Goods And Services Tax - FAQs
Please be informed that Goods And Services Tax (“GST”) will be implemented by the Government of Malaysia with effect from 1 April 2015 at a standard rate of six percent (6%). For your reference, the GST registration number for Berjaya Sompo Insurance Berhad is 000234881024.
You may visit the Royal Malaysian Customs Department website at http://gst.customs.gov.my for more information.
Q1: What is GST?
A1: GST is a consumption tax based on the value-added concept, imposed on goods and services at every production and distribution stage in the supply chain including importation of goods and services.
Q2: How does GST work?
A2: Only businesses registered under GST can charge and collect GST on all taxable goods and services produced in the country including imports. GST collected on output must be remitted to the government. However, businesses are allowed to claim the input tax credit through the following method:
- GST collected on output (output tax) is deducted against the GST paid on input (input tax)
- If there is excess, the amount shall be remitted to the government within the stipulated period
- If there is deficit, business can claim for refund from the government
Q3: What is input tax, output tax and input tax credit?
A3: Input tax is the GST charged on the purchase of goods and services used in the business activity. Output tax on the other hand, is GST charged and collected on sales/supplies of goods and services. Input tax credit means tax input claimable by business registered under GST.
Q4: What are standard rated, zero rated and exempt supplies?
- Standard rated supplies are taxable supplies of goods and services which are subject to standard rate.
- Zero rated supplies are taxable supplies which are not liable to GST at the output or input stage.
- Exempt supplies are non taxable supplies which are not subject to GST at the output stage when supplied to the consumer.
- However, the GST paid on input by the business cannot be claimed as tax credit.
Q5: Who will collect GST and remit to the government?
A5: GST can only be collected by the person who is registered under GST and the tax shall be remitted to the government within the stipulated period.
Q6: Do all businesses need to be registered under GST?
A6: Only businesses with annual sales turnover of RM500,000 and above are liable to be registered under GST. Businesses with annual sales turnover of less than this amount are not liable to be registered under GST but can apply for voluntary registration. (Agent’s annual turnover refers to commission income from all principles and other sources of income, if any.)
Q7: How to determine whether the threshold of RM500,000 has been reached?
- Calculation based on the sales records for the preceding 12 months.
- Calculation based on the estimated sales for the next 12 months.
Q8: If the threshold has not reached RM500,000, is it possible to register for GST?
A8: Businesses which have not reached the threshold can voluntarily apply to be registered under the GST. However, once registered, the businesses must remain in the system, for at least 2 years.
Q9: Can registration be done online?
A9: The government encourages online GST registration. Manual registration is available as well.
Q10: How to apply for GST registration?
A10: Online application can be made by accessing the form from the GST website. For manual application, the application form can be obtained from any Customs Office or from the GST website itself.
Q11: How is GST calculated on a general policy premium sold to a registered person?
A11: The GST incurred is as shown in the following example:
|Basic Premium||RM 780.00|
|NCD||Assuming RM 450.00|
|Gross Premium||RM 630.00|
|Rebate||Assuming RM 40.00||RM 590.00|
|GST 6%||[(1080-450-40)*6%]||RM 35.40|
|Stamp Duty||RM 10.00|
|Premium Payable||RM 635.40|
Q12: What is the GST implication on the premium for general insurance to cover a property in Malaysia owned by a foreigner who is not in Malaysia at the time the insurance coverage takes place?
A12: The premium charged will be subjected to GST at a standard rate.
Q13: What is the GST implication on the personal accident policies (PA) sold to pupils studying in public or private schools, colleges, universities and other institutions of higher learning?
A13: The insurance policies sold to students in educational institutions will be subjected to GST at a standard rate.
Q14: What are the GST implications in the event of a cancellation of a general insurance policy, which entails a refund of premium to the policyholder?
A14: The insurer or takaful operator needs to raise a credit note when he refunds the premium, subsequently adjust his accounts, and reduces output tax in return for the taxable period in which the credit note was issued.
Q15: Is general insurance sold to non-profit organizations or charitable organizations subject to GST?
A15: Yes, the insurance services are subject to GST at a standard rate.
Q16: I am a marine insurer registered for GST and I provide marine hull, machinery and ship insurance for my clients’ ships, vessel or yacht. Are such general insurance subject to GST?
A16: The insurance services you cover on ships, vessel or yacht that are local or foreign bound are subject to GST at a standard rate. However, if the supply of such insurance coverage is for ships, vessel or yacht sailing outside Malaysian waters, the supply is zero rated (e.g. the ship insurance is to cover a ship that sails from Port Klang to ports of call outside Malaysia only and not from Port Klang to Kota Kinabalu Port and later to Muara Port, Brunei.)
Q17: For Director & Officer Liability Policy (D&O), the premium is split into two where the Company pays 95% and the directors pay 5%. Currently, the insurer issues a policy to the Company and debit note to both the company and the directors based on the percentage of 95% and 5% respectively. Some insurers do issue one debit note for such policy and impose service tax on the 95% component because directors pay the other 5%. Are both components subject to GST after 1 April 2015?
A17: Under the Service Tax Act 1975, no service tax is imposed on a non-business entity i.e. the directors where it relates to a supply of insurance services. However, effective 1 April 2015, both components of the premium are subject to GST.
Q18: I am a GST registered insurer and I receive premium payments from my insurance agent for various policies (life and general policies) sold, where the insurance agent had issued cover notes to the policyholder. Upon receipt of the payments, I am but unable to match the premium payments with the type of policy sold. What are my obligations as a taxpayer on the payments I have received?
A18: Your time of supply to account for tax on the supply of insurance services is the taxable period in which your agent issued the cover notes. Hence, you must identify the type of supply you are making upon receiving the premium payments.
Q19: I am a GST registered insurer; provide insurance coverage for a megaproject beginning from 1 January 2015 to 31 December 2018 and issue a tax invoice for the premium on 15 June 2015. The delay is due to underwriting the risk elements and coverage. When is the time of supply?
A19: The time of supply is determined by payment received or issuance of tax invoice whichever is earlier. In the above example the time of supply will be at the time you issue the tax invoice that is on 15 June 2015.
Q20: When is payment treated as received by me in the case where I (GST registered insurer) am required to account for GST when I receive a premium payment from my agent?
A20: The premium payment is treated as received by you when the payment is credited into your bank account.
Q21: What is the GST treatment on a medical insurance plan and a PA plan?
A21: Medical insurance and PA are both taxable supplies and they are subject to GST at a standard rate. The same also applies to similar products provided by general takaful and family takaful operators.
Q22: How is GST calculated on the premium if an insurance agent gives a discount on the premium for a general product to a regular client?
A22: Where an insurer or takaful operator gives a discount on the premium, GST is charged on the discounted amount. However, for discounts given by agents on the premium, it will not be taken into account for purposes of GST as the agents are not regulated by Bank Negara Malaysia to give such discounts.
Q23: As a takaful operator, I provide facilities/services (free office space and utilities) to my agents and brokers for which there is no consideration for the supply. What is the GST treatment on these free facilities/services?
A23: Such supplies by the takaful operator will not be subjected to GST since there is no consideration received. Similar GST rules will apply if conventional insurance companies supply those services.
Q24: What is the GST treatment on insurance policies sold by way of telephone sales services?
A24: General insurance policies will be standard rated while life insurance policies will be exempted irrespective of whether they are sold by conventional methods, through telephone sales or online. However, if the marketer at the call centre is remunerated by way of commission or flat rate fee, he is required to register for GST if his past taxable turnover for the period of twelve months has exceeded the threshold or the future taxable turnover is expected to reach the threshold.
Q25: What is the GST treatment on intermediary insurance services performed in Malaysia by insurance agents or brokers for a non-resident principal (insurer or takaful operator)?
A25: The services are a taxable supply and subject to GST at a standard rate.
Q26: Are commissions and brokerage earned by insurance agents and brokers relating to life insurance exempted from GST?
A26: No, they are not exempted from GST. Commissions will be subjected to GST at a standard rate irrespective of whether it relates to a contract of general or life insurance.
Q27: An insurance company can fund either directly or indirectly an insurance agent’s expenses in recognition of the volume of business generated by him. This funding is known as soft commission. Is soft commission subject to GST?
A27: There is no supply made by the insurer or takaful operator to the agents when he funds their expenses in this situation. Hence, soft commission is not a consideration for a supply and not subject to GST.
Q28: When my insurance company makes a certain amount of profit, I share the profits with my insurance agents. Is profit commission subject to GST?
A28: There is no supply made by the insurer or takaful operator to the agents when he shares the profits with them. Hence, profit commission is not a consideration for a supply and not subject to GST.
Q29: I am an insurance agent and provide service of arranging insurance cover before 1 April 2015 and receive my commission from the insurer or takaful operator after 1 April 2015. What is the GST implication on the commission paid to me?
A29: The supply of arranging insurance cover services by the agent will be performed progressively throughout the period of insurance cover and this will be spanning from 1 April 2015. The supply of such services before 1 April 2015 will not be subjected to GST but the services performed on and after 1 April 2015 will be subjected to GST. Hence, the commission received by the agent before 1st April 2015 will not be subjected to GST and subsequent commissions paid by the insurer or takaful operator on or after 1st April 2015 will be subjected to GST.
Q30: Upon the cancellation of a policy, that spans 1 April 2015, a percentage of the premium is refunded and following that some of the original commission is refunded. What is the GST implication on the commission refunded?
A30: If the pro rata refund is for a progressive supply or a supply made for a period of the policy, then adjustments need to be made if the refund relates to the supply on or after 1st April 2015.
Q31: An investment bank acting as an insurance agent purchases a general insurance for an employee and requests that the commission earned to contra off from the premium charged. How is GST calculated on such transaction?
A31: Since the supply of general insurance and commission are taxable supplies, both insurance company and investment bank have to issue tax invoices. The GST is calculated as below:
|Annual premium charged -||RM 1,500.00|
|Commisioned earned -||RM 100.00|
|Tax Invoiced by Insurance Company:|
|Annual Premium||RM 1,500.00|
|GST 6%||RM 90.00|
|Tax Invoiced by Investment Bank:|
|GST 6%||RM 6.00|
|Bank pays Insurer||RM 1,590.00|
Q32: I am a resident insurance agent acting for a non-resident principal (insurer or takaful operator). In the course of my business, I have incurred GST on expenses such as office rentals, utilities and stationeries. Am I entitled to claim the GST paid as my input tax credit?
A32: Since you are making zero rated supplies that are taxable supplies, you are entitled to claim the GST paid as input tax credit (ITC).
Q33: As an insurance agent, I have incurred expenses such as parking charges, petrol purchases for my passenger car and mobile phone charges. Can I claim full ITC on these expenses since I am making taxable supplies?
A33: Yes, you can only claim full input tax recovery on your parking charges, petrol purchases and mobile phone charges provided that the expenses incurred are used for making taxable supplies. If the inputs are used for making taxable supplies and private use, you are required to apportion them by using the standard method.
Q34: As an insurance agent, I submit a submission sheet from time to time to my principal insurance company. This document details the payments for the insurance products sold and my entitlement for commission. Can this document constitute a tax invoice issued by me to the principal?
A34: The submission sheet does not constitute a tax invoice for GST purposes as it does not contain particulars of a tax invoice.
Q35: Is an offer letter or quotation to a prospective insurance client treated as a tax invoice?
A35: No, this document is not treated as tax invoice because you will not know whether there will be a supply at the time when you issue the document.
Q36: Can I treat insurance renewal notice (automatic renewal of the insurance as per the anniversary date) as a tax invoice?
A36: You cannot treat the renewal notice as a tax invoice.
Q37: Can an insurer or takaful operator use a self-billed invoice for the commission due to GST registered agents?
A37: The insurer or takaful operator may make an application to the Director General if he chooses to use self-billing for the payment of commission to his GST registered insurance agents.
Q38: An insurance company sponsored a Creative Photo competition, as it is the company's way of reaching out to the public, which includes giveaways in the form of prize money and trophies. What is the GST treatment on this sponsorship?
A38: For trophies provided in the form of sponsorships for which there is no consideration, the company is required to account for GST if the cost of the trophies to the insurance company is more than RM500. Any sponsorship in the form of money is not subject to GST.
Q39: The sale of fire insurance cover for a block of condominium arranged by the joint management body (JMB) is subject to GST. How does the JMB charge the owners of the commercial lots in the condominium who wish to claim input tax on the premium paid for the cover?
A39: When the JMB who is a registered person issues a tax invoice for his management fee, he can include the premium (inclusive GST) charges in that same tax invoice to the owners.