Global

Details

  • Service: Tax, Global Indirect Tax
  • Type: Regulatory update
  • Date: 11/1/2012

Malaysia: Sales Tax Essentials 

Essential information regarding Sales Tax Essentials as it applies in Malaysia.


Scope and rates

What supplies are liable to Sales Tax?


Sales Tax is payable on goods manufactured in Malaysia and goods imported into Malaysia.


What is the standard rate of Sales Tax?


The standard rate of Sales Tax is 10 percent.


Are there any reduced rates, zero rates, or exemptions?


A five percent rate applies to non essential foodstuff and specific rates for petroleum products.


Exempt supplies include plant and machinery; and raw materials and components used in the manufacturing process and other approved sectors in the economy (i.e. promoted service sector); if an application is made to the Customs authority and the Malaysian Investment Development Authority (“MIDA”) for approval, subject to conditions which may be imposed as they deem fit.


The exemption is given for both qualifying imported goods and locally manufactured items.


What are the other local indirect taxes besides Sales Tax?


Other indirect taxes include:


  • Service Tax
  • cess
  • excise duty
  • customs duty
  • windfall profit levy.

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Registration

Who is required to register for Malaysian Sales Tax?


Any person who manufactures taxable goods with an annual sales turnover above 100,000 Malaysian Ringgit (RM).


Are there penalties for not registering or late registration?


Yes. Any person who fails or refuses to register or apply for a license is guilty of an offense against the Sales Tax Act, 1972, and is liable to imprisonment for a term not exceeding 12 months or to a fine not exceeding RM5,000 or to both.


Is voluntary Sales Tax registration possible for an overseas company?


No.


Are there any simplifications that could avoid the need for an overseas company to register for Sales Tax?


Not applicable.


Does an overseas company need to appoint a fiscal representative?


Not applicable.

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Sales Tax grouping

Is Sales Tax grouping possible? 


There is no grouping provision under the Sales Tax Act, 1972.


Can an overseas company be included in a Sales Tax group?


Not applicable.

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Returns

How frequently are Sales Tax returns submitted? 


A taxable period for Sales Tax is 2 calendar months. Sales Tax returns are filed within 28 days of the following month of the taxable period.


Are there any other returns that need to be submitted?


No.


If a business receives a purchase invoice in foreign currency, which exchange rate should be used for Sales Tax reporting purposes?


Where a taxable person issues invoices in foreign currency, it is recommended that prior permission from Customs is obtained.

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Sales Tax recovery

Can a business recover Sales Tax if it is not registered


No.


Does your country apply reciprocity rules for reclaims submitted by non-established businesses?


Not applicable.


Are there any items that businesses cannot recover Sales Tax on?


Generally, no Sales Tax can be recovered on all inputs. However, the law allows refund for a vendor who has paid Sales Tax on the goods which he is supplying to licensed manufacturers, who are authorized to acquire those goods free of Sales Tax. At the same time, a licensed manufacturer may also apply to the Director General of Customs for deduction of Sales Tax amount paid in respect of goods purchased by him during the taxable period to which the return relates.


For any taxable goods subject to a 5 percent Sales Tax, a 4 percent of the total value of the goods purchased can be applied for deduction, whereas for any taxable goods subject to a 10 percent Sales Tax, 8 percent of the total value of the goods purchased can be applied for deduction.  

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International supplies of goods and services

How are exports of goods and services treated?


Export of goods is not subject to Sales Tax.


How are goods dealt with on importation?


Sales Tax is paid at the point of importation at Customs clearance.


How are services which are brought in from abroad treated for Sales Tax purposes?


Generally not applicable. However, the goods value may be adjusted to the value of services incurred subject to Customs Rules of Valuation on imported goods.

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Invoices

Is a business required to issue tax invoices?


Yes. Generally, every registered person who makes a taxable supply of goods must issue an invoice.


What do businesses have to show on a tax invoice?


The following must be shown on the tax invoice:


  • price amount of goods
  • sales Tax amount payable (which must be stated separately from the price of goods)
  • quantity of the goods sold.

Can businesses issue invoices electronically?


Yes, but businesses must obtain prior approval from the Director General of Customs.


Is it possible to operate self-billing?


No.


Can a business issue Sales Tax invoices denominated in a foreign currency?


No clear guidance is available.

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Transfers of business

Is there a relief from Sales Tax for the sale of a business as a going concern?


Sale of a business as a going concern is not subject to Sales Tax.

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Options to tax

Are there any options to tax transactions?


No.

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Head office and branch transactions

How are transactions between head office and branch treated?


If the transaction involves importation between the head office and branch, this would be treated as normal importation and would be subject to Sales Tax payment at the point of importation. There is no special treatment on importation of goods from the head office.

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Bad debt

Are businesses able to claim relief for bad debts?


Yes, subject to certain conditions such as:


  • the taxable person has not received for the whole or any part of the payment in respect of the sale of taxable goods after 6 months from the date such Sales Tax was paid by the taxable person; and
  • the Director General of Customs is satisfied that all reasonable efforts have been made by such person to recover the Sales Tax.

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Anti-avoidance

Is there a general anti-avoidance provision under Sales Tax law?


Yes.

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Penalty regime

What is the penalty and interest regime like?


The general penalty is the imposition of fine not exceeding RM5,000 or imprisonment not exceeding 12 months or both. The penalty for late payment of Sales Tax returns, however, is 10 percent of such unpaid amount for the first 30 days and the rate shall be increased by 10 percent for the second period of 30 days and for every succeeding period of 30 days or part thereof during which such amount remains unpaid to a maximum penalty of 50 percent.

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Tax authorities

Tax audits


How often do tax audits take place?


Generally, the Customs Authority audits are conducted in 3 to 5 year cycles.


Are there audits done electronically in your country (e-audit)? If so, what system is in use?


Currently, Malaysia does not conduct e-audits for Sales Tax.


Advance rulings and decisions from the tax authority


Is it possible to apply for formal or informal advance rulings from the (indirect) tax authority?


Yes. The Customs authority ruling can be applied on classification, valuation and other matters as prescribed by the DG and it is binding for 3 years.


Are rulings and decisions issued by the tax authorities publicly available in your country?


Publicly available rulings and decisions issued by the Customs authority are limited. Certain classification of goods rulings can be found here: http://www.customs.gov.my/.

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Miscellaneous

In your country, are there unique specific indirect tax rules (regimes) that differ from standard indirect tax rules in other jurisdictions?


Yes. Malaysia has specific facilities and rules with regards to free zones and warehousing. Free zone is governed under the Free Zone Act, and subject to this Act, goods and services of any description, except those specifically and absolutely prohibited by law, may be brought into, produced, manufactured or provided in free zone without payment of any customs duty, excise duty, Sales Tax or service tax. Under the warehousing facilities, on the other hand, goods stored in certain warehouses, i.e. Customs warehouse or licensed warehouse, are exempted from duties and taxes until they are removed into the principal Customs area (i.e. the domestic market).


Are there indirect tax incentives available in your country (e.g. reduced rates, tax holidays)?


Yes. Import duty and Sales Tax exemption on plant and equipment and raw material or components used directly in manufacturing activity and other approved sectors of the economy (i.e. promoted service sector), for example, can be considered subject to certain conditions.


The incentive for imported goods will be based on the following key criteria:


  • goods are directly used in the activity; and
  • goods are not locally manufactured in the country.

For locally manufactured goods, the incentive will depend on whether the goods are used directly in the activity or otherwise.

 

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