Tax developments affecting digital sales in South-East Asia

In a taxation first for South-East Asia, Singapore and Malaysia moved to tax cross-border digital service supplies from January 2020. These moves follow taxation trends from across the globe as tax authorities move to close loopholes that have developed as the digital economy prospered. 

While Singapore and Malaysia become the first South-East Asian nations to introduce such tax rules on the cross-border supply of digital services, their neighbours have followed suit.

Indonesia has revealed plans to do so from August 1, 2020; a draft VAT plan has been approved in Thailand; and a bill has been introduced for the same purposes in the Philippines. Here we round up the latest developments in South-East Asia:

Malaysia

Implementation date: January 1, 2020 

Malaysia confirmed the introduction of a tax on imported digital services in its 2019 budget. Malaysian finance minister Lim Guan Eng announced the changes during his budget speech saying: “For imported online services by consumers, foreign service providers will be required to register and remit related service taxes to the Malaysian customs, effective January 1, 2020.” These imported services a tax rate of 6% must be applied to sales to consumers in Malaysia.

The country's new Deputy Finance Minister Datuk Amiruddin Hamzah had previously indicated such a move at the launch of a new World Bank report titled 'Malaysia's Digital Economy: A New Driver of Development'. At the launch Amiruddin Hamzah stated: “This will definitely be a matter that we will look into deeply. We will come out with a new mechanism, but we are still studying it and we will impose something for them. If we put this matter (digital tax) aside, I think the nation will be losing revenue.” More here.

Singapore

Implementation date: January 1, 2020 
From January 1, 2020, foreign-supplied digital services will be subject to Singapore GST. The extension of Singapore’s GST system to cover these services will have a significant impact on foreign-based service providers with customers in Singapore. From the start of 2020 these providers will need to collect and settle Singapore GST.

From this date, these cross-border B2C and B2B digital service supplies will be subject to Singapore GST at the current rate of 7%. In implementing these rules Singapore will mirror popular tax rule changes that have been introduced across the globe as the taxation of the digital economy gains popularity. More here.

Indonesia

Implementation date: August 1, 2020

Indonesia's plan to impose VAT at a rate of 10% on digital services supplied by non-residents will now go live on August 1, 2020. The original implementation date was July 1, 2020, but it has been delayed by one month to August 1. 

Indonesia’s plan to tax non-resident digital businesses – with a “significant economic presence” in Indonesia – had officially come into effect back in March 31, 2020, as part of its omnibus tax law announced back in February. However, this law could not go live until the issuance of key implementing regulations by the government. These regulations (or PMK-48) officially became available on May 15.

Non-resident digital businesses with B2C sales to consumers based in Indonesia now have an obligation to register, collect, and remit VAT on their sales there. The narrow timeframe to comply will, no doubt, be challenging. More here.

Thailand

Implementation date: To be confirmed

Thailand looks set to become the latest South-East Asian nation to extend the scope of its VAT legislation to cover digital sales provided by non-resident businesses or platforms to customers based in Thailand. The Thailand VAT legislation was approved – according to this Reuters article – on June 9 and the next step in the process is a Thailand government vote and the announcement of a start date for the new legislation. More here.

Philippines

A bill aimed at taxing foreign-supplied digital services (e.g. streaming apps, social media ads and sales via online platforms) due to the substantial loss of revenue caused by the COVID-19 crisis has been introduced in the Philippines parliament. The bill proposes for the Philippine standard 12% VAT rate to apply to affected digital services. More here.

Vietnam

A draft tax law in Vietnam that would have a significant effect on cross-border eCommerce (previously planned for July 1, 2020) is unlikely to be implemented any time soon. Back in June 2019, Vietnam adopted the ‘Law on Tax Administration’. Contained within this regulatory update were plans for foreign eCommerce companies to register for Vietnam VAT purposes. These plans were due to come into effect on July 1, 2020. 

Place of consumption rules are in place in Vietnam. However, a 10% tax is currently withheld at source by the Vietnamese party to the contract. This is known as a ‘Foreign Contractor Tax’ of which half is VAT and half is an income tax. More here.

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