International shipping to Malaysia can be a tricky issue especially when taxes are involved as the payables usually vary according to the items. Furthermore, failure to adhere to the taxation terms may also incur losses and additional expenses for your businesses. However, navigating these issues is much easier once you know the basis of Malaysia’s tax system and sufficient background information is provided beforehand.
Thus, we have collated this essential guide to Sales and Service Tax (SST) in Malaysia to ensure that crucial rules and regulations are made aware of. Questions like how to calculate SST for businesses will be answered, and examples of SST exemptions will be provided for a better gauge and deeper understanding.
In 2018, the Malaysia Ministry of Finance introduced the SST to replace the Goods and Services Taxes (GST). This change was done in order to allow for a lower cost of living, as more businesses enjoy exemption from taxes and the SST is a single stage of consumption tax that is charged on the final production and service only.
The SST regime encompasses two elements, sales tax and service tax. Each tax can be calculated via percentages that may differ depending on the taxable item.
Current sales tax ranges from 5% to 10%, whereas sales tax for petroleum is charged at a specific and different rate.
The sales tax is imposed only on the manufacturer or consumers of imported and locally manufactured goods.
A sales tax rate of 5% is charged for products like milk and dairy items, fat and oils, prepared food like plant parts or meat, starch and powders, juices of fruits or vegetables and watches. A higher sales tax rate of 10% is charged for goods such as sugar, spirits, tobacco, cosmetic products, items made of materials like rubber, leather, glass, bamboo or electrical appliances, instruments, transport equipment and more. The full list of taxable goods under the sales tax act of SST is available on the official MySST site.
Generally, sales tax registration in Malaysia is required when the sales value of taxable goods exceeds the threshold of RM500,000 within a 12-months period.
Exempted persons are registered manufacturers who are exempted from paying the sales tax. They include manufacturers of non-taxable goods, importers and direct sellers of non-taxable goods, as well as licensed public warehouses.
These exemptions are more clearly classified into three schedules according to lists and tables in official SST documents by Royal Customs Malaysia :
Class of persons, e.g. The Yang di Pertuan Agong, Ruler of States, Federal or State Government Department and Local Authority
Duty-Free Shops, Public Higher Education Institution etc.
Manufacturer of specific non-taxable goods – exemption of tax on the acquisition of raw materials, components, packaging materials and manufacturing aids to be used solely and directly in manufacturing activities.
Registered manufacturer of taxable goods – exemption of tax on the acquisition of raw materials, components, packaging materials and manufacturing aids to be used solely and directly in the manufacturing of taxable goods.
Exempted goods are those that are not subjected to the sales tax. Some common examples include unprocessed daily food items like meat, fish, eggs, vegetables, fruits, spices, bread and pasta; pharmaceutical products such as chemicals or medication; everyday essentials like batteries, books and even gold jewellery.
Manufacturers who are eligible for sales tax exemption include manufacturers of non-taxable goods, subcontractors and manufacturers who performed below the required threshold. Specific manufacturing activities like tailoring, jewellers, opticians and installation or incorporation of goods into the building are also qualified for SST sales tax exemption.
For importers shipping items into Malaysia, it is highly advisable to consult the downloadable specific guides on SST available from the official MySST page.
Alternatively, you may choose to obtain the Harmonised System code or HS tariff code for your import and export trades between Malaysia and non-ASEAN countries, which will help customs officers identify the items you are shipping and assess the chargeable taxes. As the shipping of exempted and taxable items require different information and paperwork in Malaysia, due diligence such as consulting relevant custom authorities must be taken by business owners to ensure a smooth shipment.
In some cases, shipping certain goods may incur both import duties and taxes, so businesses need to do their due diligence when carrying out their calculations. An example of a simple calculation for these additional costs is to total the value of the goods, freight costs, insurance, import duty, and excise duty and multiply by the SST rate of the item. You are required to pay the resulting amount in order for your goods to be allowed entry into Malaysia.
The service tax rate is fixed at 6%.
Tax is due and payable when payment is received on taxable services provided by any taxable person in Malaysia in the course and advancement of business.
Taxable services are broadly categorised into groups A to I:
Group A – Accommodation
Group B – Food and beverage
Group C – Night clubs, dance halls, cabarets, health and wellness centres, massage parlours, public houses and beer houses
Group D – Private clubs
Group E – Golf club and golf driving ranges
Group F – Betting and gaming
Group G – Professionals: Legal services, Accounting, auditing, bookkeeping and consultancy, Surveying services, Engineering consultancy, Architectural services, Consultancy services, Information technology services, Management services, Employment services
Group H – Credit card and charge card (persons who are regulated by Bank Negara Malaysia and provide credit card or charge card services)
Service tax registration is needed when the value of taxable services exceeds the threshold of RM500,000 for a 12-month period. There are a number of exceptions to this general rule as operators categorised under Group B are subject to an RM1,500,000 threshold, and no threshold is prescribed for Group H and approved customs agents.
For other specificities of service tax requirements and exemptions, business owners and individuals may look up official SST documents on the MySST governmental portal for the registration of businesses.
Manufacturers and service providers who were previously registered for GST have been automatically registered under SST. For unregistered but eligible businesses, applications for online registration can be made easily through the MySST portal.
If your business is exempted from SST under Sales Tax (Persons Exempted from Payment of Tax) Order 2018, you may apply for SST exemption through Malaysia’s MySST website as well.
Businesses may face challenges when it comes to understanding and complying with Malaysia’s changing tax regulations. Being aware of SST requirements is important to avoid penalties and make sure payments are made correctly, taxes are paid accordingly, and the goods you are shipping enter the country smoothly. Stay up-to-date with the changes to import and export taxes so your goods will have a much higher chance of clearing Malaysian customs smoothly and efficiently.