Background

Service Tax is a single-stage tax system and there is no input tax credit mechanism available under the service tax regime. Therefore, it is necessary to consider the service tax exemptions for business to business (B2B) transactions in order to avoid tax cascading effect on the provision of taxable services.​

B2B Exemption – Local Services​

Effective from 1st January 2019​

General Principle  

In accordance with the Service Tax (Person Exempted from Payment of Tax) Order 2018, B2B exemption may be eligible to a taxable person who acquires taxable services of the same category from another service tax registered person. The B2B exemption is applicable for the following services: ​

Professional Services (Group G)

Other Service Providers (Group I) ​

Conditions for B2B exemption​

1. The service recipient and the service provider of taxable service exempted are registered for service tax.​
2. The taxable service exempted is the same service provided by the service recipient (person exempted from service tax payment).​
3. The taxable service exempted is not for the service recipient’s own consumption but for furtherance of business.​

Example

• A Sdn Bhd is in the business of information technology services (ITS). The company engaged B Sdn Bhd to develop a software for the company.
• B Sdn Bhd decided to engage another ITS provider, C Sdn Bhd to customize the software. C Sdn Bhd will then appoint another ITS provider, D Sdn Bhd to provide the networking.
• Assume that all companies are registered persons under the category of ITS, both B Sdn Bhd and C Sdn Bhd will be entitled for exemption from payment of service tax. 

B2B Exemption – Imported Services

Effective from 1st January 2020

With effect from 1st January 2020, B2B exemption is expanded to cover the following imported taxable services:

Professional Services (Group G)

Other Service Providers (Group I)

Exemption will be given to a registered person who fulfill the following conditions:
 

1. Registered person under Service Tax Act 2018 and account for service tax using SST-02 form.
2. Provide same services to customer as imported taxable services acquired.
3. Imported taxable service is for furtherance of business and not for personal consumption.
4. Has paid amount payable for the imported taxable service to the service provider.