Guidelines On Taxation of Electronic Commerce

Guidelines On Taxation of Electronic Commerce

In early 2013, the Inland Revenue Board (IRB) of Malaysia’s issued a guideline on how income derived from e-commerce is to be taxed. This guideline seeks to provide some guidance on basic tax issues and income tax treatment in respect of electronic commerce (e-commerce) transactions.

Notably, the IRB stated that a server / website itself do not carry any meaning in determining derivation of income. Business income from e-commerce would be considered as Malaysian income if the operations test shows that the person is carrying on a business in Malaysia. Even though the server is fully automated in performing business activities, the substantial part of the business activities such as updating and maintaining the current information on the website is still managed by a human (Paragraph 5.1). For more details, please visit Digital News Asia.

The Royal Malaysian Customs (RMC) also released the GST Guides on E-Commerce and Web Hosting to assist in understanding the upcoming Goods and Services Tax and its implications on e-commerce and web hosting businesses.

Under an e-commerce transaction, the RMC stated that if a business is supplying goods or services in Malaysia via the Internet, the business is accountable for the collection of GST as in conventional commerce. This also applies regardless that the transactions are done through a third party e-commerce service provider (e.g. web hosting company).

As for web hosting business, all provisions of services whether it originates in the country or imported from other countries are under the scope of GST. The principal rule with regards to place of supply for services provided by web host is where the supplier belongs. In this context, if the supplier of web host services belongs to Malaysia, such services have to be standard rate. On the other hand if the supplier belongs to another country, the supply of service is out of scope. However, if the recipient of the services provided by overseas supplier belongs to Malaysia, the imported service will be subjected to GST.

Download
Inland Revenue Board – Guidelines On Taxation of Electronic Commerce
Royal Malaysian Customs – Goods and Services Tax – Guide on E-Commerce
Royal Malaysian Customs – Goods and Services Tax – Guide on Web Hosting Services

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