Executive Summary
This guide provides a clear explanation of the two main pillars of digital tax in Malaysia: the Service Tax on Digital Services (SToDS) and the new mandatory e-invoicing system. Understanding these is crucial for any business operating in Malaysia's digital economy.
1. Service Tax on Digital Services (SToDS)
Introduced in 2020, SToDS is a tax on digital services provided by foreign service providers to Malaysian consumers. The tax rate was increased to 8% in 2024.
- Who it affects: Foreign providers of digital services (e.g., streaming services, software, online advertising) to Malaysian consumers.
- What it covers: A wide range of digital services, including software, music, videos, and digital advertising.
- Compliance: Foreign service providers with an annual turnover of more than RM500,000 from Malaysian consumers must register with the Royal Malaysian Customs Department (RMCD) and charge the 8% service tax.
2. Mandatory E-Invoicing
Malaysia is rolling out a mandatory e-invoicing system in phases, with full implementation expected by 2026. This system requires businesses to issue electronic invoices that are validated by the Inland Revenue Board of Malaysia (LHDN) in real-time.
- Who it affects: All businesses in Malaysia, with a phased rollout based on annual turnover.
- What it covers: All B2B, B2C, and B2G transactions.
- Compliance: Businesses must integrate their accounting or ERP systems with LHDN's MyInvois portal via an API, or use the portal for manual submissions.
Key Takeaways for Businesses
The implementation of SToDS and e-invoicing represents a significant shift in Malaysia's tax landscape. Businesses need to:
- Review their digital service consumption: To understand their SToDS obligations.
- Prepare for e-invoicing: By assessing their system readiness and planning for the implementation.
- Seek professional advice: To ensure they are compliant with the new regulations.
Related Services
Our Tax Advisory & Compliance and Technology Consulting teams can help you to navigate the complexities of digital tax in Malaysia.
Last updated: 15 October 2025