“Digital services” is defined under the Amendment Act to mean any service that is delivered or subscribed over the internet or other electronic network and which cannot be obtained without the use of information technology (IT) and where the delivery of the service is essentially automated.
Some examples of digital services that were provided by Customs under its Guide include:
(a) online licensing of software, updates and add-ons website filters and firewalls;
(b) mobile applications and video games;
(c) provision of digital content, e.g. music, e-book, film, images, text and information;
(d) advertisement platform, e.g. provision of online advertising space on an intangible media platform;
(e) online platform, e.g. offering of a platform to trade products or services;
(f) search engines services;
(g) social networks;
(h) database and hosting, e.g. website hosting, online data warehousing, file-sharing and cloud storage services;
(i) internet-based telecommunication;
(j) online training, e.g. provision of distance teaching, e-learning, online courses and webinars;
(k) online newspapers and journals subscription; and
(l) payment processing services.
In determining whether a service falls within the scope of digital services, Customs takes the position that the services must be delivered with “minimal or no human intervention from the service provider.” As such, where the transmission of the services is via e-mail and the delivery of the services requires some form of human intervention on the part of the service provider, such services would not fall within the scope of digital services.
Unfortunately, the Guide does not provide any further clarification on the meaning of “minimal human intervention” or what it means where delivery of services are “essentially automated.” Given these uncertainties surrounding the scope of digital services, FSPs may want to consider engaging with Customs to obtain certainty on this issue.
Who are FSPs?
“FSP” means any person who is outside Malaysia providing any digital service to a consumer and includes any person who is outside Malaysia operating an online platform for buying and selling goods or providing services (whether or not such person provides any digital services) and who makes transactions for provision of digital services on behalf of any person.
In interpreting who would be regarded as an FSP, Customs takes the position that the following persons would be regarded as an FSP:
(a) a person who sells digital products directly to consumers;
(b) a person who (i) sells digital products indirectly through intermediaries such as an online platform; and (ii) issues the invoice for such a sale; and
(c) an online platform who (i) makes sale transactions on behalf of an overseas service provider; and (ii) issues an invoice under its name (Platform Operator).
This definition includes foreign providers of digital services as well as foreign Platform Operators who sell products or services on their platform.
However, it is unclear based on the current legislation, if a foreign Platform Operator who makes sale transactions on behalf of a local service provider would be regarded as an FSP who is required to charge 6% service tax on sales made via its platform.
