Kursus Sektor - V - Aviation1

GST Treatment on
Aviation Industry
Zuraidah binti Zulkifli

GST Division
Royal Malaysian Customs Department
27 May 2016
The information presented in the slides aim to provide a better under standing of GST treatment and is not intended to address all possible
GST issues. The information is correct as at the date of presentation. While all effort has been made to ensure that this information is
consistent with the prevailing law and procedures, should there be any changes, RMCD reserves the rights to vary our position accordingly.
BRIEFING AGENDA
Introduction
Supply of Aircraft
Supply of Goods to Aircraft
Supply of Services to Aircraft
Cargo Handling Services
Other Services
Transportation Services
:: Introduction
Definition of Aircraft
Malaysian Aviation Commission Act 2015 - means a machine that

can derive support in the atmosphere from the reactions of the
air, other than the reactions of the air against the surface of the
earth;
AVIATION INDUSTRY
For GST zero rated purpose:

 aircraft includes any aircraft owned or operated by the
government of a foreign state
 Aircraft exclude which is intended to be used for recreation or
 pleasure.
Zuraidah Zulkifli – GST Division 4

Qualifying ship for Zero Rated services
Any aircraft register under section 2 (b) of Civil Aviation Act 1969
“(2) Without prejudice to the generality of subsection (1), and without prejudice to this Act, the
Minister may make regulations making provision for—
(a) regulating, by establishing a system of licensing or otherwise, the use of aircraft on
flights for reward;
(b) the registration and marking of aircraft in Malaysia;”
AVIATION INDUSTRY
Registration No.: 9M-MNA

Airline: Malaysia Airlines
Ship Name should be permanently and
Serial : 078
conspicuously marked on
Aircraft Type : Airbus A380-841
airplane tale and wing
Engines: 4 x RR Trent 970
Delivered 29 Mei 2012 (Age : 4 Years) Zuraidah Zulkifli – GST Division 5
Non-Qualifying ship for Zero Rated services
AVIATION INDUSTRY
• Gliders
• Simulator
• Drone
• Satellites
• Hot Air Balloons
Zuraidah Zulkifli – GST Division 6 6

Introduction
Aviation service includes:
• the carriage of passengers, mail or cargo for hire or reward

AVIATION INDUSTRY
by air or by the use of any aircraft between two or more

places, of which at least one place is in Malaysia;
• the provision in Malaysia of any of the ground handling
services;
• the operation of an aerodrome in Malaysia for the take-off
and landing of any aircraft engaged in the carriage of
passengers, mail or cargo for hire or reward.

Introduction
Scope of GST
• GST is charged on
 the taxable supply of goods and services
 made by a taxable person
AVIATION INDUSTRY
 in the course or furtherance of business

 in Malaysia
• GST is charged on the imported goods/services

GST Treatment
General Rules
Standard rated (SR) supply: GST

6%
AVIATION INDUSTRY
• goods in Malaysia
• imported goods
• services are made by a supplier belongs in Malaysia
• imported services if that services are taxable supply in
Malaysia

GST Treatment
General Rules
Zero-rated (ZR) supply:

GST
0%
• exported goods
AVIATION INDUSTRY
• Goods or services list in GST

(Zero-Rated Supply) Order 2014
Out of scope (OOS) supply: X

GST
• Supply by Government (Federal /State)

• Supply by local authority and statutory body (R & E
functions)

GST Treatment
 Generally, in aviation industry, any supply of goods or services

in Malaysia is subject to GST at standard rated.
GST (Zero Rated Supplies) Order 2014

(P.U (A) 272) GST
AVIATION INDUSTRY
0%
 However, supply of goods & services

to a ship can only be zero rated if
comply with the provision of services
under the relevant item in First
Schedule or Second Schedule of the
Goods and Services (Zero-Rated
Supply) Order 2014.

:: Supply of Aircraft
Supply of Aircraft
Sales and acquisition of aircraft

• Supply of goods
GST
6%  Standard rated (SR) supply:
AVIATION INDUSTRY
 aircraft in Malaysia
 aircraft imported into Malaysia
GST
0%  Zero-rated (ZR) supply:
 aircraft exported to outside Malaysia
 aircraft supplied to DA

Supply of Aircraft
GST
Supplier location 6%
Goods delivered
Standard rated supply

AVIATION INDUSTRY
purchased
Goods
GST
location 0%
Buyer
Malaysia Zero rated supply
Overseas
GST
location
Zero rated supply 0%

Supply of Aircraft
GST
Supplier location 6%
Goods delivered
Standard rated supply

AVIATION INDUSTRY
Goods purchased
GST
location 0%
Malaysia Zero rated supply
Overseas
GST
location
Zero rated supply 0%
Buyer

Supply of Aircraft
location GST
6%
Supplier
AVIATION INDUSTRY
purchased
Goods
Goods
purchased
location X
GST
Buyer
Malaysia No tax chargeable
Overseas
Buyer
location No tax chargeable X
GST

Supply of Aircraft
GST
location 6%
Buyer
Standard rated
• GST on importation
AVIATION INDUSTRY
purchased
Goods
location X
GST
No tax chargeable
Malaysia
Overseas
Supplier location Out of scope supply

Goods delivered

AVIATION INDUSTRY Supply of Aircraft
Supply of goods by GST registered person will be

based on the movement of the goods, regardless
where the supplier belong or buyer located.

Supply of Aircraft
Leasing of aircraft (dry-leasing)

• Supply of services
Supplier belongs Usage GST Treatment

Malaysia In Malaysia SR
AVIATION INDUSTRY
Outside Malaysia ZR (item 9, 2nd Sch., ZRO)

DA In Malaysia SR - Importation of aircraft
subsec. 156(a), GSTA
SR – aircraft already in Malaysia
sec. 157, GSTA
Outside Malaysia ZR (item 9, 2nd Sch., ZRO)
Foreign In Malaysia SR - Importation of aircraft
subsec. 13(5), GSTA
SR (Imported services) – aircraft
already in Malaysia
Outside Malaysia Out of scope

Supply of Aircraft
Leasing of aircraft (dry-leasing)

AVIATION INDUSTRY
Similar treatment with

regard to leasing of aircraft
from Designated Areas (DA),
GST will be charged on the
importation of ship.

20
Supply of Aircraft
Leasing of aircraft (wet-leasing)

• Supply of transport services
Supplier belongs Usage GST Treatment

AVIATION INDUSTRY
Malaysia In Malaysia SR
Outside Malaysia ZR (item 4 or 9, 2nd Sch., ZRO)
DA In Malaysia SR - subsec. 156(b), GSTA
Outside Malaysia ZR (item 4 or 9, 2nd Sch., ZRO)
Foreign In Malaysia SR - Imported services
subsec. 13(1), GSTA
Outside Malaysia Out of scope

21
Supply of Aircraft
Discussion:
GoldLine Sdn Bhd bought a private jet from a supplier in

Australia. What is GST treatment for this transaction?
AVIATION INDUSTRY
Australian supplier will not charge GoldLine GST, however

Goldline need to pay GST on the importation of airline.

:: Supply of Goods to Aircraft
GST Treatment


(P.U (A) 272) GST
AVIATION INDUSTRY
0%
 However, supply of goods & services

to a ship can only be zero rated if
comply with the provision of services
under the relevant item in First
Schedule or Second Schedule of the
Supply) Order 2014.

Supply of goods for used as aircraft stores, spares, supply of

bunker oil & goods as merchandise for sale as retail on a flight to
or from a place outside Malaysia
• General rule : Standard rated

AVIATION INDUSTRY
• Qualifying ship: Zero rated

• Conditions
 International voyage
 supply directly onto the aircraft
GST
Supplier 0%
GST
Vendor GST
Supplier 0%
6%

25
Aircraft Stores
Aircraft stores means

goods intended for consumption by the crew and
AVIATION INDUSTRY
passengers on board aircraft
but excluding
 spare parts and equipment
 Goods brought on board by the crew or
passengers as their personal belongings or for
private use

Aircraft Stores
Examples of aircraft stores
confectionery
AVIATION INDUSTRY
beverages
water
toiletries
medical supplies
GST
0% Zero rate under item 4, of the First
Schedule of Goods and Services (Zero-
Rated Supply) Order 2014
 which is to be used for international

journey; and
 must supply directly onto the aircraft

Scenario : What is the GST treatment?
Senario :
AVIATION INDUSTRY
ZZ Holding has a contract to supply aircraft stores for all

international flight in Malaysia.
Supplies of aircraft stores intended for international voyages qualifies

for zero rate under item 4 of the First Schedule of Goods and Services
(Zero-Rated Supply) Order 2014.
ZZ Holding needs to request supporting document from airline to

prove that the aircraft on flight to or from a place outside Malaysia.

Bunker Oil
Bunker oil is any fuel required for the operation of a flight

Bunker oil is part of aircraft stores.
AVIATION INDUSTRY
The supplies of bunker oil to the following aircraft are zero

rated:
which is to be used for international journeys
must supply directly onto the aircraft

Bunker Oil
Domestic flight are not entitled for zero rated supplies of

bunker oil.
AVIATION INDUSTRY
GST
6%

Goods for sale by retail in an aircraft
Goods for use as merchandise for sale by retail to persons

carried on a flight to or from a place outside Malaysia
(international flight) in aircraft
AVIATION INDUSTRY
GST
0%
Zero rate under item 4, of the First Schedule

of Goods and Services (Zero-Rated Supply)
Order 2014

journey; and
 must supply directly onto the ship

Aircraft Spares
Spare parts are parts or components of an aircraft which are

intended to be used for replacing defective or worn out parts
or components.
AVIATION INDUSTRY
GST
0%
Zero rate under item 5, of the First Schedule

of Goods and Services (Zero-Rated Supply)
Order 2014

journey; and
 must supply directly onto the aircraft
Examples of aircraft stores:

Bulbs Air Filters Engine Mount
Safety Belts Alternators Connectors
:: Supply of Services to Aircraft
GST Treatment


(P.U (A) 272) GST
AVIATION INDUSTRY
0%
 However, supply of goods to a ship

can only be zero rated if comply with
the provision of services under the
relevant item in First Schedule of the
Supply) Order 2014.

AVIATION INDUSTRY Supply of Services to Aircraft
GST
6%
GST
0%

Services supplied directly benefit a person wholly in his

business capacity (not in private/personal capacity)
GST
0%
a) aircraft handling services in an airport;
AVIATION INDUSTRY
b) navigation services supplied in relation to an aircraft

supplied in an airport;
c) salvage services supplied in relation to an aircraft;
d) repair, maintenance and installation services supplied in
relation to an aircraft including parts incorporated;
e) surveying or classification services supplied in relation
to an aircraft; or
f) brokerage and agency services supplied in relation to an
aircraft

Aircraft Handling Services

 Handling services given to the aircraft in the airport
which directly benefit a person in his business capacity
 Services by airport operator or ground handler granted
AVIATION INDUSTRY
license under Malaysian Aviation Commission Act 2015

General rule: Standard rated supply
GST
0%
Handling services is zero
rated for qualifying aircraft under
sub item 1(a), Second Schedule,
Goods and Services Tax (Zero-

Aircraft Handling Services
• in business capacity
• in an airport
AVIATION INDUSTRY
• includes
 landing
 parking
 hangar services
 ramp / apron services
 security and fire services

Senario :
AVIATION INDUSTRY
Sapura Aero offers hangar services to private jet at their homebase of

Subang and Senai Airport. Does Sapura Aero need to charge GST to
private jet owner?
The supply of hangar services are zero rated with condition that the
supply directly benefit a person wholly in his business capacity.

Navigation Services
The service of navigating the aircraft in airport which
directly benefit a person in his business capacity. The
navigation services include:
AVIATION INDUSTRY
 provide aeronautical information

 air traffic control
 flight information in relation to aircrafts’
movement
GST
0%
Navigation services is zero
rated for qualifying aircraft under
sub item 1(b), Second Schedule,
Goods and Services Tax (Zero-

Navigation Services
Services Provider:
AVIATION INDUSTRY
• Department of Civil Aviation (DCA)

 airports X
GST
• Royal Malaysian Air Force (RMAF)

 military bases for military aircrafts

Salvage Services
Any services rendered in assisting or in saving life from, in
saving the cargo or an aircraft shall be deemed to be salvage
services.
AVIATION INDUSTRY
GST
0%
Salvage services is zero rated
for qualifying aircraft under sub
item 1(c), Second Schedule, Goods
and Services Tax (Zero-Rated
Supply) Order 2014

42
Repair and Maintenance Services

Repairing means fixing aircraft for any damage excluding the
parts, while maintenance services provided to a aircraft in
order to make sure the aircraft suitability for safe flight
(Airworthiness).
AVIATION INDUSTRY
GST
0%
Repair and maintenance
services is zero rated for qualifying
aircraft under sub item 1(d), Second
Schedule, Goods and Services Tax
(Zero-Rated Supply) Order 2014

• Supplied by a person who has a valid certificate of approval from DCA to

do repair, maintenance and installation of an aircraft
• includes
 overhaul, improvement and upgrading works to improve the reliability
AVIATION INDUSTRY
of the aircraft or aircraft parts but does not alter the nature and form
of the original aircraft or aircraft parts,
 evaluation and recertification to assess whether the aircraft or aircraft
parts are repairable or airworthy, and
 testing of parts and components, cleaning and fumigation.
 repair and maintenance services of aircraft components, regardless
with or without aircraft
 routine services performed before flight;
 non-routine services requested by the airport user;
 the provision and administration of spare parts and suitable
equipment;
 the request for or reservation of a suitable parking and/or hangar
space.

GST
0%
Conditions
the parts are installed or incorporated in the propulsion,
AVIATION INDUSTRY
navigation or communications systems, or the general

structure of the aircraft (they must be unique and have
no alternative uses apart from being used on an aircraft),
and the aircraft parts must be new or serviceable to be
airworthy.


GST
0%
AVIATION INDUSTRY

Survey and Classification Services

Surveying services - services provides in relation to issuance
of certificate of airworthiness. Classification services -
services provides in relation to registration purposes.
AVIATION INDUSTRY
GST
0% Survey & Classification
services is zero rated for
qualifying aircraft under sub item
1(e), Second Schedule, Goods and
Services Tax (Zero-Rated Supply)
Order 2014

Survey and Classification Services
Services Provider:
AVIATION INDUSTRY
• Department of Civil Aviation (DCA)

 registration services
X
GST
 airworthiness certification services

Brokerage and Agency Services
Services by intermediaries to an aircraft

AVIATION INDUSTRY
GST
0% Services provided by
intermediaries is zero rated for
qualifying aircraft under sub item
1(f), Second Schedule, Goods and
Services Tax (Zero-Rated Supply)
Order 2014

Management Services
A supplier is generally regarded as supplying management
services if it earns a fee through taking charge of all matters
relating to aircraft
AVIATION INDUSTRY
GST
0%
Management services
supplied in relation to a qualifying
aircraft which directly benefit to a
person wholly in his business
capacity is zero rated under sub
item 2, Second Schedule, Goods
and Services Tax (Zero-Rated
Supply) Order 2014

Management Services
Service of an aircraft manager

 the supervision of the maintenance,
AVIATION INDUSTRY
 survey and repair of an aircraft,

 arranging of insurance in connection with an
aircraft,
 handling insurance claims,
 engagement and provision of crews

:: Cargo Handling Services
Loading or unloading, handling services or storage of

goods carried or to be carried in an aircraft provided by a
airport operator or any person authorized by the Minister
responsible for transport, in airport is zero-rated under
AVIATION INDUSTRY
subitem 3 (1), Second Schedule, GST (Zero-Rated Supply)

Order 2014.

Loading, unloading, handling and storage of air cargo

 for movement of cargo that has been or are to be
GST
0% carried in an aircraft
 by an airport operator or any person authorized by the
AVIATION INDUSTRY
Minister responsible for transport

 in an airport
GST
6% • Otherwise (eg. by freight forwarder)

Example of cargo handling services

subitem 3 (2), Second Schedule, GST (Zero-Rated Supply) Order 2014.
• stevedoring and porterage;

• loading, unloading, reloading, stowing, securing and
AVIATION INDUSTRY
shifting cargo, the use of cranes and weighing machines;

• sorting, opening for inspection, repairing and making
good, weighing and tarring, taping and sealing, erasing
and re-marking, labelling and renumbering, tallying,
checking, sampling, measuring or gauging of goods;
• survey of cargo (including damaged cargo);
• cargo security services;
• presenting goods for customs declaration;
• preparing or amending customs declaration;
• preparing or amending bills of lading, airway bills, and
certificates of shipment. Zuraidah Zulkifli – GST Division 55
Services by other than Airport Operator and any person

authorized by the Minister responsible for transport
GST
6% • domestic movement
AVIATION INDUSTRY
GST
0% • international movement + domestic movement,
(by the same supplier)

Senario :
MASCargo is contracted by a local manufacturer to transport its goods

AVIATION INDUSTRY
from its factory in Shah Alam to London via KLIA. The company provides
all the necessary cargo handling services for both the domestic as well as
the international legs of the shipment of the goods.
 Such services supplied by the same supplier qualify for zero- rated.

:: Other Services
Other Services
Other Services related to Aviation Industry

- Catering Services
 caterer to airlines
AVIATION INDUSTRY
GST
6%
 foods and beverages (SR)

 cabin handling services (SR)
GST
0%  airlines to passengers
 domestic flight (SR)
 international flight (ZR)

Other Services
Other Services related to Aviation Industry
• rental of commercial lots

• airport security
• airport parking
AVIATION INDUSTRY
GST
6%
• advertisements space at
airport terminal
• aviation training services
by DCA X
GST
other party GST

6%

Other Services
Container Services
Air containers are an essential part of transporting
goods either locally or internationally.
The same container can be used over and over for
local and international journey.
AVIATION INDUSTRY
GST The supply of air containers by way of

0%
leased, is zero rated under item 24, Second
Schedule, GST (Zero-Rated Supply) Order
2014 provided that the containers must:
 be used for transporting goods; and
 conform to the standards defined by the
International Air Transportation
Association or any other equivalent
organization.

Other Services
Container Services
Any services relating to the leased container is subject
GST
to GST at standard rate. 6%
e.g: modification, repair, painting, cleaning and etc.

.
AVIATION INDUSTRY

Other Services
Senario :
What is the treatment on cleaning, maintenance and repairs of

AVIATION INDUSTRY
containers?
The services are subject to GST at standard rated because the services
are not related to ship and the services are performed in Malaysia.

:: Transportation Services
Domestic transportation
GST • from a place in Malaysia to another place in Malaysia
6%
International transportation
AVIATION INDUSTRY
• from a place outside Malaysia to another place outside

Malaysia;
• from the last exit point in Malaysia to any place in
GST
0% other country;
• from a place outside Malaysia to the first entry point
in Malaysia.
• domestic transportation to the extent that the services
are supplied by the same supplier as part of supply of
international transportation

Passenger Service Charge (PSC)

• formally known as airport tax
GST
6% • for flights take off from Malaysia airports
• regardless domestic or international flight
AVIATION INDUSTRY
Ancillary charges
• GST treatment on ancillary charges are based on flight
GST
6%
destination whether domestic/international
 eg. excess baggage charges
• fees that imposed for services in airport are subjected to
GST at standard rate
 Eg. check-in counter, processing fee, etc

Penalties by air operator

• ticket reissue penalty – administrative fee GST
6%
• reroute penalty – administrative fee
AVIATION INDUSTRY
• cancellation penalty – compensation

• refund penalty – compensation X
GST
• no show penalty – compensation

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GST Treatment on

Zuraidah binti Zulkifli

Supply of Goods to Aircraft

Supply of Services to Aircraft

Cargo Handling Services

Malaysian Aviation Commission Act 2015 - means a machine that

For GST zero rated purpose:

Zuraidah Zulkifli – GST Division 4

Registration No.: 9M-MNA

Zuraidah Zulkifli – GST Division 6 6

Aviation service includes:

• the carriage of passengers, mail or cargo for hire or reward

by air or by the use of any aircraft between two or more

Zuraidah Zulkifli – GST Division 7 7

 in the course or furtherance of business

Zuraidah Zulkifli – GST Division 8

Standard rated (SR) supply: GST

Zuraidah Zulkifli – GST Division 9 9

Zero-rated (ZR) supply:

• Goods or services list in GST

Out of scope (OOS) supply: X

• Supply by Government (Federal /State)

Zuraidah Zulkifli – GST Division 10

 Generally, in aviation industry, any supply of goods or services

GST (Zero Rated Supplies) Order 2014

 However, supply of goods & services

Zuraidah Zulkifli – GST Division 11

Sales and acquisition of aircraft

Zuraidah Zulkifli – GST Division 13

Standard rated supply

Zuraidah Zulkifli – GST Division 14

Standard rated supply

Malaysia Zero rated supply

Zuraidah Zulkifli – GST Division 15

Zuraidah Zulkifli – GST Division 16

Supplier location Out of scope supply

Zuraidah Zulkifli – GST Division 17

Supply of goods by GST registered person will be

Zuraidah Zulkifli – GST Division 18

Leasing of aircraft (dry-leasing)

Supplier belongs Usage GST Treatment

Outside Malaysia ZR (item 9, 2nd Sch., ZRO)

Zuraidah Zulkifli – GST Division 19

Leasing of aircraft (dry-leasing)

Similar treatment with

Zuraidah Zulkifli – GST Division 20

Leasing of aircraft (wet-leasing)

Supplier belongs Usage GST Treatment

Zuraidah Zulkifli – GST Division 21

GoldLine Sdn Bhd bought a private jet from a supplier in

Australian supplier will not charge GoldLine GST, however

Zuraidah Zulkifli – GST Division 22

 Generally, in aviation industry, any supply of goods or services

GST (Zero Rated Supplies) Order 2014

 However, supply of goods & services

Zuraidah Zulkifli – GST Division 24

Supply of goods for used as aircraft stores, spares, supply of

• General rule : Standard rated

• Qualifying ship: Zero rated

Zuraidah Zulkifli – GST Division 25

Aircraft stores means

passengers on board aircraft

Zuraidah Zulkifli – GST Division 26