News and developments
Legal Aspects for Online Transactions
The role of the Ministry of Domestic Trade and Consumer Affairs ("MDTCA")
MDTCA plays a significant role in regulating online businesses. Just like traditional businesses, online businesses are required to register themselves with the Companies Commission of Malaysia ("SSM"), an organisation that falls within the purview of MDTCA. Via SSM, MDTCA introduced the SSM BizTrust, a standard that can be obtained by online business, which certifies that it has complied with SSM BizTrust's principles and criteria, e.g. registration with SSM, online security and protection of information represented by logo or seal of assurance displayable on the e-commerce platform and linked to SSM's report and other relevant information[2] pertaining to the online business which are accessible to the public.
Recently, MDTCA has collaborated with Lazada Malaysia, one of Malaysia's biggest e-commerce platforms, and the Malaysia Digital Economy Corporation to support local small and medium enterprises and their products on Lazada Malaysia's website as an initiative to stimulate the nation's digital-led economic recovery through campaigns such as ‘Buy Malaysia' and ‘Penjana Shop Malaysia Online.'[3]
When it comes to foreign participation, this is regulated by MDTCA's Domestic Trade Division, who acts in line with the Guidelines for Foreign Participation in Distributive Trade Services in Malaysia (Amendment) 2020. These guidelines are intended to:-[4]
b) Service Tax on Digital Services
Malaysia recently introduced a new tax regime in relation to digital services - effective 1 January 2020, digital services provided by registered foreign service providers to Malaysian consumers will be subject to a 6% service tax. Foreign service providers ("FSPs") with a total value of digital services exceeding RM500,000 for a period of twelve (12) months or less are required to be registered.[23] The registered FSP must collect the service tax on the provision of digital service and remit the same to the Royal Malaysian Customs Department.[24]
Digital service is defined as "any service that is delivered or subscribed over the internet or other electronic network and which cannot be obtained without the use of information technology and where the delivery of the service is essentially automated." [25]
FSP is defined as :[26]
Any person who commits an offence under the CP Regulations 2012 shall be liable, upon conviction, to the following:[29] (Refer TABLE 3)
Conclusion
As e-commerce is still developing, the legislations already in place are still not comprehensive and require further development to suit and cater to the needs of the market and its participants at the material time. Perhaps, in addition to amending the existing legislations to solidify and modernise the same, new legislations may be enacted to further strengthen the current set of legislations contemporaneous with the development and expansion of e-commerce in Malaysia. In the foreseeable future, it is envisaged that e-commerce will become an equally popular (if not more popular) alternative to face-to-face trade transactions for the consumers to do their shopping and for the traders to conduct their businesses, due to its practicality, convenience and accessibility.
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1 See https://www.miti.gov.my/index.php/glossary/term/228
2 See https://biztrust.ssm.com.my/iw/about-biztrust
3 The Edge Markets, "Lazada features two new online campaigns to support local businesses"<https://www.theedgemarkets.com/article/lazada-features-twonew-online-campaigns-support-local-businesses>
4 Paragraph 2.0 of the Guidelines for Foreign Participation in Distributive Trade Services in Malaysia
5 Ibid.
6 See https://www.kpdnhep.gov.my/en/component/content/article/14-perdagangan/perniagaan/perdagangan-pengedaran/58-distributive-trade.
7 See https://www.smeinfo.com.my/starting-yourbusiness/going-online
8 Section 2 of ROBA 1956
9 Section 12(1) of ROBA 1956
10 See https://www.mida.gov.my/home/starting-upbusiness/posts/
11 See https://www.tmogroup.asia/ecommerce-inmalaysia-how-to-begin/
12 The Star, "Online businesses have six months to register and pay taxes"< https://www.thestar.com.my/opinion/letters/2017/06/06/online-businesses-havesix-months-to-register-and-pay-tax>
13 See https://www.tmogroup.asia/malaysia-crossborder-ecommerce-insights-and-analysis/
14 Inland Revenue Board Malaysia, Guideline on Taxation of Electronic Commerce Transactions <http://lampiran2.hasil.gov.my/pdf/pdfam/guidelines_e_commerce_13052019.pdf> (Accessed on 10 August 2020)
15 Paragraph 1.3 of the E-Commerce Taxation Guidelines
16 Paragraph 4.2 of the E-Commerce Taxation Guidelines
17 Paragraph 5.1 of the E-Commerce Taxation Guidelines
18 Ibid.
19 Paragraph 6.1 of the E-Commerce Taxation Guidelines
20 Paragraph 6.2 of the E-Commerce Taxation Guidelines
21 Paragraph 7.1 of the E-Commerce Taxation Guidelines
22 Paragraph 7.2 of the E-Commerce Taxation Guidelines
23 Royal Malaysia Customs Department, Guide on: Digital Services by Foreign Service Provider (FSP)
24 Ibid.
25 Section 2 of the Service Tax Act 2018
26 Ibid.
27 The Star, "6% tax on service from Google, FB, Airbnb to take effect Jan 1" <https://www.thestar.com.my/news/nation/2019/12/30/msians-can-expect-pricehikes> (Accessed 11 August 2020)
28 Service Tax (Digital Service) Regulations 2019
29 Section 145 of the Consumer Protection Act 1999 (Act 599)
Prepared By: Shamimi Saberi, Mohammad Ashraf Mohamed Sopiee & Shazana Abd Hapiz
- ensure an orderly and fair development in the wholesale and retail industries, while ensuring the growth of local businesses; encourage the modernization and increase the efficiency of the industry and its continued contribution to the growth of the economy; and increase Bumiputera and Malay participation in the economic sector, in line with the National Development Policy.[5]
- The relevant laws governing e-commerce transactions in Malaysia are:
- Electronic Commerce Act 2006 ("ECA 2006");
- Consumer Protection Act 1999 ("CPA 1999")- the primary legislation on consumer protection in commercial activities including e-commerce;
- Consumer Protection (Electronic Trade Transactions) Regulations 2012 ("CP Regulations 2012")- regulations issued pursuant to the CPA 1999, which prescribes a set of requirements to be adhered to and complied with by e-commerce traders;
- Contracts Act 1950 ("CA 1950"), which governs contracts in Malaysia; and
- Sale of Goods Act 1957, which governs the sale of goods in Malaysia.
- Computer Crime Act 1997;
- Digital Signature Act 1997 ("DSA 1997"), which regulates the use of digital signatures;
- Personal Data Protection Act 2010, which protects data and information collected from consumers by traders from unauthorised use, i.e. without the consumers' consent;
- Trade Description Act 2011, which deals with, amongst others, advertisements;
- Price Control and Anti-Profiteering Act 2011, which generally deals with price display and product labelling; and
- Weights & Measures Act 1972, which deals with weighting and measuring processes.
- Registration of Businesses Act 1956 ("ROBA 1956"), which deals with registration of businesses including online businesses;
- Companies Act 2016 ("CA 2016"), which deals with the incorporation and registration of companies carrying on businesses in Malaysia, including online businesses;
- Financial Services Act 2013 and Islamic Financial Services Act 2013, which recognise electronic money as a payment instrument;
- Direct Sales and Anti-Pyramid Scheme Act 1993, which recognises sales through electronic transaction as a form of legal direct sales; and
- Anti-Money Laundering, Anti- Terrorism Financing and Proceeds of Unlawful Activities Act 2001to which the issuance of electronic money shall be subjected.
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- any person who is outside Malaysia providing any digital service to a consumer; includes any person who is outside Malaysia operating an online platform for buying and selling goods or providing services (whether or not such person provides any digital service); and who makes transactions for provision of digital services on behalf of any person."
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