The Complete Guide to Sales and Service Tax (SST) in Malaysia

Introduction

In September 2018, Malaysia replaced its Goods and Services Tax (GST) with the Sales and Service Tax (SST). This shift aimed to streamline taxation and provide a more straightforward system for businesses. SST stands for Sales and Service Tax and is divided into two components: Sales Tax and Service Tax. Sales Tax is applied to taxable goods that are manufactured locally or imported, while Service Tax is imposed on certain prescribed services.

For businesses in Malaysia, the SST system has significant implications. Understanding whether your business must register for Sales and Service Tax Malaysia can help you maintain compliance, avoid penalties, and potentially benefit from certain tax exemptions.

Why Was SST Introduced?

The Sales and Service Tax Malaysia was introduced to simplify the tax landscape as a major consumption tax. Unlike GST, which applied to nearly all goods and services, SST has a more targeted approach that puts more purchasing power in the hands of the Malaysian people. It focuses primarily on manufacturers and service providers, which reduces the tax burden on end consumers. For businesses, however, this means that compliance is mandatory for those who meet specific thresholds. Recognising who needs to register for SST is essential to avoid penalties and fines.

The Two Components of SST

As mentioned, SST consists of two parts:

Sales Tax – Levied on manufacturers producing taxable goods, whether sold locally or imported into Malaysia.
Service Tax – Imposed on service providers offering taxable services such as professional consultancy, hospitality, and telecommunications.

Understanding these two components is key to determining who needs to register for SST Malaysia. Each type of business will fall under either Sales Tax, Service Tax, or potentially both.

Who Needs to Register for SST?

Now that we understand what SST is, let’s examine who needs to register for SST in Malaysia. Generally, businesses that manufacture taxable goods or provide taxable services must register for either Sales Tax or Service Tax. However, the registration requirements differ for each type of tax.

Sales Tax vs Service Tax Registration

Sales Tax registration applies to businesses that manufacture taxable goods. If your business produces goods for sale in Malaysia or for export, you must determine whether these goods are subject to Sales Tax. Meanwhile, Service Tax registration applies to businesses offering specific services, including those in the hospitality, legal, and professional sectors, while also considering the implications of corporate income tax.

The key to understanding who needs to register for SST Malaysia lies in recognising whether your business falls into one of these categories. Manufacturing businesses should focus on Sales Tax, while service providers need to consider Service Tax.

Industries and Services Subject to SST

Not all industries are required to register for SST. However, certain sectors are automatically obligated to comply. Some of the industries subject to Sales and Service Tax Malaysia include:

Manufacturing: If you manufacture taxable goods in Malaysia, registration is mandatory if you exceed the revenue threshold (discussed below).
Hospitality Services: Hotels, resorts, and similar businesses must register for Service Tax if they meet the revenue criteria.
Professional Services: Law firms, consultancy services, and medical professionals also fall under Service Tax obligations.

Additionally, there is a newly expanded scope of services now subject to service tax:

Leasing or rental services: Covers the rental of nearly all tangible assets, including commercial property (offices, shops), machinery, vehicles, and IT equipment.
Construction Works: Covers new construction, renovation, repairs, maintenance, and demolition for commercial, industrial, and infrastructure projects.
Financial Services: Fee-based financial services like brokerage (for non-life insurance), financial planning, and fund management.
Private Healthcare Services: Private hospitals and clinics, Traditional and Complementary Medicine (T&CM) practitioners, and allied health services like physiotherapy.
Education Services: Premium and international education
Beauty and Wellness Services: Wide range of services like facial treatments, hair styling, manicures, pedicures, and spa treatments.

If your business operates in one of these sectors, it’s essential to check whether your operations meet the registration thresholds.

SST Registration Threshold

One of the key elements in determining who needs to register for SST Malaysia is the annual revenue threshold. The Sales and Service Tax Malaysia system sets revenue thresholds that businesses must exceed to be required to register for SST. The threshold differs between Sales Tax and Service Tax, and the following sections explain these in detail.

Sales Tax Threshold

For Sales Tax, businesses that manufacture taxable goods must register if their annual sales exceed RM500,000. This threshold applies specifically to the sales of taxable goods within Malaysia. If your business is involved in manufacturing, you need to calculate your annual sales to determine whether you exceed this threshold. It’s important to note that even if your business exports goods, you must still register if your domestic sales surpass RM500,000.

Service Tax Threshold

Similar to Sales Tax, the Service Tax threshold is also set at RM500,000. Businesses providing taxable services, such as hospitality, legal, and consultancy services, must register for Service Tax if their annual revenue exceeds this amount. Some service categories, such as those involved in telecommunication, have specific thresholds based on the type of service provided.

Calculating Revenue for SST

To determine whether your business exceeds the SST threshold, it’s important to calculate your total taxable revenue. This includes all sales and services that fall under the Sales and Service Tax of Malaysia. Generally, the calculation involves reviewing your sales or revenue for the past 12 months or making a forecast for the upcoming year. By staying on top of your financials, you can ensure compliance and avoid penalties.

💡If you need help to review whether you should register for SST, reach out to an accounting expert like Grof today!

How to Register for SST in Malaysia

Registering for SST in Malaysia is a relatively straightforward process. Businesses can complete the registration online through the MySST portal, which simplifies the process and reduces paperwork. Below is a step-by-step guide on how to register.

Step-by-Step Guide to SST Registration

Access the MySST Portal: Begin by visiting the official MySST portal. The portal provides a platform for businesses to register for SST, file returns, and manage compliance.
Create an Account: If you are a first-time user, you will need to create an account on the MySST portal. Provide basic information about your business, including company registration details and your SST-eligible services or goods.
Submit Required Documents: To complete the registration process, you will need to upload specific documents. These typically include your business registration certificate, financial statements, and proof of taxable sales or services.
Receive Approval: Once you’ve submitted your application and documents, the approval process usually takes between 5 to 10 working days. You will receive confirmation through the portal once your application is approved.

Required Documents for SST Registration

To complete your SST registration, ensure you have the following documents ready:

Business Registration Certificate: Proof of your business registration with the Companies Commission of Malaysia (SSM).
Financial Statements: Statements showing your taxable sales or services, helping authorities determine if you meet the threshold.
Other Supporting Documents: Depending on your business type, you may need additional documents such as invoices or import/export declarations.

Voluntary Registration for SST

In some cases, businesses that do not meet the revenue threshold may still choose to voluntarily register for SST. This option can provide advantages for businesses dealing with SST-registered suppliers or customers, as it allows them to reclaim SST credits.

Why Voluntarily Register for SST?

Voluntary registration offers businesses certain benefits. If you frequently deal with suppliers or clients who are registered for SST, registering voluntarily allows you to reclaim any SST paid on your purchases. This can help reduce your overall tax burden and improve cash flow. Additionally, registering for Sales and Service Tax can enhance your business reputation, making you appear more credible and compliant in the eyes of larger partners.

How Should My Business Handle Pricing and Contracts?

Moving forward strategically is crucial to avoid customer disputes and protect your profit margins.

Review All Contracts Immediately: Check if your contracts with customers and suppliers have a “tax clause” that allows you to adjust prices due to changes in tax law. If a contract has a fixed price with no mention of tax, you may have to absorb the new SST cost yourself.
Be Careful with Price Increases: While you must charge SST, you also need to comply with the Price Control and Anti-Profiteering Act 2011 (PCAPA). You cannot use the SST change as an excuse to unreasonably hike prices. To protect your business, you must be able to prove that any price increase is a direct pass-through of the new tax costs.
Keep a “Pricing Defense File”: Maintain detailed records showing how you calculated your new prices. This documentation is your best defense if you are investigated for profiteering.
Communicate with Your Customers: Be proactive and transparent. Inform your customers and suppliers about the SST changes and how they will affect pricing. A simple letter or email can prevent misunderstandings and build trust.

Maintaining Compliance After Registration

Once your business is registered for SST, maintaining compliance is essential to avoid penalties and ensure smooth operations. Fulfilling your ongoing obligations as a registered business is critical to staying on the right side of the law.

Ongoing Obligations for SST-Registered Businesses

After registration, businesses are required to:

Filing Returns: SST-registered businesses must submit tax returns either monthly or bi-monthly, depending on their specific business category. It is vital to report all taxable sales and services during this period, ensuring the figures are accurate and in line with the sales or service tax obligations.
Paying Taxes: Once the returns are filed, businesses must make the necessary tax payments. The deadline for payment is usually aligned with the return submission period, meaning late payments can result in interest charges or fines.
Maintaining Records: Businesses are required to keep detailed and accurate records of sales, purchases, and tax-related transactions for at least seven years. Proper record-keeping is not only essential for tax return filings but also for any potential audits by the RMCD.

Important Dates and Deadlines to Remember

To avoid penalties, keeping track of the following important dates is essential:

SST Return Filing: The SST return filing deadline is the last day of the month following the taxable period (monthly or bi-monthly). For instance, the filing deadline for January’s taxable period is the end of February.
Payment Deadline: Taxes must be paid on or before the filing deadline. Ensure that all tax liabilities are cleared to avoid late payment penalties or interest charges.
Annual Reporting: For businesses registered under both Sales and Service Tax, there may be additional reporting obligations, including an annual summary of transactions subject to SST.

Tips for Ensuring Compliance and Avoiding Penalties

Engage Professional Assistance: Working with a tax advisor or accountant like Grof can help ensure that your business meets all compliance requirements. They can also keep you informed about any changes in SST regulations and deadlines.
Set Reminders: Establishing a system to track important filing and payment deadlines can help prevent missed obligations and avoidable penalties. Many businesses use digital calendar tools to set reminders for these critical dates.
Regularly Review Transactions: Regularly review your financial transactions to ensure they are correctly categorised for SST purposes. This practice will reduce errors and ensure accurate reporting when filing returns.
Stay Informed About Changes: SST regulations may be updated periodically. Ensure your business stays informed by regularly checking updates from the RMCD or consulting with a professional to keep up with any legislative changes.

By adhering to these practices, your business will be well-prepared to maintain compliance with SST regulations, avoiding costly penalties and ensuring smooth operations.

Conclusion

Understanding who must register for Sales and Service Tax in Malaysia is essential for entrepreneurs and small business owners. By recognising registration thresholds, industry requirements, and compliance obligations, businesses can avoid penalties and enhance their operational efficiency.

In addition to ensuring compliance, registering for SST provides benefits such as improved cash flow management, enhanced business credibility, and access to government incentives. By adopting best practices and seeking professional advice, businesses can navigate the complexities of the SST framework successfully.

As regulations evolve, staying informed and adapting to changes is crucial. By committing to compliance, businesses can position themselves for success in the dynamic Malaysian market.

If you need assistance with SST registration or compliance, feel free to reach out to us at Grof. Our team of experts is here to help you navigate your SST obligations effectively and ensure your business thrives.

Frequently Asked Questions (FAQs)

How to calculate SST in Malaysia?
To calculate Sales and Service Tax (SST), you apply the specific tax rate to the value of the goods or services sold. The rate you use depends on what you are selling:
- Sales Tax: This is charged on taxable goods at the point of manufacture or import. The rates are 0%, 5%, or 10%.
  
  Example
  Product Selling Price : RM 250 | Sales Tax Rate: 5%
  Sales Tax: RM 250 x 5% = RM12.50
- Service Tax: This is charged on specific taxable services. The rates are generally 6% or 8%, depending on the service category.
  
  Example
  Service Fee : RM 1000 | Service Tax Rate: 6%
  Service Tax: RM 1000 x 6% = RM60
2. What services are not subject to SST?
A service is only subject to SST if it is explicitly listed as a “taxable service” in the regulations. Beyond that, the government has provided specific exemptions for key areas, including:
- Rental of residential properties, including SOHO units and serviced apartments.
- Construction of purely residential buildings.
- Interest-based payments and core banking services related to savings and current accounts.
- Life insurance and family takaful services provided to individuals.
- All private healthcare services provided to Malaysian citizens.
- Education services provided to Malaysian citizens at higher education institutions and language centres.
3. Which goods and services are exempt from SST?
The government has maintained exemptions on many essential goods and services to avoid burdening the public.
- Exempt Goods: These generally fall under the 0% Sales Tax rate and include basic necessities like rice, sugar, cooking oil, flour, essential medicines, books, and locally grown fruits and vegetables.
- Exempt Services: Key exemptions include the rental of residential homes, construction of residential buildings, most basic financial services like interest on loans, and healthcare or education services provided to Malaysian citizens.
4. What is required for an SST invoice in Malaysia?
While the article doesn’t provide a full template, it highlights that a compliant SST invoice must clearly show specific details, including:
- Your business’s SST registration number.
- The amount of Service Tax being charged on the goods or services.
5. How much sales are needed to pay SST?
A business must register for and begin paying SST once its annual turnover for taxable goods or services exceeds a specific registration threshold. This threshold varies by industry:
- The general threshold for manufacturers of taxable goods and most service providers is RM500,000 per year.
- For the construction and private healthcare sectors, the threshold is higher at RM1,500,000 per year.
- For certain education services, there is no revenue threshold; liability is triggered by other factors, such as charging fees over RM60,000 per student or providing services to non-citizen students.