How Malaysia’s De Minimis Affects Businesses

What is Sales & Services Tax (SST)?

The GST goods and services tax (GST) was believed to increase the cost of living, leading to the Malaysian government abolishing it in 2018. It then implemented the Sales & Service Tax (SST) so as to allow locals to have more purchasing power. The SST is the taxes imposed on the sales of imported goods and involves two elements: 

• Sales tax: It is imposed on all taxable goods imported into Malaysia or locally manufactured.

• Services tax: It is imposed on all taxable services provided in Malaysia. 

However, those under the Sales Tax (Person Exempted from Payment of Tax) Order 2018 are exempted from paying sales tax. 

Any shipment with a Cost, Insurance and Freight (CIF) worth below Malaysia’s de minimis value of MYR500 can be imported into the country tax-free. The current sales tax rate is 5% for products such as petroleum oils, construction materials and basic goods such as food, personal computers and mobile phones. A sales tax rate of 10% applies to all other goods. The service tax rate stands at 6% and such services include hotels, insurance and restaurants. 

However, the sales tax will be waived on all goods manufactured for export, as well as other goods such as live animals, meat, vegetables and newspapers. Import duties range from 0 to 50%, although the average duty rate for imported goods is 6.1%. 

To determine the SST rate, all imported shipments are also required to be tagged with a tariff code in accordance with the  Harmonised System (HS), a product-specific code system. Through this custom authorities can determine the amount of tax and import duties to be paid. 

How to ensure smooth customs clearance? 

Going through the customs smoothly ensures that there will be no shipment delays and reduces the chances of problems arising. Preparing the right shipping documentation, for example, will ensure your products successfully reach their destinations when shipped from Malaysia. Here are some methods for assuring that your shipment arrives on time:

• Have a complete invoice: A commercial invoice is a required document for customs clearance. Any mistakes or missing information will cause your shipment to delay or even be confiscated by the authorities. Having plenty of details is essential as compared to minimum description. This will save time by assisting customs authorities for tax purposes. 

• Choice of Incoterms: Incoterms determine who would be responsible for the shipment. Different incoterms will suit different modes of shipment. If the supplier is unfamiliar with Malaysia’s customs, it is recommended to opt for DAP. If they are familiar, DDP would be recommended. 

• Documents should not be placed inside your shipment: Commercial invoice and airway bill are attached to the packaging. Documents placed inside will cause delays as authorities do not open packages for safety.

• Work with a reliable shipping company: As a third party shipping company would have the experience with customs, working with one can save time and ensure your products clear customs without any issues. 

The existence of de minimis benefits small valued shipments as they will not be charged the same duties and taxes as the other shipments. Businesses can leverage this to plan the number of imported goods strategically.