SESSION MALAYSIAS NEW GST BUSINESS CHANGE WITH TAX

SESSION MALAYSIA'S NEW GST: BUSINESS CHANGE WITH TAX CONSEQUENCE Jessica Farthing – Manager: Grant Thornton Australia 21 November 2014

AGENDA • MALAYSIAN GST OVERVIEW • WHAT NEEDS TO BE DONE? • ACCOUNTING SOFTWARE GUIDE • CONCLUSION • Q AND A

MALAYSIAN GST OVERVIEW • A multi-stage tax collected at all stages of production • Tax on domestic consumption and imports • A tax ultimately borne by the consumer of goods and services such as: • Unregistered individuals • Financial Institutions • Certain overseas recipients • Malaysia's new 6% GST commences on 1 April 2015

MALAYSIAN GST OVERVIEW • GST will be charged on: • Any taxable supply of goods and services, made in the course or furtherance of any business, by a taxable person in Malaysia • The importation of goods into Malaysia, except goods prescribed as zero rated and exempt • All imported services acquired for the purpose of business, except exempt supplies of services.

MALAYSIAN GST OVERVIEW • Made in Malaysia • A supply of goods or services must be made in Malaysia for GST to apply • Goods will be treated as supplied in Malaysia if the goods are in Malaysia or are removed from a place in Malaysia • Services are treated as supplied in Malaysia if the provider of the services belongs in Malaysia • Supplies not made in Malaysia are considered to be outside the scope of the GST

MALAYSIAN GST OVERVIEW • A supplier of services belongs in Malaysia if the supplier: • Has a business establishment or fixed establishment in Malaysia and not elsewhere; or • Has no business or fixed establishment anywhere, but Malaysia is the usual place of residence; or • Has business or fixed establishments both in Malaysia and elsewhere and the establishment which is most directly concerned with the supply is in Malaysia

MALAYSIAN GST OVERVIEW • Liability to Register • A person is required to be registered for GST if he makes taxable supplies where the annual turnover exceeds RM 500, 000. • Taxable turnover means the total value of taxable supplies excluding the amount of GST. • Excluding: • Capital Assets Disposed • Imported Services • Disregarded supplies made in relation to the Warehousing Scheme • Disregarded supplies made within or between designated areas.

MALAYSIAN GST OVERVIEW • Time of supply • The time of supply determines when a taxable person should account for GST • The time of supply is the basic tax point unless a tax invoice is issued • If a tax invoice is issued, then the time of supply depends on whether a tax invoice is issued before or after the basic tax point • Determination of the time of supply is important on the basis that GST is triggered at the time when the supply is made

MALAYSIAN GST OVERVIEW • Place of supply • The place of supply of services is treated as made in the country where the supplier belongs • A supply of services is treated as made in Malaysia if the supplier belongs in Malaysia • Where a supplier belongs in Malaysia, every supply of services provided by that taxable person is within the scope of the GST

MALAYSIAN GST OVERVIEW • Summary of supplies Types of Supply Output Tax Input Tax Standard-rated 6% Claimable Zero-rated 0% Claimable Exempt No GST charged Not claimable Out of scope No GST charged Claimable Disregarded No GST charged Claimable

WHAT WORK NEEDS TO BE DONE? • All GST consultants in Malaysia are adopting a phased approach to implementation • The GST consultants need to work with clients and the software vendors closely to ensure: • Supply chain is mapped • GST classification exercise is undertaken • Tax codes are set up • Systems are readied • Process documentation is created • Testing is done

WHAT WORK NEEDS TO BE DONE? • Phase 1 • Obtain an understanding of the key business transactions, major business plans, processes and systems • Identify the GST impact to the business • Map the supply chain and classify the major types of acquisitions • Prepare and present a GST Impact Study Report which outlines the GST implications on the business and broad recommendations on the next steps to be undertaken

WHAT WORK NEEDS TO BE DONE? • Phase 2 • Form a GST steering committee • Work with committee on defining goals, objectives parameters, timelines and resource requirements • Advise on project reporting structure including identification of all stakeholders • Meet with key personnel to identify key GST-technical activities required in getting GST ready

WHAT WORK NEEDS TO BE DONE? • Phase 3 • Provide GST technical advice • Provide GST technical support and training to IT department • Work with software vendors • Commence systems testing • Advise on legislative requirements post GST pricing • Deliver tailored GST Technical Training materials

WHAT WORK REMAINS TO BE DONE • Phase 4 • Discuss the issues identified and develop GST compliance process improvements • Develop a testing methodology and checklist to assist with testing sample transactions in respect of supplies and acquisitions • Review effectiveness of reporting and IT processes • Liaise with Royal Malaysian Customs Department as required for initial review or audit activities

ACCOUNTING SOFTWARE REQUIREMENTS • The Royal Malaysian Customs Department released a guide which outlines a set of requirements that a software vendor must be satisfy if their product is to be GST compliant • Software vendors are required to ensure their software can: • Issue tax invoices as well as credit / debit notes in compliance with the GST legislation • Provide a reporting facility for the generation of information necessary to prepare tax returns • Provide comprehensive documentation to assist auditors and users to understand how the system operates

ACCOUNTING SOFTWARE REQUIREMENTS • Provide a reporting facility for the generation of information necessary to prepare GST returns • Provide comprehensive documentation to assist auditors and users to understand how the system operates (the "General Audit File" or "GAF") • Incorporate adequate internal controls to ensure reliability of the data being processed • Create adequate audit trails to assist auditors to understand the flow of events and reconstruct the events if necessary • Put in place archival and restoration of archived data mechanisms that ensure the integrity and readability of electronic records after an extended period

ACCOUNTING SOFTWARE REQUIREMENTS • Contain key data elements necessary for business • Allow production of GST Audit File by personnel who do not have an IT background

ACCOUNTING SOFTWARE REQUIREMENTS • Thompson Reuters has provided a draft of certain products taxability coverage to assist customers in testing future-dated transactions under Malaysia GST • Below are some examples of these codes Rule Order Rate Code Product Name Start Date 6599. 8708 Zero-rated (ZR) 2012. 170114 – other cane sugar 1/4/2014 6596. 7367 Zero-rated (ZR) 2012. 160521 – not in airtight container 1/4/2014 6596. 8055 Zero-rated (ZR) 2012. 090422 – crushed or ground 1/4/2014 6699. 1449 Standard – rated (SR) 2012. 070110 – seed 1/4/2014

CONCLUSION • Although the GST does not commence until 2015, this is certainly no reason for complacency. • Range of tax, legal, systems, and training issues that must be addressed in transitioning to a new GST regime are often time-consuming. • Planning and early preparation is essential. • Most taxpayers will need to register by 31 December 2014. • Penalties are applicable to late registration.

Thank you.