Treatment for the Supply of Commercial Land/Building by an Individual
Many individual owners of commercial property or land face confusion regarding whether they need to register for Goods and Services Tax (GST). The Royal Malaysian Customs issued a new guideline in April 2016 stating that if an individual owns commercial property or land at any point after 1 April 2015, they may be subject to registering as a GST registered person. Any disposal of the commercial property/land will be subjected to account for GST.
Summary of Treatment for the Supply of Commercial Land/Building by an Individual
However, the guideline was suspended until further notice on 18 April 2016, leaving the GST status of commercial property/land disposal by individual owners unknown.
GST Revision Notes and Common Mistakes
Since the implementation of GST in Malaysia, many small and medium-sized enterprises (SMEs) have faced challenges in complying with the regulations. Cheng & Co has identified several common mistakes made by SMEs and areas of confusion:
Tax Invoice Format
SMEs must ensure that their tax invoice format complies with the samples given by the Royal Malaysian Customs. The guide advises inserting the wording “GST” in the tax invoice’s Rate of GST column. Failure to comply with the format may result in a fine not exceeding RM30,000 or a jail term of not exceeding two years or both upon conviction.
Claim Input Tax
While the GST Act 2014 allows for claiming input tax within six years from the date of the tax invoice, the Royal Malaysian Customs has added an additional condition that input tax must be claimed within one year from the date of holding the tax invoice.
Gift Rules
Regardless of whether the input tax was claimed during purchase, GST must be accounted for when goods worth more than RM500 are given as a gift. If goods are acquired for free and given away for free, GST does not need to be accounted for.
Reimbursement vs Disbursement
The GST treatment for disbursement and reimbursement differs. Disbursement is not entitled to charge service tax, while reimbursement is entitled to charge GST and can be claimed for input tax.
| Disbursement | Reimbursement |
| Not a supply | Is a supply (entitled to charge GST) |
| Not entitled for input tax claim | Entitled for input tax claim |
The difference between disbursement and reimbursement are as follows:
| Disbursement | Reimbursement |
| Incur expenses as an agent acting on behalf of the client. | Incur expenses as a principal. |
| The client is the recipient of the supply (invoice is in the client’s name). | The client is not the recipient of the supply (invoice is in the principal’s name). |
| The client is the person responsible to pay for the supply. | The principal is the person responsible to pay for the supply. |
| The payment is authorised by the client. | The payment is not authorised by the client. |
| The client knew that the supply is made by a third party. | The client has no knowledge that the supply is made by a third party. |
| The exact amount is claimed from the client and the agent has no right to alter or add on the value of the supply. | The principal has the right to alter or add on the value of the supply. |
| The payment is clearly an additional to the supply made to the client. | The payment is for the supply made to the client. |
Disposal of Asset
Disposal of assets is considered a taxable supply and requires accounting for GST once registered. Motor vehicles purchased before 1 April 2015 require charging GST, while those purchased on or after 1 April 2015 do not require accounting for GST if the GST was not claimed during purchase.
Too Many Tax Codes!
Navigating the numerous GST tax codes in Malaysia can be a daunting task. With 10 tax codes for supply and 13 tax codes for acquisition, it’s no wonder that some of the codes, such as ZRL vs ES, OS vs RS, ZP vs EP, NR vs EP, and TX_C, can be confusing to taxpayers. Additionally, there are many GST errors and notes to avoid, and it’s essential to address any GST storage issues and prepare for GST audits. If you have any questions or concerns, please don’t hesitate to reach out to our Cheng & Co GST Team for assistance.
