items and/or fixtures attached to or part of the residential premise’s structure such as lifts, air conditioners and water heaters are not subject to service tax.</div><div><br></div><div>The service tax rate’s increase from 6% to 8% that came into effect on 1st March 2024 is concentrated on services that are discretionary in nature and B2B activities that do not directly impact the people. The increase does not involve key essential services that are part and parcel of people’s lifestyle such as food and beverage, telecommunications and vehicle parking.</div><div><br></div><div><i>Service Tax Policy No. 4/2024 has been amended on 23rd August 2024 as follows:</i></div><div><ul><li><span style="font-size: 0.875rem;"><i>All services under Group J: Logistics Services provided within and between Special Areas / Designated Areas or between a Special Area and a Designated Area or vice versa are not subject to service tax.</i></span></li><li><span style="font-size: 0.875rem;"><i>However, logistics services provided by any person whose principal place of business is located in Malaysia and who provides logistics services in a Designated Area or in a Special Area or any person whose principal place of business is located in a Designated Area or in a Special Area who provides logistics services to customers whose principal place of business is located in Malaysia are subject to service tax.</i></span></li></ul></div><div><br></div><div><b>Tax Treatment on Export and Import Activities</b></div><div><i>(kindly refer to table in the link below)</i></div><div><br></div><div><b>Recommendations to Use the Following Incoterms in Contracts or Terms of Sale</b></div><div>All logistics services rendered for import or export shipments including logistics management services, warehousing or warehousing management services, freight forwarding services, haulage, Customs agent, port or airport services, shipping services (domestic), aviation services or cold chain facilities services that are borne fully by the foreign supplier or foreign buyer will not be subject to tax as the logistics service providers will be invoicing / billing the foreign importer or exporter. To benefit from this exemption, businesses are encouraged to utilize the following Incoterms in contracts or terms of sales:</div><div><ul><li><span style="font-size: 0.875rem;"><b>For exports using the Incoterms Free Carrier (FCA)</b>: The Malaysian seller / exporter is responsible for export Customs clearance and delivering the goods to the carrier at the specified place of delivery. The seller is only responsible for loading the goods if their place of business is the same as the delivery location. The foreign buyer / importer assumes all risks and responsibilities, including all logistics services from the factory / warehouse to their own premises. Since the foreign buyer is responsible for logistics services, even if they use local service providers, no service tax is levied on the services rendered in this transaction.</span><br></li><li><span style="font-size: 0.875rem;"><b>For imports using Incoterms Delivered at Place (DAP)</b>: When using DAP for importing goods, the foreign seller / exporter is responsible for delivering the goods to the specified destination, ready for unloading. All risks and costs up to unloading are borne by the seller. However, the Malaysian buyer / importer is still responsible for import Customs clearance and duties, and other import formalities. Since the foreign seller / exporter covers the logistics costs, even if they use local service providers, no service tax is levied on the services rendered in this transaction.</span><br></li></ul></div><div><br></div><div><b>Threshold Value for Sales and Service Tax (SST) Registration</b></div><div>The threshold value for service tax registration for taxable persons providing logistics services is RM500,000 over a 12-month period. Service providers who exceed this prescribed threshold value of taxable services are required to register under the Service Tax Act 2018. The application for registration must be submitted to the RMCD not later than the last day of the following month. Once registered, the registered persons are obligated to collect, file and pay the taxes to the RMCD regularly.</div><div><br></div><div><b>Penalties for Non-Compliance</b></div><div><u>Failure to submit SST returns</u>	</div><div><ul><li><span style="font-size: 0.875rem;">A fine up to RM50,000;</span><br></li><li><span style="font-size: 0.875rem;">A prison term of up to 3 years; or</span><br></li><li><span style="font-size: 0.875rem;">Both the fine and imprisonment.</span><br></li></ul></div><div><br></div><div><u>Failure to satisfy SST dues</u></div><div><ul><li><span style="font-size: 0.875rem;">A fine amounting to RM50,000;</span><br></li><li><span style="font-size: 0.875rem;">Imprisonment for up to 3 years; or</span><br></li><li><span style="font-size: 0.875rem;">Both.</span><br></li></ul></div><div><br></div><div>Furthermore, penalties will be imposed for late payments. Below is a tabulation of the penalty rates charged for varying durations of late payments:</div><div><ul><li><span style="font-size: 0.875rem;">1 - 30 days: 10%</span><br></li><li><span style="font-size: 0.875rem;">31 - 60 days: 15%</span><br></li><li><span style="font-size: 0.875rem;">61 - 90 days: 15%</span><br></li><li><span style="font-size: 0.875rem;">91 days and above: Maximum 40%</span><br></li></ul></div><div><br></div><div><b>Conclusion</b></div><div>The attention for service tax compliance should increase following the implementation of e-Invoicing. For goods sold by a foreign seller to a Malaysian buyer, in other words for importation of goods, the reference number of Customs Form No. 1 (K1) “Declaration of Goods Imported” is required to be stated in an e-Invoice. With real-time data and an informative database, the tax authority can now swiftly carry out audits and identify discrepancies, abnormal and peculiar transactions or even potential frauds through the e-Invoicing model as it provides a clear audit trail with improved traceability. What’s more, the Inland Revenue Board of Malaysia (IRBM) had made it clear since the start that pursuant to Section 138(4)(aa) of the Income Tax Act 1967, e-Invoicing information will be shared with the RMCD. Therefore, businesses are advised to pay heed to the service tax compliance requirements as they are required to include the necessary particulars under the applicable laws, rules and regulations of the Sales and Service Tax Act 2018 for e-Invoicing purposes and to avoid imposition of multifold penalties.</div>

Service Tax and Its Recent Implications on the Logistics Industry

Malaysia’s tax administration is undergoing a significant transformation, driven by greater self-assessment, digitalization and data-driven compliance. Against this backdrop, two Special Voluntary Disclosure Programmes (“SVDPs”) provide taxpayers with an important opportunity to identify and rectify historical compliance gaps: the Stamp Duty SVDP 2026 and the e-Invoicing SVDP.<div><br></div><div>While the two programmes address very different areas of tax compliance, they share a common objective, encouraging taxpayers to voluntarily review their compliance position, correct qualifying non-compliance and regularize their affairs without penalties, subject to the applicable conditions. However, these should not be viewed simply as penalty-waiver programmes.</div><div><br></div><div>For businesses, the more important opportunity is to use these SVDPs as a catalyst to conduct a broader compliance health check before Malaysia’s tax environment becomes increasingly self-assessed, digital and transparent.</div><div><br></div><div><b>Two SVDPs at a glance</b></div><div><i>(kindly refer to the table in the link below)</i></div><div><br></div><div>The distinction between the two deadlines is particularly important. Businesses should not assume that the longer e-Invoicing SVDP period also applies to Stamp Duty SVDP.</div><div><br></div><div><b>A. Stamp Duty SVDP 2026</b></div><div><u style="font-size: 0.875rem;">An opportunity to regularize historical instruments</u><br></div><div>The Stamp Duty SVDP was introduced as Malaysia transitions towards the Stamp Duty Self-Assessment System (“STSDS”). The programme initially ran from 1 January 2026 to 30 June 2026. On 26 June 2026, the Inland Revenue Board of Malaysia (“IRBM”) announced a further six-month extension until 31 December 2026.</div><div><br></div><div>According to the IRBM, the extension is intended to encourage voluntary stamping compliance while giving duty payers additional time to adapt to the implementation of STSDS. The programme therefore provides businesses and individuals with a limited opportunity to review historical instruments and regularize qualifying stamp duty non-compliance before the extended window closes.</div><div><br></div><div><u>What relief is available</u></div><div>Under the Stamp Duty SVDP, all eligible instruments executed between 1 January 2023 and 31 December 2025 may qualify for exemption from late-stamping penalties, subject to the prescribed conditions. The key conditions include:</div><div><ol><li><span style="font-size: 0.875rem;">Stamping and payment of the applicable stamp duty must be completed between 1 January 2026 and 31 December 2026; and</span><br></li><li><span style="font-size: 0.875rem;">The programme does not apply to cases involving fraud.</span><br></li></ol></div><div><br></div><div>Importantly, the SVDP provides a penalty exemption, not an exemption from the underlying stamp duty itself. Where an instrument is chargeable to stamp duty, the applicable duty remains payable. The relief relates to the penalty that would otherwise arise from late stamping.</div><div><br></div><div><u>What instruments should businesses review</u></div><div>Stamp duty is imposed on instruments rather than transactions in the abstract. Accordingly, businesses should conduct an instrument-by-instrument review of their legal and commercial documentation. Depending on the circumstances, potentially relevant documents may include:</div><div><ul><li><span style="font-size: 0.875rem;">Loan and financing agreements;</span><br></li><li><span style="font-size: 0.875rem;">Intercompany and intragroup agreements;</span><br></li><li><span style="font-size: 0.875rem;">Tenancy and lease agreements;</span><br></li><li><span style="font-size: 0.875rem;">Sale and purchase agreements;</span><br></li><li><span style="font-size: 0.875rem;">Service and commercial agreements;</span><br></li><li><span style="font-size: 0.875rem;">Employment-related instruments;</span><br></li><li><span style="font-size: 0.875rem;">Share transfer instruments; and</span><br></li><li><span style="font-size: 0.875rem;">Other written instruments potentially subject to fixed or ad valorem stamp duty.</span><br></li></ul></div><div><br></div><div>Businesses should avoid assuming that only major contracts require attention. Stamp duty gaps frequently arise because agreements are generated across different departments, including legal, finance, Human Resource (“HR”), procurement and operations, without a centralized process for determining whether stamping is required.</div><div><br></div><div><u>The 30-day stamping requirement</u></div><div>As a general rule, an instrument executed in Malaysia is required to be stamped within 30 days of execution. Where an instrument is executed outside Malaysia, stamping is generally required within 30 days after the instrument is first received in Malaysia. Failure to comply with the prescribed stamping timeframe may ordinarily result in late-stamping penalties.</div><div><br></div><div>The SVDP therefore provides a valuable opportunity to regularize qualifying historical instruments where those deadlines were previously missed.</div><div><br></div><div><u>What if an instrument was already submitted but remains unpaid</u></div><div>An important practical consideration arises where an instrument was submitted for stamping before the SVDP period but the applicable stamp duty and penalties remained unpaid. Based on the SVDP guidance, such cases may still qualify for the penalty exemption where the applicable conditions are satisfied and payment is completed within the prescribed programme period.</div><div><br></div><div>Businesses should therefore review not only unstamped documents, but also historical stamping applications where assessments or payments may remain outstanding.</div><div><br></div><div><u>Audit protection but not blanket immunity</u></div><div>One of the most significant features of the Stamp Duty SVDP is the audit treatment. The IRBM has stated that eligible instruments executed between 1 January 2023 and 31 December 2025 and stamped under the SVDP will not be audited. However, this protection is specific to the instruments regularized under the programme. The IRBM may still audit other instruments that were not stamped or disclosed under the SVDP. This distinction is critical.</div><div><br></div><div>A business that regularizes only a handful of agreements may still remain exposed if other potentially dutiable instruments have not been identified. The more defensible approach is therefore to conduct a comprehensive historical document review before deciding what should be submitted under the programme.</div><div><br></div><div><u>Do not wait until December</u></div><div>The IRBM has specifically encouraged duty payers to submit their stamping applications and make payment early. This is because the relevant notice of assessment must be issued and the stamp duty payment completed within the prescribed SVDP period.</div><div><br></div><div>Businesses should therefore not interpret 31 December 2026 merely as a document-submission deadline. Adequate processing time should be factored into the regularization exercise.</div><div><br></div><div><b>B. e-Invoicing SVDP</b></div><div><u>A penalty-free opportunity to correct e-invoicing compliance gaps</u></div><div>On 7 July 2026, the IRBM introduced the e-Invoicing Special Voluntary Disclosure Programme, which runs until 31 December 2027.</div><div><br></div><div>The programme recognizes that e-Invoicing non-compliance can arise in several ways. A taxpayer may have implemented e-Invoicing but missed certain transactions. Another may have submitted e-Invoices containing incorrect information. Others may have failed to implement the requirements altogether. The e-Invoicing SVDP provides qualifying taxpayers with an opportunity to regularize these historical gaps, subject to strict conditions.</div><div><br></div><div><u>Who can participate</u></div><div>According to the IRBM e-Invoice Specific Guideline, the SVDP applies to four broad categories of taxpayers:</div><div><ol><li><span style="font-size: 0.875rem;">Taxpayers who have not submitted or have missed submitting e-Invoices for any period commencing from their mandatory implementation date;</span><br></li><li><span style="font-size: 0.875rem;">Taxpayers who submitted e-Invoices containing errors or information that does not comply with the prescribed specifications and requirements;</span><br></li><li><span style="font-size: 0.875rem;">Taxpayers who have not submitted any e-Invoices for any period or transaction commencing from their mandatory implementation date; and</span><br></li><li><span style="font-size: 0.875rem;">Taxpayers who are currently undergoing, or have already been notified by IRBM that they will undergo, an e-Invoice compliance review.</span><br></li></ol></div><div><br></div><div>The fourth category is particularly significant. It means that the programme is not necessarily restricted only to taxpayers who come forward before any compliance review begins. Taxpayers already within the compliance-review process may potentially fall within the SVDP, subject to satisfying the applicable requirements.</div><div><br></div><div><u>What protection does the e-invoicing SVDP provide</u></div><div>The relief goes beyond a simple penalty waiver. The IRBM states that e-Invoice compliance reviews and enforcement actions, including the imposition of penalties and prosecution actions, will not be undertaken in relation to e-Invoices disclosed under the SVDP, subject to the applicable conditions. This is potentially significant protection.</div><div><br></div><div>However, it is not unconditional. The IRBM expressly requires taxpayers to act in good faith, and taxpayers remain responsible for ensuring that their voluntary disclosures are accurate and properly submitted. Hence, this is not a blanket amnesty. The protection will not apply where:</div><div><ol><li><span style="font-size: 0.875rem;">The e-Invoices submitted under the SVDP do not comply with the specifications and requirements prescribed under the relevant tax legislation, e-Invoice Guideline and e-Invoice Specific Guideline; or</span><br></li><li><span style="font-size: 0.875rem;">The voluntary disclosure involves fraud, wilful default or negligence.</span><br></li></ol></div><div><br></div><div>This is one of the most important technical aspects of the programme. The mere submission of previously omitted historical e-Invoices does not, in itself, guarantee protection under the SVDP. The quality and accuracy of the remediation matter. A rushed disclosure containing further errors may itself fail to satisfy the conditions of the SVDP.</div><div><br></div><div><b>C. A practical e-invoicing SVDP review</b></div><div>One of the biggest misconceptions businesses should avoid is equating system implementation with tax compliance. A business may have successfully connected its ERP, accounting software or POS system to MyInvois and still have significant compliance gaps. Potential weaknesses may include:</div><div><ul><li><span style="font-size: 0.875rem;">ERP-to-MyInvois integration failures;</span><br></li><li><span style="font-size: 0.875rem;">Missing transactions;</span><br></li><li><span style="font-size: 0.875rem;">Incorrect field mapping;</span><br></li><li><span style="font-size: 0.875rem;">Misclassified transaction types;</span><br></li><li><span style="font-size: 0.875rem;">Incorrect use of Consolidated e-Invoices;</span><br></li><li><span style="font-size: 0.875rem;">Failure to issue transactional e-Invoices where required;</span><br></li><li><span style="font-size: 0.875rem;">Failure to issue Self-Billed e-Invoices;</span><br></li><li><span style="font-size: 0.875rem;">Incorrect buyer or supplier information;</span><br></li><li><span style="font-size: 0.875rem;">Incorrect treatment of foreign transactions;</span><br></li><li><span style="font-size: 0.875rem;">Incorrect credit notes, debit notes or refund notes; and</span><br></li><li><span style="font-size: 0.875rem;">Internal SOPs that do not reflect the latest e-Invoicing requirements.</span><br></li></ul></div><div><br></div><div>The SVDP therefore creates an opportunity to conduct a look-back compliance review from the taxpayer’s mandatory implementation date. Businesses should undertake a structured review and reconciliation of their historical e-Invoicing records prior to making any submissions under the SVDP. A structured review should compare accounting / Enterprise Resource Planning (“ERP”) records with actual transactions, invoices issued and MyInvois submissions. Differences should then be classified as follows:</div><div><ol><li><span style="font-size: 0.875rem;"><b>Missing</b>: Transactions where an e-Invoice should have been issued but was not.</span><br></li><li><span style="font-size: 0.875rem;"><b>Incorrect</b>: An e-Invoice was submitted, but the information was inaccurate or did not comply with the prescribed requirements.</span><br></li><li><span style="font-size: 0.875rem;"><b>Misclassified</b>: An e-Invoice was issued, but the wrong treatment was applied, for example, consolidation was used where a transactional e-Invoice was required.</span><br></li><li><span style="font-size: 0.875rem;"><b>Systemic</b>: Recurring errors caused by ERP configuration, incomplete field mapping, incorrect Standard Operating Procedures (“SOPs”) or other process weaknesses.</span><br></li></ol></div><div><br></div><div>This distinction is important because correcting historical invoices without correcting the underlying process only solves half the problem. If an ERP has systematically failed to identify a category of Self-Billed transactions, clearing the historical backlog will not prevent the same error from recurring next month.</div><div><br></div><div><b>D. Two SVDPs, one broader direction</b></div><div>At first glance, Stamp Duty and e-Invoicing have little in common. One concerns legal instruments. The other concerns digital transaction reporting. However, both programmes point towards the same broader evolution in Malaysian tax administration.</div><div><br></div><div><u>Greater responsibility on taxpayers</u></div><div>Malaysia is increasingly moving towards a compliance environment where taxpayers are expected to identify, assess and correct their own tax obligations. The Stamp Duty Self-Assessment System is a clear example of this direction. Similarly, e-Invoicing requires businesses to correctly classify and report transaction-level information according to prescribed requirements. Taxpayers are increasingly expected to assume greater responsibility for ensuring compliance with their respective tax and regulatory obligations.</div><div><br></div><div><u>Greater digital visibility</u></div><div>e-Invoicing provides the IRBM with structured transaction information, while the administration of stamp duty is simultaneously becoming increasingly digital and self-assessed. Businesses should therefore ensure that their commercial agreements, accounting records, tax positions, and e-Invoicing data are consistent with one another.</div><div><br></div><div>The issuance of an e-Invoice does not, in itself, necessarily indicate the existence of an unstamped instrument. Nevertheless, the increasing digitalization of tax administration and adoption of structured reporting are expected to enhance tax transparency and enable greater visibility over potential compliance inconsistencies.</div><div><br></div><div><u>Voluntary correction before stronger enforcement</u></div><div>Both SVDPs provide taxpayers with an opportunity to correct qualifying historical compliance shortcomings voluntarily. Nevertheless, neither programme should be mistaken for permanent relief.</div><div><br></div><div><b>E. The biggest mistake: Treating SVDP as a filing exercise</b></div><div>The biggest mistake businesses can make is treating either programme as an administrative exercise to “clear a backlog”. For Stamp Duty, submitting only agreements already known to be unstamped may create a false sense of security if other dutiable instruments remain unidentified. For e-Invoicing, bulk-submitting missing invoices without first determining the correct technical treatment may result in inaccurate remediation, potentially jeopardizing the protection intended under the SVDP.</div><div><br></div><div>The better approach is:</div><div><i>(kindly refer to diagram in the link below)</i></div><div><br></div><div>The real value of both programmes is therefore not merely the avoidance of penalties. It is the opportunity to establish a more defensible compliance position before the respective SVDP windows close.</div><div><br></div><div><b>Conclusion</b></div><div>The Stamp Duty SVDP provides taxpayers with a window until 31 December 2026 to regularize eligible historical instruments with full exemption from applicable late-stamping penalties.</div><div><br></div><div>The e-Invoicing SVDP provides taxpayers until 31 December 2027 to voluntarily correct qualifying historical e-Invoicing non-compliance, with protection from e-Invoice compliance reviews and enforcement actions, including penalties and prosecution, in relation to qualifying disclosures, subject to the prescribed conditions.</div><div><br></div><div>However, the opportunity goes beyond penalty relief. Businesses should use these programmes to review historical compliance, identify systemic weaknesses, rectify qualifying gaps and strengthen internal controls going forward. In an increasingly self-assessed, digitalized and data-driven tax environment, businesses should adopt a proactive approach towards identifying and addressing potential compliance gaps, rather than awaiting the commencement of an audit or enforcement action. Businesses should therefore consider whether their records, systems, processes and supporting documentation are sufficiently robust to withstand regulatory scrutiny.</div><div><br></div><div><i>Two SVDPs. Two deadlines. One opportunity to strengthen compliance.</i></div>

Two SVDPs, One Compliance Opportunity: Navigating Malaysia’s Stamp Duty & e-Invoicing Voluntary Disclosure Programmes

<b>Key takeaways</b><div><ul><li><span style="font-size: 0.875rem;">e-Invoicing refers to the electronic generation and transmission of an invoice between a supplier and a buyer. It is applicable to all taxpayers undertaking commercial activities in Malaysia for both domestic and international transactions.</span><br></li><li><span style="font-size: 0.875rem;">Businesses need to exercise care in ensuring the proper implementation of e-Invoicing as it may be complicated depending on the complexity and volume of businesses' transactions. There is no one-size fits all approach.</span><br></li><li><span style="font-size: 0.875rem;">Consequences of non-compliance could present to be hefty on businesses as follows: “Failure to issue e-Invoice is an offence under Section 120(1)(d) of the Income Tax Act 1967 and will result in a fine of not less that RM200 and not more than RM20,000 or imprisonment not exceeding 6 months or both, for each non-compliance.”</span><br></li><li><span style="font-size: 0.875rem;">The Internal Revenue Board of Malaysia (IRBM), tax authority will be able analyze the data and perform risk assessments to identify irregular patterns, high-risk scores and compliance discrepancies to trigger tax audits and investigations.</span><br></li></ul></div><div><br></div><div><b>e-Invoicing in Malaysia</b></div><div>This year, Malaysia has seen multiple shifts in terms of tax administration, and one spotlight is on e-Invoicing. e-Invoicing refers to the electronic generation and transmission of an invoice between a supplier and a buyer. It is applicable to all taxpayers undertaking commercial activities in Malaysia for both domestic and international transactions.&nbsp;</div><div><br></div><div>The scope of e-Invoicing includes:</div><div><ol><li><span style="font-size: 0.875rem;">Business-to-Government (B2G)	</span><br></li><li><span style="font-size: 0.875rem;">Business-to-Business (B2B)	</span><br></li><li><span style="font-size: 0.875rem;">Business-to-Consumer (B2C)</span><br></li></ol></div><div><br></div><div>The aim of this initiative by the Inland Revenue Board of Malaysia (IRBM) is to streamline business transactions and improve tax compliance which in turn diminishes and over the longer run eliminates tax avoidance and leakages and the shadow economy. e-Invoicing is used as a means to optimize tax administration and to close the gaps in tax declarations in order to ensure everyone pays their fair share of taxes.</div><div><br></div><div>Businesses are encouraged to adopt to e-Invoicing as it improves accuracy, enhances efficiency, and reduces costs associated with paper-based invoicing. By the beginning of the third-quarter of 2025, Malaysia will see the full implementation of e-Invoicing.</div><div><br></div><div>The diagram below shows the implementation timeline by phases according to the taxpayers’ revenue threshold:</div><div>1st August 2024 (Taxpayers with annual revenue more than RM100 million)</div><div>1st January 2025 (Taxpayers with annual revenue between RM25 million to RM100 million)</div><div>1st July 2025 (All other  taxpayers)</div><div><span style="font-size: 0.875rem;"><br></span></div><div><span style="font-size: 0.875rem;">With e-Invoicing, businesses are required to comply with certain guidelines and it varies according to transactions and across various industry sectors.</span></div><div><br></div><div>A summary of the available guidelines and Frequently Asked Questions (FAQs) by the IRBM providing step-by-step guidance are as follows:</div><div><br></div><div><b>Guidelines</b>	</div><div><ol><li><span style="font-size: 0.875rem;">e-Invoice Guideline </span><span style="font-size: 0.875rem;">(version 3.2) </span><span style="font-size: 0.875rem;">Published on 30th July 2024</span></li><li><span style="font-size: 0.875rem;">e-Invoice Specific Guideline </span><span style="font-size: 0.875rem;">(version 3.0) </span><span style="font-size: 0.875rem;">Published on 30th July 2024</span></li></ol></div><div><br></div><div><b>FAQs</b></div><div><ol><li><span style="font-size: 0.875rem;">General FAQs (</span><span style="font-size: 0.875rem;">Updated on 19th July 2024)</span></li><li><span style="font-size: 0.875rem;">Industry Specific FAQs</span></li></ol></div><div><ul><li><span style="font-size: 0.875rem;">Healthcare</span><br></li><li><span style="font-size: 0.875rem;">Construction</span><br></li><li><span style="font-size: 0.875rem;">Telecommunication</span><br></li><li><span style="font-size: 0.875rem;">e-Commerce</span><br></li><li><span style="font-size: 0.875rem;">Petroleum Operations</span><br></li><li><span style="font-size: 0.875rem;">Insurance and Takaful</span><br></li><li><span style="font-size: 0.875rem;">Aviation</span><br></li><li><span style="font-size: 0.875rem;">Tourism</span><br></li><li><span style="font-size: 0.875rem;">Financial Services, Stockbroking and Unit Trust</span><br></li></ul></div><div><br></div><div><b>Software Development Kit (SDK)</b></div><div><ol><li><span style="font-size: 0.875rem;">SDK </span><span style="font-size: 0.875rem;">(version 1.0) </span><span style="font-size: 0.875rem;">Updated on 10th August 2024</span><br></li><li><span style="font-size: 0.875rem;">SDK FAQs</span><br></li></ol></div><div><br></div><div><b>The Onus on Businesses</b></div><div>The given comprehensive and detailed guidance above indicates that it is now the responsibility of businesses to ensure the authenticity, integrity, and readability of their e-Invoices. In light of this, businesses would need to exercise care in ensuring the proper implementation of e-Invoicing as it may be complicated depending on the complexity and volume of businesses' transactions. There is no one-size-fits-all approach for businesses when it comes to e-Invoicing as transaction scenarios and parties varies accordingly and the treatment for one business may not be the same with another.</div><div><br></div><div><b>Considerations for Pre-Implementation</b></div><div>For businesses that are yet to implement e-Invoicing, below are some consideration points for the planning and smooth implementation of e-Invoicing:</div><div><ol><li><span style="font-size: 0.875rem;"><b>Review current business processes</b>: </span><span style="font-size: 0.875rem;">To understand the nature pf transactions and identify respective e-Invoicing treatments.</span></li><li><span style="font-size: 0.875rem;"><b>Perform internal audits</b>: </span><span style="font-size: 0.875rem;">To identify any gaps that may disrupt the e-Invoicing compliance.</span></li><li><span style="font-size: 0.875rem;"><b>Review and update internal policies, procedures, and controls</b>: </span><span style="font-size: 0.875rem;">Where necessary, to align with e-Invoicing requirements.</span></li><li><span style="font-size: 0.875rem;"><b>System upgrades and integration</b>: </span><span style="font-size: 0.875rem;">Assess current IT capabilities for system readiness.</span></li><li><span style="font-size: 0.875rem;"><b>Training</b>: </span><span style="font-size: 0.875rem;">To allocate and equip employees with the knowledge of the matter at hand.</span></li></ol></div><div><br></div><div>Therefore, businesses should ensure that proper and early measures are taken for the preparation of e-Invoicing as the implementation process may be lengthy depending on the nature and complexity of businesses. Businesses should undergo thorough and careful planning to stay compliant.</div><div><br></div><div><b>Suggestions for Post-Implementation</b></div><div>Notwithstanding the challenges encountered by businesses during the implementation stage, challenges also present in post-implementing e-Invoicing.</div><div><br></div><div>The diagram below summarizes the challenges that arises during the post-implementation stage:</div><div><ol><li><span style="font-size: 0.875rem;">To ensure that the data provided are complete and correct.</span><br></li><li><span style="font-size: 0.875rem;">To employ the correct e-Invoicing treatments.	</span><br></li><li><span style="font-size: 0.875rem;">To fulfill the respective submission deadlines.	</span><br></li><li><span style="font-size: 0.875rem;">To maintain proper documentations for proof of income and expenses.	</span><br></li><li><span style="font-size: 0.875rem;">To conduct regular reconciliations to identify any discrepancies.</span><br></li></ol></div><div><br></div><div><b>Consequences of Non-Compliance</b></div><div>Businesses should devote additional time during the early stages of e-Invoicing to continuously monitor for any improvement of processes and potential non-compliance areas, and to take necessary actions to correct while it is still early. It is essential and necessary for businesses to fully and accurately comply with the e-Invoicing guidelines as the consequences of non-compliance could present to be hefty on businesses as follows:</div><div><br></div><div><i>“Failure to issue e-Invoice is an offence under Section 120(1)(d) of the Income Tax Act 1967 and will result in a fine of not less that RM200 and not more than RM20,000 or imprisonment not exceeding 6 months or both, for each non-compliance.”</i></div><div><br></div><div>Businesses should be aware that the penalty is imposed for each non-compliance, hence multiple instances of non-compliance would lead the penalties to be multiplied manyfold. Therefore, businesses should not turn a blind eye or neglect the compliance requirements of e-Invoicing as the foremost reason it is mandatorily being implemented is to mitigate tax evasion and ensuring efficient revenue collection.</div><div><br></div><div><b>Tax Audits Through e-Invoicing</b></div><div>The structure of the e-Invoicing model allows it to capture real-time or near real-time data for each and every transaction, thus preparing a readily available database that allows the tax authority to look on at anytime and anywhere without now having the need to request and wait for documentations and information from taxpayers. Hence, a massive reduction on the lead time to obtain information and for audit processes. This immediate access allows quicker scrutinization and identification of abnormal, peculiar and irregular transactions or even potential frauds, as it provides a clear audit trail with improved traceability.</div><div><br></div><div>Therefore, alongside the implementation of e-Invoicing, it is foreseen that tax audits will increase in times to come. This is due to the tax authority now possessing an automated data collection and processing system which directly collects invoices data hence having detailed information on transactions, and subsequently aggregating the data across multiple transactions, sectors, and businesses, to create a comprehensive view of economic activities.</div><div><br></div><div>The tax authority will then be able to analyze the data and perform risk assessments through the following methods:</div><div><ol><li><span style="font-size: 0.875rem;"><b>Pattern Recognition</b>: </span><span style="font-size: 0.875rem;">The use of advanced algorithms and data analytics tools to examine and identify trends, patterns, and abnormalities such as unusual transaction volumes, inconsistent pricing, or frequent issuance of credit notes.	</span></li><li><span style="font-size: 0.875rem;"><b>Risk Scoring</b>: Businesses are given risk scores based on various elements such as irregularities of transactions, inconsistencies between reported income and invoiced amounts, and deviation from industry norms.	</span></li><li><span style="font-size: 0.875rem;"><b>Compliance Checks</b>: Cross-references will be made between e-Invoicing data with other tax filings (e.g., corporate tax filings and SST returns) to ensure consistency.</span></li></ol></div><div><br></div><div>Based on their analyzed data, irregular patterns, high-risk scores and compliance discrepancies can <span style="font-size: 0.875rem;">automatically trigger a tax audit. Instances where significant under-reporting of income as compared to e-Invoicing data, exceeding certain thresholds (e.g., transaction volume, or value of exports or imports) without corresponding tax declarations, and when a business’s activities deviate significantly from the industry’s benchmarks, these occurrences raise red flags for the tax authority to scrutinize further.</span></div><div><br></div><div>Once the tax authority has commenced audit, they may request for additional documentations to verify the accuracy of the e-Invoicing data. In some instances, they may carry out field audits which are on-site visits to business premises for confirmation of business operations whether in line with the data provided through e-Invoicing and to inspect records. The tax authority may even perform data matching with third-party information to further validate the records.</div><div><br></div><div>Should there be discrepancies, measures will be taken by the tax authority for collection of unpaid taxes together with imposition of penalties. Businesses would be liable under Subsection 113(2) of the Income Tax Act 1967 (ITA 1967) for submission of incorrect tax return, or if the taxpayer had failed to furnish the tax return, a penalty under Subsection 112(3) of the ITA 1967. Furthermore, if the taxpayer were found not complying with the e-Invoicing requirements at the same juncture, the taxpayer would be imposed with additional penalties under Section 120(1)(d) of the ITA 1967.</div><div><br></div><div>Where in cases of fraud or severe non-compliance, legal actions may be initiated. However, the process does not end here as the tax authority will be continuously monitoring the business by conducting post-audit surveillances and keeping the business under closer scrutiny to closely monitoring their e-Invoicing data to prevent future non-compliance.</div><div><br></div><div>Thus, it is important for businesses to ensure they are aware of e-Invoicing compliance requirements as the onus lies on businesses and it is crucial for businesses to ensure adherence with the guidelines to reduce the likelihood of a potential non-compliance that could trigger a tax audit and the repercussions that arises thereof.</div><div><br></div><div><b>e-Invoicing Globally</b></div><div>In near time, e-Invoicing will be inevitable as it is not only evolving rapidly in Malaysia, but also worldwide as governments are increasing the mandate on e-Invoicing, and this trend is expected to continue leading to near-universal adoption.</div><div><br></div><div>Nevertheless, there is no universal model for e-Invoicing to be conformed to by countries. Therefore, countries have taken on their respective approaches whereby adjusting their e-Invoicing models to satisfy their distinct economic, regulatory, and technological needs.</div><div><br></div><div>The summary in the link below shows the comparison of e-Invoicing models among regions.</div><div><br></div><div>Delving into the e-Invoicing models of several countries across the regions, the table in the link below summarizes the distinct characteristics of their models. </div><div><br></div><div><b>Adaptation to e-Invoicing in Malaysia</b></div><div><span style="font-size: 0.875rem;">Though a challenge, our Malaysian businesses should use this circumstance as a stepping stone towards digitalization as the digital revolution has changed the way our tax administration presently operates and to be operated in the future. Adopting to e-Invoicing not only achieves better tax compliance, but rather it brings other advantages for businesses in the long term such as increased efficiency, sustainability and integration in business processes. Our tax authority presently allows taxpayers to continue claiming for tax deductions without an e-Invoice, that is using existing documentations, however it has been made clear that this authorization is only limited until such time that the legislation is amended. This undoubtedly indicates that in near time e-Invoices will be compulsory for tax deduction purposes and one would be denied a deduction should there be no e-Invoices. With this pace, e-Invoicing is set to be an indispensable tool for modern businesses in the future.</span></div>

e-Invoicing and the Future of Tax Audits

Effective 1 July 2025, rental and leasing services will be subject to an 8% service tax under Group K, First Schedule of the Service Tax Regulations (STR) 2018. This marks a significant expansion of the service tax regime, impacting a wide range of businesses engaged in leasing or renting tangible assets in Malaysia.<div><br></div><div><b>Who is affected</b></div><div>All persons providing rental or leasing services, excluding the Federal Government, State Governments and Local Authorities, will be liable for service tax once their annual taxable turnover exceeds the registration threshold. The threshold, initially set at RM500,000, has now been revised upward to RM1 million over a 12-month period.</div><div><br></div><div>Rental or leasing services refer to any arrangement (written or verbal) in which one party grants another the right to use a tangible asset for a specified period.</div><div><br></div><div><b>What services are taxable</b></div><div>Taxable rental and leasing services include:</div><div><ul><li><span style="font-size: 0.875rem;">Renting or leasing tangible assets located in Malaysia to both local and overseas customers.</span><br></li><li><span style="font-size: 0.875rem;">Providing rental services that include maintenance, repairs or other related services.</span><br></li><li><span style="font-size: 0.875rem;">Rental of animals or plants.</span><br></li><li><span style="font-size: 0.875rem;">Importing rental or leasing services from overseas.</span><br></li><li><span style="font-size: 0.875rem;">Operating leases.</span><br></li></ul></div><div><br></div><div>The list is not exhaustive and covers any rental or leasing service integral to the arrangement between a registered person and their customer.</div><div><br></div><div><b>What services are not taxable</b></div><div>The following rental or leasing services fall outside the scope of service tax:</div><div><ul><li><span style="font-size: 0.875rem;">Rental or leasing of housing accommodations (e.g. terrace houses, apartments, bungalows, condominiums, serviced suites, etc.).</span><br></li><li><span style="font-size: 0.875rem;">Rental of reading materials.</span><br></li><li><span style="font-size: 0.875rem;">Rental or leasing of assets located outside Malaysia.</span><br></li><li><span style="font-size: 0.875rem;">Rental or leasing services between Special Areas or Designated Areas (e.g. free zones).</span><br></li><li><span style="font-size: 0.875rem;">Financial leasing services, which involve the transfer of asset ownership at the end of the lease.</span><br></li></ul></div><div><br></div><div><b>Exemptions</b></div><div>Several exemptions are available under the revised framework:</div><div><ol><li><span style="font-size: 0.875rem;"><b>Government-related Services</b>: The Federal Government and State Governments are exempted from both charging and paying service tax. Local Authorities are also granted an exemption from charging and paying service tax, but only for the period from 1 July 2025 to 30 September 2025. Effective 1 October 2025, any services provided or acquired by local authorities will be subject to service tax.</span></li><li><span style="font-size: 0.875rem;"><b>Business-to-Business (B2B) Subleasing</b>: Under the Service Tax Order (Persons Exempted from Payment of Tax) 2018, registered persons under Group K who sublet or sublease the same type of taxable service (not for personal use) may qualify for exemption, provided certain conditions are met. Where the premises are sublet or sublease partially, the exemption applies solely to the sublet or sublease portion. In cases where no sublet or sublease takes place during a taxable period, the business must self-account and declare the service tax accordingly.</span></li><li><span style="font-size: 0.875rem;"><b>Micro and Small Enterprises</b>: Businesses with an annual turnover below RM1 million renting from registered persons may enjoy an exemption, subject to specified conditions. One key condition is that the tenant must submit a declaration and register via the MyPMK system developed by the Royal Malaysian Customs Department (RMCD). [Subsection 34(3) Service Tax Act (STA) 2018]</span></li><li><span style="font-size: 0.875rem;"><b>Non-reviewable Contracts</b> (contracts without price revision clause): Exemption for a transitional period of one (1) year [1 July 2025 to 30 June 2026], subject to prescribed conditions. Services provided from 1 July 2026 onwards are subject to service tax. [Subsection 34(3) STA 2018]</span></li><li><span style="font-size: 0.875rem;"><b>Group Relief</b>: Rental or leasing services provided by one company to another within the same corporate group may qualify for group relief, whereby such services are exempted from service tax, subject to conditions.</span></li><li><span style="font-size: 0.875rem;"><b>Exemption from Compound, Prosecution and Penalty (until 31 December 2025)</b>: Businesses may be eligible for an exemption from compound, prosecution and penalty for certain offences committed up to 31 December 2025. The offences covered under this exemption include late registration, late submission of returns, late payment, incorrect declarations (such as under-declaration or underpayment), as well as errors related to invoices, credit notes or debit notes. This exemption is subject to specific conditions.</span></li></ol></div><div><br></div><div><b>Transitional provisions</b></div><div>For lease or rental agreements spanning before and after 1 July 2025, only the portion of services provided from 1 July 2025 onwards will be subject to service tax. Advance payments made prior to this date for post-1 July 2025 services will not be taxed.</div><div><br></div><div><b>Administrative responsibilities</b></div><div>For new registrants, total taxable turnover must be assessed over a rolling 12-month period (current month and next eleven (11) months). If the total exceeds RM1 million, registration is mandatory by the end of the following month.</div><div><br></div><div>Registered persons must:</div><div><ul><li><span style="font-size: 0.875rem;">Charge and collect service tax on taxable services.</span><br></li><li><span style="font-size: 0.875rem;">Issue invoices as prescribed under the STA 2018.</span><br></li><li><span style="font-size: 0.875rem;">Submit SST-02 returns electronically and pay service tax by the due date.</span><br></li><li><span style="font-size: 0.875rem;">Maintain proper records for seven (7) years.</span><br></li></ul></div><div><br></div><div>Those already registered under other taxable services must update their registration to include Group K (rental or leasing services).</div><div><br></div><div><b>Accounting for service tax</b></div><div>Service tax must be accounted for:</div><div><ul><li><span style="font-size: 0.875rem;">Upon receiving payment; or</span><br></li><li><span style="font-size: 0.875rem;">After 12 months from the date of service provision if payment is not received, whichever comes first.</span><br></li></ul></div><div><br></div><div>For imported services, tax is due upon receipt of invoice or payment made, whichever occurs earlier.</div><div><b><br></b></div><div><b>Sector-specific changes</b></div><div>Several key updates have been made to rental-related services across different categories:</div><div><ol><li><span style="font-size: 0.875rem;"><b>Rental of Space</b>: Effective 1 July 2025, rental of space previously under Group B has now been reclassified under Group K.</span></li><li><span style="font-size: 0.875rem;"><b>Passenger Vehicle Rentals</b>: Services such as hire and drive car rentals, charter bus services and excursion bus services, previously under Group I, will also fall under Group K.</span></li><li><span style="font-size: 0.875rem;"><b>Licensing Requirements Removed</b>: Effective 1 July 2025, the requirement to be licensed under the Land Public Transport Act 2010, the Commercial Vehicles Licensing Board Act 1987 or the Tourism Vehicles Licensing Act 1999 is no longer a condition for liability to register. Any person providing hire and drive car services, charter bus services or excursion bus services must register for service tax if the value of such services exceeds the prescribed threshold.</span></li><li><span style="font-size: 0.875rem;"><b>Hire Car Services</b>: These will no longer be considered taxable services effective 1 July 2025.</span></li></ol></div><div><br></div><div><b>Additional clarifications</b></div><div><ul><li><span style="font-size: 0.875rem;"><b>Refundable Deposits</b>: Not subject to service tax unless it forms part of the payment.</span><br></li><li><span style="font-size: 0.875rem;"><b>Penalties for Late Payment of Rental</b>: These are not considered a provision of taxable services and therefore not subject to service tax.</span><br></li></ul></div><div><br></div><div><b>What should businesses do</b></div><div>Businesses involved in rental or leasing services should reassess their taxable turnover in light of the revised RM1 million threshold. Those meeting the criteria must register under the STA 2018 and begin complying with invoicing, filing and payment obligations.</div>

<div><i>Technical Insights by <b>Pugaleshwaran Raja Kumaran</b>, Executive Director, Tax and <b>Steffi Manisha Arokiam</b>, Tax Director at ThinkTx</i><br></div>

Starting 1 July: Rental and Leasing Services Now Subject to 8% Service Tax

<u>Key Takeaways</u><div><ul><li><span style="font-size: 0.875rem;"><b>Challenges of High-Net-Worth Individuals</b>: Individuals with substantial wealth, known as high-net-worth individuals, face unique challenges due to complex financial structures, diverse income streams, and significant assets. The Inland Revenue Board of Malaysia (IRBM) conducts thorough tax investigations for such individuals to ensure compliance and transparency.</span><br></li><li><span style="font-size: 0.875rem;"><b>Tax Investigation</b>: Tax investigation is a crucial tool for ensuring tax compliance, where the IRBM conducts a thorough examination to detect and prevent tax evasion and fraud. Factors triggering investigations include inconsistencies in tax returns, industry-based investigations, and information from third parties.</span><br></li><li><span style="font-size: 0.875rem;"><b>Inconsistency of Income with Assets Owned</b>: Inconsistencies in income with owned assets can trigger tax investigations. The IRBM has special powers to access individuals' properties and financial records to assess their assets and income capacity, potentially uncovering tax discrepancies.</span><br></li><li><span style="font-size: 0.875rem;"><b>Capital Statement</b>: A capital statement provides a detailed overview of an individual's financial position, including assets, liabilities, income, and expenditures. It is essential for high-net-worth individuals to maintain accurate and detailed capital statements to support their tax filings and demonstrate transparency.</span><br></li><li><span style="font-size: 0.875rem;"><b>Impact of AI in Tax Administration</b>: The IRBM is exploring the use of AI-assisted asset tracking and identifying technology to enhance the process of examining asset declarations and detecting hidden or undeclared wealth. Understanding tax investigation processes is crucial for professionals and citizens to contribute to a transparent and equitable economic system.</span><br></li></ul></div><div><div><br></div><div><u>Introduction</u></div><div><span style="font-size: 0.875rem;">In the field of tax investigation, extraordinary wealth presents unique challenges for an individual. An individual who possess substantial wealth are commonly known as high-net-worth individuals. These individuals often have complex financial structures, diverse income streams and significant assets. This complexity leads to a more thorough scrutinization approach by our tax authority, the Inland Revenue Board of Malaysia (IRBM) rather than a regular tax audit which is a formal examination, to ensure proper compliance and transparency.</span></div><div><br></div><div><b>Extraordinary wealth</b> refers to a level of financial assets, income and investments that significantly exceeds the average within a given population.</div><div><br></div><div>This wealth may be accumulated from the following forms:</div><div><ol><li><span style="font-size: 0.875rem;"><b>Diverse Asset Portfolios</b>: </span><span style="font-size: 0.875rem;">Extensive investments in real estate, stocks, bonds, private equity and luxury assets such as yachts and art.	</span></li><li><span style="font-size: 0.875rem;"><b>Multiple Income Streams</b>: </span><span style="font-size: 0.875rem;">Earnings from various sources, including business profits, dividends, interests, royalties and capital gains.</span></li><li><span style="font-size: 0.875rem;"><b>Complex Financial Structures</b>: </span><span style="font-size: 0.875rem;">Use of trusts, offshore accounts and intricate corporate structures to manage and protect wealth.</span></li><li><span style="font-size: 0.875rem;"><b>Significant Expenditures</b>: </span><span style="font-size: 0.875rem;">High level of spending on luxury goods, philantrophy and lifestyle maintenance.</span></li></ol></div><div><br></div><div><u>Tax Investigation</u></div><div>With such complex and intricating routes, one of the crucial tools in ensuring tax compliance is tax investigation. A tax investigation is a thorough examination conducted by the IRBM to ensure that individuals accurately report their income and comply with tax laws and regulations. The primary objective is to detect and prevent tax evasion and fraud. This investigation can be triggered by various factors, including discrepancies in tax returns, random selections, industry-based investigations or information received from third parties.</div><div><br></div><div>One primary set off is inconsistency of income with assets owned. This includes inconsistencies with lifestyle, spending patterns and unexplainable surprise wealth. The IRBM with its special powers conferred under Section 78, 79, 80 and 81 of the Income Tax Act 1967 allows full access to any individual’s properties and personal records at any point of time and being able to obtain information from businesses and financial institutions that individuals transacted with, regardless of the level of confidentiality. Such accessibility allows the IRBM to assess the individual’s assets and identify the income capacity required to maintain such lifestyle. Such assessment could correspondently uncover discrepancies which then leads to the identification of taxes evaded by an individual.</div><div><br></div><div><u>Capital Statement</u></div><div>This is where a capital statement emerges in investigating high-net-worth individuals. This approach provides a detailed and comprehensive overview of an individual's financial position over a specific period. It demonstrates a transparent record of assets, liabilities, income and expenditures. This statement typically includes detailed information about capital gains and other transactions that affect the capital aspect of taxation. This meticulous document covers all aspects of financial activities which the IRBM eagerly examines to reveal any underreported or hidden assets that may not be apparent through the individual’s standard tax filing.</div><div><br></div><div>A capital statement comprises of two (2) forms:</div><div><ol><li><span style="font-size: 0.875rem;"><b>CP102</b> – Statement of personal and private expenses, income and earnings.	</span><br></li><li><span style="font-size: 0.875rem;"><b>CP103</b> – Statement of net assets (year-end balance of assets and liabilities).</span><br></li></ol></div><div><i>Note: The usual practice of preparation would be for five (5) years of assessment.</i></div><div><br></div><div><span style="font-size: 0.875rem;">The detailed components of the capital statement is as follows:</span></div><div><ol><li><span style="font-size: 0.875rem;"><b>Assets</b>: Includes cash in hand, bank balances, investments, properties, vehicles, jewelleries, and other valuable possessions.</span><br></li><li><span style="font-size: 0.875rem;"><b>Liabilities</b>: Covers property loans, hire purchase loans, credit card debts and other financial obligations.</span><br></li><li><span style="font-size: 0.875rem;"><b>Income</b>: Ranges from employment, director’s fees, businesses, rentals, dividends, interests and other sources of income.</span><br></li><li><span style="font-size: 0.875rem;"><b>Expenditures</b>: Comprises lifestyle, children education, travelling and significant purchases.</span><br></li></ol></div><div><br></div><div><span style="font-size: 0.875rem;">Therefore, a capital statement allows the IRBM to trace the flow of capital assets, identify the legitimacy of financial activities and recognize any discrepancies that may require further investigation. Hence, maintaining a detailed and accurate capital statement is essential for individuals to support their tax filings and demonstrate transparency in their financial dealings. In the event of a tax investigation, having well-documented capital statements (thorough records of capital transactions, investments and other financial activities) can help streamline the process of providing evidence of compliance, navigate the tax investigation effectively and mitigate potential risks or penalties associated with inaccuracies or inconsistencies in tax reporting.</span><br></div><div><br></div><div><u>Conclusion</u></div><div>Our constantly evolving world with the outreach of Artificial intelligence (AI) into the day-to-day operations and lives of individuals are increasing significantly. Earlier this year, we hear the IRBM exploring implementation of AI-assisted asset tracking and identifying technology to enhance the process of examining assets declaration to promptly probe individuals with undeclared, hidden or camouflaged assets and wealth or potentially those intentionally evading taxes. This brings the IRBM direct access to real-time data. With the already-in-use big data analytics and sophisticated information exchange mechanisms by the IRBM, the move to AI in tax administration will lead to the most transparent level of information being available. On that account, maintaining detailed and accurate financial records and diligence in tax affairs is not only a legal obligation but also a safeguard against potential disputes with the IRBM. As future professionals and informed citizens, understanding these processes empowers us to contribute to a transparent and equitable economic system.</div></div>

Understanding Capital Statements: An Overview and Importance in Recent Times

<b>Introduction</b><div>On 4th December 2024, the long fully exempted dividend income from taxation is finally to be taxed at 2% on chargeable dividend income for annual dividend income exceeding RM100,000 beginning from year of assessment 2025 (meaning from 1st January 2025), with the Finance Bill 2024 passed at the Parliament of Malaysia. Further guidelines and/or public ruling have not been published by the Inland Revenue Board of Malaysia (IRBM) for deeper details on the application and/or technicalities of this unique tax, and also income tax exemption orders are expected from the Federal Government for further details on the exemptions available, however based present available information, a few striking observations could be made on the dividend tax model.</div><div><br></div><div><b>The slight comeback to dividend imputation system</b></div><div>Prior to year of assessment 2008, dividends were taxed at both the company and shareholders level under the full imputation system, however allowing for tax credits, where the tax imposed on the shareholders would be adjusted to reflect the amount satisfied by the company. Meaning that the shareholders would only be taxed for the difference between their marginal tax rate and the corporate tax rate. Effective 2008, to enhance the efficiency and administration of this system, it was replaced with the single-tier system, where taxes on company profits are considered final and dividends are tax exempted in the hands of shareholders. There was no further need to deduct taxes for dividend payouts and it could be freely distributed without having to keep track of a dividend franking account.</div><div><br></div><div>Following the recent announcement, after 17 years of tax exemption, a Dividend Tax has been introduced and legislated in Malaysia, sparking the main concern that dividends will now once again be taxed on shareholders. An unexpected and startling move after all these years.</div><div><br></div><div><b>Components of the new dividend tax</b></div><div>This new Dividend Tax is imposed on dividends paid, credited or distributed, whether in monetary form or otherwise, by a company to any of its shareholders which is an individual, either through direct shareholding or a nominee, and the dividend is deemed by virtue of Section 14 of the Income Tax Act 1967 (ITA 1967) to be derived from Malaysia, in excess of RM100,000 annually at the rate of 2% on the chargeable income in respect of such dividend beginning from 1st January 2025. Amendments to the ITA 1967 were made in respect of Section 6 of the ITA 1967 and inclusion of Part XXII of Schedule 1 of the ITA 1967 to incorporate these new changes. Paragraph 12B of Schedule 6 of the ITA 1967 has expanded to state that individual shareholders earning below RM100,000 annually will not be affected by this Dividend Tax.</div><div><br></div><div>The primary focus on the above amendments is that the liability of this new tax falls on high-value individual shareholders which consists of residents, non-residents and individuals who hold shares through nominees. It is to be noted that corporate shareholders are not affected by this new mechanism. This is further confirmed by the amendment to Paragraph 12B of Schedule 6 of the ITA 1967.</div><div><br></div><div>Furthermore, there are exemptions and/or exclusions from this Dividend Tax, which are summarized as follows:</div><div><ol><li><span style="font-size: 0.875rem;">Dividend income from sources outside Malaysia	</span><br></li><li><span style="font-size: 0.875rem;">Dividends distributed from profits of companies that received pioneer status and reinvestment allowances	</span></li><li><span style="font-size: 0.875rem;">Dividends distributed from profits of shipping companies that are exempted from tax	</span><br></li><li><span style="font-size: 0.875rem;">Dividends distributed by co-operative societies</span><br></li><li><span style="font-size: 0.875rem;">Dividends declared by closed-end funds	</span><br></li><li><span style="font-size: 0.875rem;">Dividends received by residents from Labuan entities	</span><br></li><li><span style="font-size: 0.875rem;">Profit distributions by Employees Provident Fund (EPF), Armed Forces Fund Board, Amanah Saham Nasional Bumiputera (ASNB), or any unit trusts	</span><br></li><li><span style="font-size: 0.875rem;">Any exemption granted on dividend income in the hands of individual shareholders as determined by the Finance Minister</span><br></li></ol></div><div><br></div><div>Separately, the formula to determine the chargeable dividend income is shown below:</div><div><b>A/B x C = D</b></div><div><span style="font-size: 0.875rem;"><br></span></div><div><span style="font-size: 0.875rem;">A: Dividend statutory income</span><br></div><div>B: Aggregate income</div><div>C: Chargeable income</div><div>D: Chargeable dividend income</div><div><br></div><div>An illustration on the application of the above formula and derivation of chargeable dividend income till the final tax impact and/or exposure on an individual shareholder is as shown in the link below for readers’ easy understanding.</div><div><br></div><div><b>Areas of consideration</b></div><div><ol><li><span style="font-size: 0.875rem;"><b>The offered allowances and deductions</b>: </span><span style="font-size: 0.875rem;">Additionally, it has been announced that allowances and deductions will be allowed to be taken into account for computation of chargeable dividend income purposes, however further details on this are yet to be announced. For the time being, it could be considered that such allowances and deductions would be intended for deductibility of expenditure incurred in relation to generating and/or obtaining the said dividend income.</span></li><li><span style="font-size: 0.875rem;"><b>Determination of annual dividend income threshold</b>: </span><span style="font-size: 0.875rem;">Another area of confirmation that would be required is if the exempted and/or excluded dividends would be included for annual dividend income threshold (RM100,000) computation purposes to determine taxability for Dividend Tax. It is essential to precisely identify this condition as it could lead to different derivations of annual dividend income, thus shareholders failing to properly identify liability for Dividend Tax.</span></li><li><span style="font-size: 0.875rem;"><b>Inaccurate reporting</b>: </span><span style="font-size: 0.875rem;">The Dividend Tax model adopts a self-assessment system where individuals are required to self-assess their taxability and liability for Dividend Tax, and to perform self-declaration in their tax return to ensure compliance. With the various requirements and especially the complex and intricate computation formula for chargeable dividend income, proper compliance and reporting in tax return is vital. Besides, shareholders also have to accurately declare their dividend income in line with the amounts stated in the dividend certificates and/or vouchers issued by the dividend-paying companies, as under-declaration and/or inaccurate reporting could lead to tax audits and imposition of penalties.</span></li><li><span style="font-size: 0.875rem;"><b>Reporting and/or data collection mechanism</b>: </span><span style="font-size: 0.875rem;">The IRBM could establish a reporting and/or data collection mechanism for this new tax. The IRBM may not solely rely on individuals’ declaration in their tax return and may create and/or establish a database for them to collect and/or obtain information for reconciliation purposes with individual taxpayers’ records. Reporting mechanisms such as declaration by dividend-paying companies may be required.</span></li><li><span style="font-size: 0.875rem;"><b>Payment mechanism of Dividend Tax</b>: </span><span style="font-size: 0.875rem;">It has been clearly indicated that the Dividend Tax will not be withheld and paid to the IRBM by the dividend-paying companies on behalf of the individual shareholders as no amendments were made to Section 108 of the ITA 1967 (where it states that companies are not entitled to deduct tax from dividends paid), but rather it was maintained with inclusion of additional requirements for issuance of dividend certificate. Thus, payment of Dividend Tax will be made together with final taxes post-tax return submission by individual shareholders. However, it is essential to determine if the same mechanism would be viable for instances with non-resident individuals.</span></li><li><span style="font-size: 0.875rem;"><b>Compulsory and enhanced dividend certificate</b>: </span><span style="font-size: 0.875rem;">According to Section 108 of the ITA 1967, from year of assessment 2025, dividend-paying companies upon distributing dividends are required to furnish individual shareholders with a certificate stating the following information:</span></li></ol></div><div><ul><li><span style="font-size: 0.875rem;">The gross amount of dividend; and</span><br></li><li><span style="font-size: 0.875rem;">The amount of dividend paid, or where the dividend includes property other than money, also stating the market value of that property at the time of dividend distribution.</span><br></li></ul></div><div><br></div><div>Companies will now need to compulsorily issue dividend certificates and/or vouchers for all shareholders receiving dividends as it is now a requirement under the ITA 1967. For companies that have not been adhering to this, immediate action is required as it is more vital than now for companies to issue complete and detailed dividend vouchers for their shareholders. Furthermore, for companies who have been issuing dividend vouchers, they should ensure that it is enhanced to include the required information. This dividend certificate can be seen as a way to ease shareholders for their self-declaration purposes especially for those who receives dividends from multiple sources or receives multiple-payout dividends from a company in a year. Over time, the IRBM could release a prescribed format for companies to adhere to accordingly in order to streamline the information requirements.</div><div><br></div><div>On a separate note, it must be clarified if companies should begin adhering to this requirement beginning from their respective year of assessment 2025 (due to companies’ differential commencement of financial year) or to begin from 1st January 2025 as the year of assessment 2025 for an individual commences from 1st January 2025. This is a very important component to be determined and further details on this are yet to be announced.</div><div><br></div><div><b>Why this change now</b></div><div>During the Budget 2025 announcement, the Government has declared that this move of theirs were intended to make Malaysia’s individual income tax structure more progressive and to further broaden the tax base. This is due to the fact that as compared with our neighboring countries in the Southeast Asia region, Malaysia’s tax base presents to be narrower, and presently attempts are being taken by the Government to widen it. The table below depicts the taxation on dividends across the Southeast Asia region:</div><div><br></div><div><i>(10 Sept 2019)</i></div><div>Country: Cambodia</div><div>Resident: N/A</div><div>Non-Resident: 14</div><div><span style="font-size: 0.875rem;"><br></span></div><div><span style="font-size: 0.875rem;">Country: Indonesia</span><br></div><div>Resident: 0 - 15</div><div>Non-Resident: 20</div><div><span style="font-size: 0.875rem;"><br></span></div><div><span style="font-size: 0.875rem;">Country: Myanmar</span></div><div>Resident: 0</div><div>Non-Resident: 0</div><div><span style="font-size: 0.875rem;"><br></span></div><div><span style="font-size: 0.875rem;">Country: Philippines</span></div><div>Resident: 0</div><div>Non-Resident: 15 / 25</div><div><br></div><div>Country: Singapore </div><div>Resident: N/A</div><div>Non-Resident: 0</div><div><br></div><div>Country: Thailand </div><div>Resident: 0 - 15</div><div>Non-Resident: 10</div><div><br></div><div>Under the operation of a tax treaty and/or double taxation agreement, lower rates may be applicable. It is to be noted that in the Southeast Asia region, corporations are being taxed on dividend income received and withholding tax mechanism is applicable primarily for non-residents and also on residents for several countries. These features and/or components varies distinctly with Malaysia’s upcoming dividend taxation system.</div><div><br></div><div>Thus, Malaysia’s Dividend Tax system is unique in nature with a set of its own mechanisms especially in terms of the comprehensive list of exemptions and/or exclusions provided, and with a comparatively lower taxation percentage of 2% as compared to countries nearby. Furthermore, the Dividend Tax is focusing predominantly on high-value individual shareholders as in order to receive dividends of RM100,000, investments of approximately RM1 million to RM3 million would be required.</div><div><br></div><div>The maximum impact of this new tax can be seen on two parties. Firstly, an individual who earns dividends as their primary source of income, and secondly, on medium to large sized family-owned businesses as present practices in which the owners (shareholders) are also employed in the business, most individuals refrain from receiving high salary payouts (which are liable for higher taxes), and instead receives higher dividend payouts as it is exempted from tax. A visible huge gap presents here and the repercussions from it are tax leakages. Therefore, the Government have initiated this measure to create a more progressive individual income tax base. The graph in the link below indicates the income tax revenue from individuals (personal tax) from year 2014 till estimation for year 2025.</div><div><br></div><div>This new Dividend Tax can also be seen in a way to assist the IRBM in identifying the presence of more high-net-worth individuals or even ultra-high-net-worth individuals in Malaysia. This is further strengthened and/or substantiated with the fact that this new Dividend Tax is only applicable on individual shareholders. Delving in detail into the scope of taxation, one particular and intriguing scope would be on individuals who hold shares through nominees. This expanded personal tax base seems to be aimed at bringing more non-compliant individuals under the net, to further curb tax leakages and ensuring compliance.</div><div><br></div><div><b>The outlook moving forward</b></div><div>The 2% Dividend Tax is presently just a kickstart of this new mechanism after 17 years of tax exemption. Initial propositions by our Prime Minister and Finance Minister were to levy 5% of taxes on annual dividend income, however upon discussions and/or engagements with stakeholders, it has been decided with a reduction to 2%. As the 2% taxes may not generate substantial amount of additional revenue for the Government, hence possibilities and/or chances for an increase in tax rate is highly probable in the near run.</div>

The New 2% Dividend Tax: Strategic Insights and Impact on High-Value Shareholders

<b>What is an Estate?</b><div>All assets and wealth left by an individual upon death are called the estate. These assets include:</div><div><ul><li><span style="font-size: 0.875rem;">Cash	</span><br></li><li><span style="font-size: 0.875rem;">Non-cash </span><span style="font-size: 0.875rem;">(Vehicles, stocks, real estate assets such as houses, buildings, land, etc.)</span><br></li></ul></div><div><br></div><div>The estate is administered by the deceased’s legal representative known as trustee or administrator, and will be distributed to the deceased’s entitled heirs who are the beneficiaries. In addition to estate administration, the executor is also responsible for the welfare of the deceased’s minor children and surviving parents such as ensuring adequate food, good care, healthcare, education, proper shelter and safety.</div><div><br></div><div>Besides that, the deceased also leaves behind liabilities such as debts that are still under the responsibility of the deceased. The estate cannot be distributed to the beneficiaries and entitled heirs until all of the deceased’s liabilities including tax liabilities have been satisfied in full. Section 74 of the Income Tax Act 1967 (ITA 1967) indicates that any outstanding income taxes cannot be automatically waived even if an individual dies. Therefore, the executor will utilise the estate’s available cash or dispose properties to settle the deceased's debts.</div><div><br></div><div>The deceased estate exists from the day after the date of the individual’s death until the date of completion of the administration of the estate.</div><div><br></div><div><b>Testate vs. Intestate</b></div><div><ul><li><span style="font-size: 0.875rem;">Testate </span><span style="font-size: 0.875rem;">(With a will)	</span><br></li><li><span style="font-size: 0.875rem;">Intestate </span><span style="font-size: 0.875rem;">(Without a will)</span><br></li></ul></div><div><br></div><div>When an individual dies, the deceased’s next of kin must determine whether the deceased has left a will. This is important in determining the executor or who is entitled to become the executor.</div><div><br></div><div>For an individual who has made a will, that person would have designated one or more trustees to fulfil the terms outlined in his will. The trustee can be anyone the individual trusts to manage the estate in the best interest of the beneficiaries. The trustee may or may not be a beneficiary themselves and can even be a trustee company. To manage the estate, the trustee must apply to the Court for a Grant of Probate, which grants him the authority to administer the estate.</div><div><br></div><div>However, if the Court decides that the will is invalid, the beneficiaries must then apply for a Letter of Administration appointing an administrator or legal representative to administer the estate. There are also situations where only certain provisions of a will can be enforced while some may not be. In this case, the Court will decide on the provisions that cannot be enforced and deem to not be included in the distribution of the estate.</div><div><br></div><div>For circumstances where a will is absent, the Court by way of the Intestate Succession Law will determine the beneficiaries who may become the administrators and then to apply for the Letter of Administration to manage the estate. Nevertheless, if a Letter of Administration is not requested for, the closest heirs may be appointed to take on the responsibility of the deceased’s tax liabilities and to administer the properties left by the deceased.</div><div><br></div><div>Whether the estate is managed by a trustee (under a will) or administrator (in the absence of a will), the responsibilities of an executor concerning taxation affairs pertains throughout the administration of the estate.</div><div><br></div><div><b>Estate Tax in Malaysia</b></div><div>Estate tax (also known as inheritance or death tax) is a tax levied on the right to transfer assets of a deceased person before distribution to heirs or beneficiaries. It is applied on the net value of the estate, which includes properties, cash and other assets, after debts and other deductions are subtracted.</div><div><br></div><div>In Malaysia, estate taxes were imposed back in the days, however it was abolished in year 1991. Since then, there have been discussions over the years regarding the reintroduction of this tax, however as of now, there is no such tax in place under the Malaysian tax laws. This indicates that we are not charged with taxes on the accumulated wealth of a deceased individual.</div><div><br></div><div><b>Estate Taxes Around the World</b></div><div>Estate taxes varies significantly by countries. Below is a summary of the estate tax landscape in different regions:</div><div><ul><li><span style="font-size: 0.875rem;">Australia (N/A)</span><br></li><li><span style="font-size: 0.875rem;">Brazil (8%)</span><br></li><li><span style="font-size: 0.875rem;">Canada (N/A)</span><br></li><li><span style="font-size: 0.875rem;">India (N/A)</span><br></li><li><span style="font-size: 0.875rem;">Japan (55%)</span><br></li><li><span style="font-size: 0.875rem;">Singapore (N/A)</span><br></li></ul></div><div><br></div><div>The implementation of estate taxes often generates a mixture of support and opposition, largely depending on economic perspectives and values around wealth distribution. Estate taxes have been facing mixed responses worldwide stemming from the early days till present.</div><div><br></div><div><b>Other Taxation Implications</b></div><div>Although in Malaysia there is no estate taxes levied upon a person's death, however there are other potential taxes or costs that might be incurred, such as:</div><div><ul><li><span style="font-size: 0.875rem;">Real Property </span><span style="font-size: 0.875rem;">Gains Tax	</span><br></li><li><span style="font-size: 0.875rem;">Stamp Duty	</span><br></li><li><span style="font-size: 0.875rem;">Income Tax</span><br></li></ul></div><div><br></div><div>Each of the areas above are detailed as follows.</div><div><br></div><div><b>Real Property Gains Tax (RPGT)</b></div><div>This tax applies on the disposal of real property, however it is only relevant if the estate's properties are sold. The tax rate varies depending on the holding period of the property before it is sold.</div><div><br></div><div>According to Schedule 5 of the Real Property Gains Tax Act 1976 (RPGTA 1976), the rates of tax are summarized in the link below.&nbsp;</div><div><span style="font-size: 0.875rem;"><br></span></div><div><span style="font-size: 0.875rem;">For the devolution of an asset of a deceased person on his executor or legatee under a will or intestacy or on the trustees of a trust created under the will, the disposal price is deemed to be equal to the original acquisition price according to Paragraph 3(1)(a) of Schedule 2 of the RPGTA 1976. The disposal date is the date of transfer of ownership of the asset according to Paragraph 15A of Schedule 2 of the RPGTA 1976. Therefore, this constitutes a no gain no loss transaction, hence it is not taxable.</span></div><div><br></div><div>For the executor of the deceased estate, the date of acquisition of the asset is deemed to be as at the date of death of the deceased individual, whereas the acquisition price is the market value of the asset as at the date of death less the sum referred to under Paragraph 4(1)(a), (b) and (c) of Schedule 2 of the RPGTA 1976.</div><div><br></div><div>For the transfer of assets inherited from a deceased estate, the treatment of acquisition date and price for a beneficiary is as stated in the link below. </div><div><br></div><div><b>Stamp Duty</b></div><div>When a property is transferred to a beneficiary, there may be stamp duty charges. The rate depends on the value of the property transferred.</div><div><br></div><div>According to First Schedule of the Stamp Act 1949, the rates are as stated in the link below.</div><div><br></div><div>However, for transfer of property from the deceased estate to the beneficiary, only a nominal value stamp duty of RM10 per transaction is chargeable. Also, the same fixed duty of RM10 is charged for transfer of a property by way of release or renunciation by a beneficiary of a deceased estate to another beneficiary entitled under the same estate.</div><div><br></div><div><b>Income Tax</b></div><div>Any income or gains related to the deceased estate during the period of administration may still be subjected to income tax. The following are some probable sources of income in line with Section 4 of the ITA 1967:</div><div><ol><li><span style="font-size: 0.875rem;"><b>Rental [Paragraph 4(a) or 4(d)]</b>: </span><span style="font-size: 0.875rem;">After the death of an individual, his properties shall be passed on to the entitled heirs or beneficiaries. If those properties continue to be rented after the original owner's death, the rental income will fall on the new owner. </span><span style="font-size: 0.875rem;">However, if the said properties are not distributed to the entitled heirs or beneficiaries, then the rental income will be considered as a part of the estate’s income under the administration of the executor.</span></li><li><span style="font-size: 0.875rem;"><b>Dividend – Paragraph 4(c)</b>: </span><span style="font-size: 0.875rem;">After the individual’s death, dividend income will be considered as a part of the estate’s income.</span></li><li><span style="font-size: 0.875rem;"><b>Interest – Paragraph 4(c)</b>: </span><span style="font-size: 0.875rem;">Interest income received after the individual’s date of death will be considered as a part of the deceased's estate income.</span></li></ol></div><div><br></div><div>In Malaysia, the duty to inform the Inland Revenue Board of Malaysia (IRBM) in relation to the demise of an individual is on the executor or next of kin, which is to be done as soon as possible upon the death, through Form CP57 (Notification of Taxpayer’s Demise) in accordance with Section 74(3)(a) of the ITA 1967 and Section 14(4) of the RPGTA 1976. Upon this notification, the IRBM will commence the posthumous assessment and will have a time period of three (3) years (from the year in which the demise was informed) to raise any assessments or additional assessments against the deceased for any income earned or for any disposals of real properties made by the deceased up till his death that could attract RPGT. Any assessments raised further than the 3-year time period will be deemed time-barred.</div><div><br></div><div>The Form TP is used for the filing of a tax return of a deceased estate. This form is submitted by the executor or administrator of the estate, and it ensures that any income or gains earned by the estate after the individual's death till the properties are transferred to the beneficiaries are properly taxed. Tax deductions are allowed for approved donations or contributions made by the estate and also a personal tax relief of RM9,000. The estate is not entitled to any other tax reliefs. The financial particulars of the estate specifically the Trading, Profit and Loss Account and Balance Sheet for the current year must be declared in the Form TP. The chargeable income of the estate will be taxed in accordance with the individual income tax rates. Penalties will be imposed for late submission of return form to the IRBM under Subsection 113(2) of the ITA 1967.</div><div><br></div><div>During the deceased’s year of death, all income accruing to the deceased up to and including the date of death will be taxable under the name of the deceased. For this, the executor is responsible for submitting the personal tax return on behalf of the deceased. It must be submitted to the IRBM not later than 30th April of the following year for those who received employment income or not later than 30th June for those who received business income. Subsection 64(1) of the ITA 1967 stipulates that any income arising after the date of death of the deceased shall be considered as income of the estate and shall be taxable on the executors. Therefore, these income are not considered as the personal income of the deceased.</div><div><br></div><div><u>Example:</u></div><div><i>John was employed as an engineer. He was also receiving rental income from an apartment that he owns. He was married and had one daughter aged three (3) years old. He had written a will prior to his death and named his sister, Alicia, as the executor of the estate, and had written that the apartment he owns to be transferred to his daughter once she attains the age of twenty-one (21) years old. John had passed away on 15th August 2024.</i></div><div><i><br></i></div><div><i>Upon John’s death, Alicia is required to submit the tax return (Form BE) on behalf of John for year of assessment 2024 not later than 30th April 2025. The income that is required to be reported in the Form BE would be John’s income (salary and rentals) from 01st January 2024 till 15th August 2024. The following months’ rentals including any other income received on or after 16th August 2024 is the income of the estate and is assessed on Alicia as the executor. Alicia would also need to submit the tax return (Form TP) for the estate for year of assessment 2024 by 30th April 2025. Then, the income received for the following years of assessment (from year of assessment 2025) would be subjected to taxation as the income of the estate in the name of Alicia (executor). Therefore, Alicia is required to continuously file the Form TP for the estate until the administration of the estate is completed (distribution to entitled heir and beneficiary).</i></div><div><br></div><div>The executor is responsible for satisfying all of the tax amounts assessed including any penalties imposed. If the executor fails to satisfy the deceased's outstanding taxes, the executor may be subjected to civil action under Section 106 of the ITA 1967. It is important to note that the executor is allowed to apply for tax refunds if there were any amounts that the deceased should have received before his death.</div><div><br></div><div><b>Conclusion</b></div><div>Estate planning in Malaysia is becoming increasingly important as individuals and families seek to manage their wealth for future generations. It not only impacts personal wealth planning, but also family-owned enterprises and up till business succession. Having a well-structured estate plan ensures that assets are distributed according to personal wishes. As Malaysia continues to evolve economically, the need for proper estate planning will become even more critical, offering peace of mind and financial security for families. By understanding the legal frameworks and utilizing appropriate tools, individuals can safeguard their legacies and ensure smooth transition of wealth to future generations.</div>

Estate Taxes: What You Should Know

<i>Technical Insights by <b>Pugaleshwaran Raja Kumaran</b>, Executive Director, Tax and <b>Steffi Manisha Arokiam</b>, Tax Director at ThinkTx</i>

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