As the Malaysian government has announced that the new Sales & Service Tax (SST) is replacing the previous Goods & Services Tax (GST) effective from 1 September 2018, how is it going to work for the digital advertising industry?
Well, in short, it is going to be almost similar if not the same as the previous GST scheme.
We can first refer to the Service Tax 2018 – General Guide by Royal Malaysians Customs Department (if the document link is no longer working, go to General Guide and click “Service Tax”).
Contrary to the sales tax, the rate of service tax is 6% of the price of the taxable service as determined under section 9 of STA 2018.
There are some key categories listed under the taxable services, with advertising being one of the services under “Group I – Other Service Providers”. You can refer to page 11 of the PDF above, or the screenshot below.
The threshold for advertising services is RM500K (annual revenue), similar to the previous GST scheme.
For further details on the advertising industry, we can then refer to the Guide on Advertising Services (if the document link is no longer working, go to Industry Guide and click “Advertising Services”).
The Scope of Advertising Services
All services we render below are considered as advertising services:
- Digital Marketing: inclusive of advertising, content development, management fees
- Creative Services: inclusive of design, animation, video production
8. In advertising industry, advertising agency will propose the best combination of media including placement of an advertisement, advertising method, design, graphic, photography and etc. for advertiser to convey the message and achieve their marketing campaign objective.
9. The value of advertising services is based on the actual selling price chargeable to the advertiser including all costs incurred in typesetting, formatting, printing and necessary technology to have the advertisement fitted into any medium of communication.
Import & Export of Advertising Services
If we refer to PDF page 7 of the General Guide, item 8 under Charge of Tax: Service tax is not chargeable for imported and exported services under the STA 2018.
Some might be confused with foreign media owners such as Google, Facebook etc. whether will this be considered as an imported service.
Q : A local manufacturer appoint a local advertising agency to promote his product worldwide through overseas media owner via internet. Is the provision of advertising services by the local advertising agency subject to service tax?
A : Yes, the advertising services provided by the local advertising agency is subject to service tax even though the media owner is situated outside of Malaysia
As shown above, advertising services through foreign media owners rendered by local advertising agencies are subject to service tax. On top of that, the 8% Withholding Tax on Google, Facebook etc. advertising still applies.
As for foreign companies engaging local agencies, 6% SST is applicable if the advertising campaign is targetting the local market in Malaysia.
Q : What is the service tax treatment if I am a service tax registered advertising agency in Malaysia who has been appointed by a foreign company to advertise their product for local market?
A : Local advertising agency who provide advertising services in Malaysia is subject to service tax.
Q : What is the treatment if a local company advertise his products directly to overseas newspaper without engaging advertising agency?
A : Any advertisement to be advertised in overseas is not subject to service tax.
SST vs GST Service Period
It is rather confusing with the zero GST window kicked in between June to August 2018, hence the clarification below on the service periods:
- Service period before June 2018: 6% GST applies
- Service period from June to August 2018: 0% GST / SST applies
- Service period from September 2018 onwards: 6% SST applies
For example, even for the invoice issued during September, it will be 0% GST and 0% SST if the service is rendered within the June to August window.
Note: As the government is still finalizing and clarifying the details of SST, we will update this article upon any latest information by the Customs Department.