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Understanding Malaysia’s import duties and taxes, as well as the de minimis rate, can assist local businesses in having their products processed by customs more quickly. But what is de minimis?
De minimis is a value threshold and is important to note if you’re shipping parcels internationally. Shipments below the de minimis rate will have minimal to no tax charges when they enter a country. In Malaysia, the de minimis rate is at MYR 500 (US$115). This value considers the worth of the transported goods as well as the shipping costs. On the other hand, Sales and Service Tax (SST) was reintroduced in Malaysia and replaced the GST, affecting the import of goods. The standard rate for the SST is 10% while its reduced rate is 5%.
Leveraging the de minimis rate can make a difference in e-commerce transactions, especially for shipments valued below it. Read on to learn how de minimis affects businesses and the Malaysian SST rate.
De minimis is inspired by the Latin phrase, ‘de minimis non curat lex,’ meaning ‘the law cares not for small things.’ When taken in the context of international trade facilitation, it applies to shipments so small in value that tax or duty need not be imposed on them.
When shipping your packages out, knowing about the de minimis value is crucial, because as long as they satisfy the de minimis requirement, you can ship them out without incurring any charges.
Being aware of the de minimis rate in Malaysia as a seller also means ensuring smooth shipping transactions for your shoppers or buyers since the shipment will not have to face any issues clearing customs.
Malaysia has a flourishing e-commerce market where approximately half the population (16.29 million) shop online actively. The high de minimis rate encourages online sellers to penetrate the Malaysian market as there is now less hassle for higher valued shipments.
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.
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.