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Malaysia Issues GST Guidance On Mixed-Use Buildings

by Mary Swire, Tax-News.com, Hong Kong

17 January 2018


Malaysia's tax agency has released Public Ruling No. 1/2018, setting out the goods and services tax rules concerning the sale of buildings on commercial land that are used for both residential and commercial purposes.

The guidance points out that under paragraph 2(1)(e) of the First Schedule of the Goods and Services Tax Act (GSTA) 2014, the transfer of any strata title is a supply of goods. In addition to this, under Item 2 of the First Schedule of the Goods and Services Tax (GST)(Exempt Supply) Order 2014, the supply of any building or premises for residential purpose is an exempt supply. Conversely, the supply of all commercial properties is treated as a taxable supply and subject to GST at the standard rate.

The guidance looks at buildings that are used for both purposes – so-called "commercial residential premises." For the purposes of GST law in Malaysia, these are separated into the following categories: small office home office (SOHO), small office flexible office (SOFO), small office virtual office (SOVO), serviced apartment, commercial suite, or any other building of a similar nature.

The guidance sets out the criteria that must be satisfied for a portion of the commercial residential dwelling to qualify as exempt, rather than standard rated as a supply of commercial property. It provides examples on such, explaining that in order for a property to qualify as exempt, it must receive planning permission from the local authority as being a mixed development that is to be put to both commercial and residential use, and that its layout is suitable such that the building is appropriate as a permanent dwelling. The developer must also obtain a Housing Development License under the prescribed rules. Further, a Advertisement and Sale Permit and a Sale and Purchase Agreement must be issued under the prescribed rules also.

The guidance provides that GST at the standard rate should be levied proportional to the extent the property will be used for commercial purposes. In general, for buildings in development, the GST status of a supply will be determined by reference to the agreed function of portions of the property as either a residential building or a commercial building.

Other examples explain other elements of the rules, such as that a SOHO continues to be exempt when it is sold on. However, a landlord renting a SOHO to a person for use solely as a dwelling makes an exempt supply, whereas if such is supplied to a person also for use as an office, the supply should be subject to tax at the standard six percent rate.

Second, any lease, tenancy, or rent of commercial residential premise is a supply of a service. If a commercial residential premise is for residential purposes, the supply is an exempt supply. On the other hand, if any lease, tenancy, or rent of a commercial residential premises is for a commercial purpose, it is subject to GST at the standard rate.

TAGS: compliance | VAT tax authority guidance | tax | value added tax (VAT) | VAT legislation | real-estate | goods and services tax (GST) | tax authority | legislation | Malaysia | services | VAT goods & services classification | VAT compliance matters | Other | Tax

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