Scope and rates
Sales Tax is payable on goods manufactured in Malaysia and goods imported into Malaysia.
The standard rate of Sales Tax is 10 percent.
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.
Other indirect taxes include:
- Service Tax
- excise duty
- customs duty
- windfall profit levy.
Any person who manufactures taxable goods with an annual sales turnover above 100,000 Malaysian Ringgit (RM).
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.
Sales Tax grouping
There is no grouping provision under the Sales Tax Act, 1972.
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.
Where a taxable person issues invoices in foreign currency, it is recommended that prior permission from Customs is obtained.
Sales Tax recovery
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.
International supplies of goods and services
Export of goods is not subject to Sales Tax.
Sales Tax is paid at the point of importation at Customs clearance.
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.
Yes. Generally, every registered person who makes a taxable supply of goods must issue an 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.
Yes, but businesses must obtain prior approval from the Director General of Customs.
No clear guidance is available.
Transfers of business
Sale of a business as a going concern is not subject to Sales Tax.
Options to tax
Head office and branch transactions
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.
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.
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.
Generally, the Customs Authority audits are conducted in 3 to 5 year cycles.
Currently, Malaysia does not conduct e-audits for Sales Tax.
Advance rulings and decisions from the 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.
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/.
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).
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.