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Industry Guide:

Islamic Banking

 
Please click here to download complete guide.

 

FREQUENTLY ASKED QUESTIONS

GST Registration 

1. Most of the financial services are not subject to GST. Do Islamic banks and Islamic financial institutions need to be registered?

Even though most of the financial services are not subject to GST, Islamic banks and Islamic financial institutions provide fee-based services which are subject to GST at standard rate. If the amount of these taxable supplies exceeds the prescribed threshold, then it is a mandatory requirement for the Islamic banks or Islamic financial institutions to be registered under GST. 

2. Can several banks under the same holding company be registered under group registration?

No. GST Group registration is restricted to businesses which makes wholly taxable supplies. Banks being suppliers of exempt supplies are not eligible for GST group registration. 


Tax Invoices 

3. My customers perform many banking transactions in a taxable period. Should I issue a tax invoice for every banking transaction? 

No, you need not issue a tax invoice for every transaction. You can apply to the Customs Department for approval to issue a monthly statement covering every banking transaction that has taken place within the calendar month.

4. Should I issue a tax invoice to an individual customer who is a nonregistered person? 

Generally, a registered person must issue a tax invoice in respect of taxable supply. If there is no taxable supply, then it is not required. The bank can apply to the Customs Department for approval to be exempted from issuing a tax invoice to a non- GST registered person. However, the bank is required to issue serially numbered receipts for audit purposes. Alternatively, instead of issuing receipts manually, electronic receipting is also allowed, as long it is captured and recorded. 

5. Do I have to issue tax invoice for transactions involving customers abroad with zero-rated supplies?

You need not issue a tax invoice for a zero-rated supply. 


Input Tax Recovery 

6. Can I claim input tax incurred in respect of medical and hospitalisation benefits for my employees?

No, the Islamic bank is not entitled to claim the input tax incurred because medical and hospitalisation benefits for the employees as these are blocked inputs.

7. In December 2016, I organize an annual dinner for the employees at a hotel. Existing clients are also invited for the dinner. Can I claim input tax incurred for the dinner?

Yes, you are entitled to claim input tax on business entertainment to employees and existing clients. 


Accounts operation (savings, current, fixed deposit or other similar accounts) 

8. When a customer deposits or withdraws money from his savings, fixed deposit or current account, is he subject to GST?

Deposits or withdrawals from the savings, fixed deposit or current account are not subject to GST. 

9. Is profit charge subject to GST?

No, profit charge is not subject to GST.

10. I charge my customers certain fees such as half yearly service charge for current account and fifth cash ATM withdrawal charge. Are they subject to GST?

Yes, these charges are subject to GST. Any fee based charge in the form of explicit fees imposed by any bank or financial institution are subject to GST. 


Provision of financing, advances or credits 

11. Is the provision of financing subject to GST? 

When a bank provides financing to its customer, the bank would enjoy profits. The profit charge with regards to the provision of financing is not subject to GST. However, any fees or charges in relation to it, for instance processing fee, advisory services fee or charges on making copies on the document are subject to GST. 

12. Are repayments of the principal amount subject to GST?

The repayment of financing, i.e. the installment of the principal amount with or without profit charge is also not subject to GST.

13. Is late payment penalty subject to GST?  

No. Late payment penalty is not subject to GST.

14. I provide financing to a project in Vietnam. Will this financing be subject to GST?  

Financing a project outside Malaysia is zero-rated and its processing fee in respect of the financing given is also zero rated.


Credit, Debit or Charge Card  

15. Most banks waive the annual subscription fee on the credit card to make it competitive in the market. Is GST still be imposed on the waived annual subscription fee? 

Since there is no consideration for the supply of service, the bank need not charge GST on the waived annual subscription fee.


Documentary Credit  

16. As an advising bank, I charge a confirmation commission for confirming an LC in favour of a Malaysian exporter. Is this commission subject to GST?

This commission is subject to GST as the service is performed in Malaysia.

17. I issue a letter of credit to a local trader for an importation of goods and charge a fee for the issuance of the letter of credit. What is the GST treatment on this 
fee?  

Such fee is subject to GST at standard rate

18. I also provide advisory service in relation to the issuance of the letter of credit. Is advisory service subject to GST?  

Advisory service is a taxable supply and is subject to GST at standard rate.


Foreign Exchange  

19. What is the GST treatment on foreign currency exchange? 

Bank profits from spread resulting from the different between the rates of selling ang buying of the currency. Spread is not subject to GST. 

20. What is the GST treatment on the fee or commission charged on the issuance and encashment of traveller’s cheque within Malaysia?

The fee or commission is subject to GST at standard rate.


Safe Keeping and Custodial Service 

21. What is the GST treatment on safe keeping and custodial services?

Bank provides safe-keeping or custodial services to its customer by offering a safety deposit box and charges rental on the box. The rental charges are subject to GST at standard rate. 

 
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L & Co Plt.

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Taman Gaya,
81800 Ulu Tiram,
Johor, Malaysia.

 
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Lintang Mayang Pasir 3,
11950 Bayan Baru,
Penang, Malaysia
Tel +604-377 7075
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