| # Reverse Charge Mechanism GST is charged and levied on the goods and services imported into Malaysia . GST is not applicable for the imported goods and services that have zero rated tax code and are exempted. If a customer receives the import services, a tax invoice need not be issued. However, the invoice issued by the overseas supplier is required for auditing purposes. The supplier who does not belong to Malaysia is not required to pay GST. Set up Process for Reverse Charge Mechanism To implement the reverse charge mechanism : In the GST Parameters (tfgld9120m00c) session, in the Reverse Charge Mechanism tab, specify the Reverse Charge Output Tax, Reverse Charge Input Tax Claim, Tax Code for Reverse Charge Posting - Out, and the Tax Code for Reverse Charge Posting - In fields. In the Items - General (tcibd0501m000) session, select the Import Service-Reverse Charge Applicable check box. Note: This check box is applicable only for the item types Cost, Service, and Subcontracted Service. In the Purchase Orders (tdpur4100m000) session, select the Import Order check box. Implementing the Reverse Charge Mechanism Create and process a purchase order. Match and approve the invoice generated for the purchase order. In the Purchase Invoice Entry (tfacp2600m000) session: Set the invoice type. Select the Import Service-Reverse Charge Applicable check box. Specify the data based on the invoice type selected. Note: If the user does not select the Import Service-Reverse Charge Applicable check box for a purchase order, the application determines the transaction based on: Order number is specified but packing slip number is not specified: If the Import Order check box is selected in the Purchase Order - Lines (tdpur4100m900) session, irrespective of the country of the business partner, the Import Service-Reverse Charge Applicable check box must be selected. Order number is specified or not specified, the packing slip number is specified: If the Import Order check box is selected for the order, irrespective of the country of the business partner, the application displays a message to select the Import Service-Reverse Charge Applicable check box. Both the order number and the packing slip number are not specified: If the Import Order check box is selected for the order, irrespective of the country of the business partner, the Import Service-Reverse Charge Applicable check box must be selected. Else, the application displays a message to select the Import Service-Reverse Charge Applicable check box. Finalize the invoice. You can view the reverse charge amounts in the sections 5(a), 5(b), 6(a), and 6(b) sections of the GST-03 returns file. Posting The reverse charge posting for the output tax and input tax is initiated during the invoice payment to the supplier. The payment transactions are prioritized in this sequence: Payment of invoice through GLD transaction type Payment of invoice through payment advice: with anticipated payment steps – to be managed in the process payment advice without anticipated payment steps – to be managed in reconciliation Advance payment document assignment to Invoice Reverse charge calculation The reverse charge is calculated based on this formula:
    Rerevrse charge amount = (Payment amount) * 6/100
Example A company ABC acquired consultancy services from XYZ Company for USD10,000. The reverse charge GST is USD600 (USD10,000*6/100), convert USD into MYR based on the rates applicable for payment transactions on the payment date. Standard tax entries for the calculation: A/P Contrtol account (Debit): 10000USD * MYR 2.9 = 29000 MYR Bank account (Credit): 10000 USD * MYR 2.9 = 29000 MYR Additional reverse charge entries: Reverse charge output tax (Credit) - 6/100 * MYR 29000 = 1740 MYR (This line is added for origin - Sales and Kind of GST Adjustment - Reverse Charge Output) Reverse charge input tax (Debit) - 6/100 * MYR 29000 = 1740 MYR (This line is added for origin - Purchase and Kind of GST Adjustment - Reverse Charge Input) |