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Industry Guide:

Legal Practitioners

 
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FREQUENTLY ASKED QUESTIONS

Place of Supply

1. If I provide legal services to an entity outside Malaysia and billed to the recipient in Malaysia, do I have to account for GST?

A supply of legal services to an entity outside Malaysia but billed to a recipient in Malaysia is regarded as exported services. The supply is regarded as zero rated. There is no GST on the supply. 

Example 1

A legal counsel AB provided legal advice to an accused person, BC who was detained and faced prosecution overseas. This provision of legal advice is regarded as a supply of export services even though payment for the services was made in Malaysia by BC’s employer. 

2. If a foreign legal practitioner registered outside Malaysia, provides legal services in Malaysia, who has to account for GST?

The supply of legal services in Malaysia by a foreign legal practitioner is regarded as a supply of imported services. Such person does not have to charge GST. However, the recipient of the services who receives the services for the business carried on by him is required to account for it by a reverse charge mechanism. 

If the supply is not made for business purposes, the recipient is not liable to account GST on the supply of imported services he receives.

3. What is the GST treatment on the supply of legal services provided by legal practitioner in Principal Customs Area (PCA) to a recipient in Designated Area (Langkawi, Tioman or Labuan)?

A supply of legal services by legal practitioner registered in the Principal Customs Area to a recipient in Designated Area is a standard rated supply.

4. What is the GST treatment on the supply of legal services provided by legal practitioner in the Designated Area to a recipient in the Principal Customs Area?

Services rendered by legal practitioner in the Designated Area to a recipient in the Principal Customs Area is subjected to GST. The legal practitioner would be required to register and account for the GST subject to the GST registration threshold.

5. Are legal services provided within and between Designated Area subject to GST?

The legal services rendered within and between the Designated Areas are not subject to GST. 


Charges, Fees and GST

6. Do I have to account for GST for all charges and fees imposed? 

All charges and fees, excluding disbursements imposed for services provided will be subject to GST. These include fees in respect of contentious or noncontentious business, preparing and completing agreements, conducting and completing transactions, preparing filing or witnessing of miscellaneous documents. It also includes charges such as miscellaneous expenses, cost of extra work, travelling or accommodation expenses, allowances for the time of the solicitor and his clerk and all usual and necessary attendances and charges for normal copying and stationary.

7. Do I have to issue tax invoices for the above charges and fees?

Yes, you have to issue a tax invoice for the charges and fees imposed that are subjected to GST. Your client who is a GST registered person can claim the GST as input tax. 

8. Do I have to account for GST for services provided free of charge?

No, where services are provided free of charge, there is no consideration received and therefore there is no supply. There is no liability to account for GST.

9. Is GST imposed on the interest charged on late payment?

The interest charge on late payment is not subject to GST as it is an out of scope supply.


Registration

10. Who is liable to be registered?

All legal practitioners who practice either as a sole proprietor or in partnership are required to be registered for GST if the total value of taxable supplies exceeds the GST registration threshold in the past 12 months or in the next 12 months or part thereof.

11. What constitutes the value of taxable supplies for purpose of registration?

The annual turnover value of taxable supplies includes the following: 

(a) All fees;

(b) other charges incurred by legal practitioners excluding disbursements referred to in paragraph 17-19; and 

(c) deemed supplies such as private use of business assets and disposal of business gifts.


12. If my annual turnover of taxable supplies does not exceed the GST registration threshold, can I apply to be registered?

Yes, you may apply for voluntary registration.

13. Is there any condition for voluntary registration?

Yes, once registered you must remain registered for a minimum of two years.


Branch and Division

14. My establishment has two branches. How do I determine the turnover of the business?

The combined turnover of the two branches will be regarded as the turnover of the business.

Example 2 

A & Co has two branches in Kuala Lumpur and Johor Bahru. The branch in Kuala Lumpur has a turnover of RM250,000 while the branch in Johor Bahru has a turnover of RM150,000. The combined turnover of the company is RM400,000. A & Co is required to register if the registration threshold is RM300,000. 

15. Can I register my branches separately?

You can apply to register your branches separately subject to certain conditions and requirements as referred to in General Guide.

Example 3

Based on the above example A & Co may register in Kuala Lumpur and a separate branch in Johor Bahru.

Both branches will be given a separate GST number. 

16. What are the conditions and requirements if I want to register my company separately?

This approval is subject to the following conditions and requirements; 

(a) Every separately registered branch has the same taxable period.

(b) It is likely to cause difficulty for taxable person to submit a single return.

(c) All branches must be registered although one branch is below threshold.

(d) Each branch will be given a separate GST number and make their own return. However, the main branch remains accountable for all GST liability for all branches.


Time of Supply and Accounting Period 

17. When do I have to account for GST?

As a legal practitioner, if you had not performed the services, you have to account for GST on the services at the earliest of the following: (a) The date of receipt of payment; or (b) The date of issue of a tax invoice. However, upon completion of services and you issued a tax invoice within 21 days, you account GST based on the date of invoice.

Example 4
 
AB & Co provided legal services to a client B. The legal services were provided in February over a period of time and finally completed on 15th May. The invoice has to be issued within 21 days from the date of completion of services that is on or before 5th June. AB & Co has to account for GST based on the invoice date.

18. What is the consequence if I fail to issue a tax invoice within 21 days from the date of completion of services?

It is mandatory that a tax invoice be issued within 21 days after completion of services to ensure all GST registered clients receive it to enable them to claim the input tax credit. However, if you fail to do so within 21 days, your tax point will revert back to the date you completed performing of your services.

Example 5 

J & Co provided legal services to a client D. The legal service was provided over a period of time and was completed on 15th May. The invoice was issued one month after on 15th June. The tax point shifts back to 15th May. GST has to be accounted for the taxable period covering 15th May.

19. As a permanent legal practitioners, I receive regular payment on a standing retainer. When do I have to account for GST? 

You account for GST on the earlier of the following:

(a) The date of receipt of payment; or

(b) The date of issue of a tax invoice. 


Client Account

20. As a legal practitioner, I have to maintain client’s accounts. Do I have to account for GST on money deposited into the client’s account? 

No, you do not have to account for GST because the amount received is not payment for a supply. However, you have to account for GST when the money is transferred from the client’s account to the office account for payment of services rendered to your client. 

 

Deposit and Advance Payment

21. Is GST chargeable on deposits received from the recipient? 

If the deposit forms part payment of the total consideration payable by the recipient, GST will be chargeable at the time of payment of the deposit. On the other hand, if the deposit is used as security and will be fully refunded upon completion of services, no GST will be chargeable.

22. Is advance payment subject to GST?  

Yes, because it was payment for your supply. If the part of the advance payment were refunded, GST will be imposed on the part which is the payment of the services.

23. When do I account for GST on advance payment?

You have to account for GST on the date of receipt of payment.

24. What is the GST implication on contingency fee (if any)?

For the purposes of GST, GST will be chargeable on any percentage received by legal practitioner. The legal practitioner is liable to account for GST on the earlier of the following:

(a) When he receives any percentage of the client’s monetary award or

(b) on the date of issue of a tax invoice


Bad Debts

25. What will happen if my client does not pay me after I have issued tax invoice for legal services which I have provided for him?

You can claim bad debts relief on the GST output tax paid in respect of taxable supplies. The GST portion of the bad debt will recovered subject to certain conditions:

(a) The tax is already paid;

(b) The whole or any part of the consideration for the supply has been written off as bad debts or provided for as doubtful debts;

(c) The claimant has not received any payment 6 months after the supply has been made; and

(d) The claimant has made sufficient efforts to recover the debt. 

 

Other Outputs

26. What is the GST treatment for non-billed income such as oath fees received by the legal firm or by individual solicitor under GST?

Non-billed income such as oath fees received in respect of oaths administered by a solicitor in sole practice or a partner in a legal firm are regarded as consideration for services supplied in the course of business, and thus is subject to GST.


Disbursements  

27. What are the conditional requirements of disbursements for GST purpose? 

A legal practitioner may only treat a payment on behalf of a client for goods and services to a third party as a disbursement for GST purpose if the following conditions are satisfied:

(a) The legal practitioner acted for his client when paying the third party.

(b) The client actually received and used the goods or services provided by the third party.

(c) The client knows that the goods or services would be provided by the third party.

(d) The client authorized the legal practitioner to make payment on his behalf.

(e) The client was responsible for paying the third party.

(f) The payment is separately itemized when invoicing the client.

(g) The legal practitioner recovers only the exact amount which he paid to the third party.

(h) The goods and services paid for are clearly additional to the supplies which the legal practitioner makes to the client.

28. Can general expenses qualify as disbursements?

General expenses such as telephone, telex, postage, advertising, and stationery charges are incurred in the course of providing services to the client and shall be treated as business costs. They are not to be treated as disbursements for GST purposes. However with regards to telephone calls, some firms may have a policy to charge separately for the cost of telephone calls, e.g. for international calls or for the cost of a conference call. Even where these charges are itemized separately on the invoice, for GST purposes they are regarded as part of the cost of providing the supply of legal services to your client and these charges would attract GST. The legal practitioner should therefore account for input tax in the normal way and charge GST at the standard rate on the value of the telephone calls or conference fee charges.

29. Can travel and accommodation expenses be regarded as disbursements?  

As a general rule, travelling and accommodation expenses incurred by a legal practitioner in the performance of his client's instructions are not disbursements and must be included as part of the legal practitioner's overall charge. These would include the accommodation and travelling expenses such as flight, taxi and train fares, toll charges and car parking an. Such expenses are incurred in the course of providing a supply of services to a client. If these expenses are borne by the legal practitioner, they can be recovered as the consideration paid by the client will include these expenses. Such expenses cannot too be treated as reimbursements because such expenses were on the services supplied to the legal practitioner rather than to the client, and the charge made by the legal practitioner was part of the total consideration for all the services supplied to the client and could not be divided for the purposes of calculating GST.

30. Are disbursements excluded from the value of the supply of services? 

Yes, such disbursements are excluded from the value of supply of services. The example below illustrates how you exclude disbursements from the value of supply of services.

Example 6
























 

31. Can payment on reports by third party be regarded as disbursement?

In the case of ordinary report by third party, if the legal practitioner acquires the report for his own use (analyses or comments on it), payment on such reports are not regarded as disbursements. They are part of the cost in providing services to the client (general expenses). However, if the legal practitioner merely passes on the report to the client, payment on such reports can be regarded as disbursements. However, in the case of expert fees, such fees are regularly instructed in connection with court proceedings, both civil and criminal, to give or prepare expert evidence. Court procedural rules provide that experts have an overriding duty to help the court on matters within their expertise. This duty overrides any obligation to the person instructing or paying them. Experts must not serve the exclusive interest of those who retain them. Experts can be asked by the court to produce an expert report or to give oral evidence in court as an expert witness. Order 40 Rule 5, The Rules of Court 2012 states that the parties shall be jointly and severally liable to pay the amount fixed by the Court for the remuneration of the Court expert as part of the costs of the cause or matter. Meaning, the parties are encourage the use of joint experts in civil proceedings this would be for claimant and defendant. Whereas, in criminal proceedings this would be one expert for all co-defendants. Wherever possible, a joint report should be obtained. In such cases there will be a statement that all the instructing parties are jointly and severally liable to pay the experts' fees and accordingly, that experts' invoices should be sent simultaneously to all instructing parties or their solicitors, as appropriate. Hence, in deciding whether such expenditure on experts' services can be treated as a disbursement for GST purposes, it is necessary to consider who receives the supply of the services provided. Where an expert's report has been obtained by a legal practitioner, for example handwriting experts, printing experts as part of the evidence in support of their client's case then they can be treated as a disbursement.

32. Can witness fees paid by the legal practitioner be regarded as a disbursement?  

The procedural rules for both criminal and civil proceedings require witnesses (other than experts) served with a witness summons to be offered or paid a sum to cover their travelling expenses to and from the court and compensation for loss of time. Such payments are made on behalf of the client because the witnesses are giving evidence to support their cases and as such can be treated as disbursements for GST purposes. These fees will therefore not attract a GST charge when legal practitioner bill their client.

33. How do I treat disbursements?  

Legal practitioner have 2 options:

(a) To exclude the disbursement when calculating GST on the main supply. In this case, you pass on the disbursement to the client. The legal practitioner and the client are not allowed to claim input tax;

 Example 7 

 ABC & Co supply legal services to MC & son for a basic fee of RM8000. In addition, ABC & Co incur RM200 expenses which he passes on to MC & son as the client, but    which do not qualify for treatment as disbursements for GST purposes. ABC & Co also pay RM1200.00 on behalf of his client in circumstances where that payment can be
 treated as a disbursement.

 ABC & Co as the legal practitioner must issue a tax invoice to his client, showing:

 Legal Services; RM8000.00

 Expenses; RM200.00

 Value for GST; RM8200.00

 6% GST; RM492.00

 Disbursements; RM1200.00

 Total Billed; RM9892.00 

 or

(b) To treat the legal practitioner as principal for the disbursement. The Legal Practitioner may reclaim the related input tax, subject to the normal rules, and must charge GST on the onward supply, if appropriate. 

 Example 8

 Using the same scenario and figures as in the example under option A, ABC & Co may claim input tax of RM72 in respect of the disbursement of RM1,200.00. He charged  MC & son GST on the net amount of RM9,964 which is itemised on his tax invoice. MC & son be able to claim input tax.

 Legal Services RM8,000.00

 Expenses RM200.00
 
 Value for GST RM8,200.00

 Disbursements RM1,200.00

 6% GST RM564.00

 Total Billed RM9,964.00


Overseas Telecommunications

34. In supplying my legal services, I have to make calls to my overseas client. Are these calls zero rated? 

The services that you provide to overseas client will be zero rated but the charges on telephone bill that you receive will be standard rated. However because the calls were made for making taxable supply, you can claim input tax credit.

35. Who is entitled to recover the GST if someone else pays for my services?

Only the recipient of the service or goods is entitled to recover the GST. If your client pays for your hotel accommodation, you can claim the GST if the invoice is issued in your name.

36. What is the GST treatment on costs awarded to the legal practitioners?

The costs awarded to the legal practitioners will subject to GST if the payments were consideration of the services.


Transitional Provisions

37. Can I claim input tax incurred on service tax for services procured before the commencement of GST?

No, you cannot claim input tax on service tax incurred before the commencement of GST because the services were performed and consumed before the commencement of GST.

38. How do I account for GST on the value of legal services if the services were performed spanning GST implementation?

You must make apportion the legal service, which you perform before and after GST implementation. GST is only chargeable for legal service rendered after GST implementation. Apportionment can be by way of time spent, transactions or number of court appearances.

Example 9

Apportionment by number of court appearances LM & Co has been appointed as litigation lawyers for RZ to act as his lawyer in the Magistrate Court. The lawyers attended court a total of 5 times, that is 3 times before and 2 times after commencement date of GST. After completion of services, LM& Co lodged claim for his services amounting RM10,000.00.

Total court appearance days = 5 times

Court appearances after GST implementation = 2 times

GST liable = 2 / 5 X RM10,000.00 x 6% = RM240.00.

LM & Co has to account for GST of RM240.00. 

39. Is the payment I received after commencement of GST for services performed before GST implementation subject to GST?

No, payment received after commencement of GST for services provided before GST implementation is not subject to GST. 
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L & Co Plt.

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Tel +607-859 0410
Fax +607-863 1003
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