VAT in Malaysia
The Malaysian GST, abolished in 2018
What are the characteristics of the Malaysian SST?
- 10% (the standard rate) is applicable to most of the goods sold on the Malaysian territory, as well as on certain categories of imported goods;
- 6% - this rate represents the standard rate applicable to services provisioned on the local market;
- the 6% rate is available for catering units, accommodation units, insurance activities, domestic flights, legal services, electricity and others;
- the provision of import-export services is exempted from the payment of the 6% tax rate;
- 5% - it is available for a wide category of basic food products, construction materials and petroleum.
The video below offers a short presentation on the value added tax in Malaysia:
What are the differences between the GST and the SST in Malaysia?
The new taxation system, represented by the SST tax, was passed by the local government in August 2018, when both of the acts that regulate this tax were approved – the Sales Tax Act and the Services Tax Act. Under the previous tax regime concerning the local VAT, the GST had a wider scope, in the sense that it was applicable to a larger category of products and services, which were imposed with the same tax rate (available at a lower rate compared to the SST).
The SST is comprised, as mentioned above, by a three tier taxation system, making a clear distinction between the taxation of services and the taxation of goods. An advantage of the new tax system is that more products and services can actually be tax-free. Businessmen should also know that the sales tax is applicable only once throughout the supply chain, for example, at the level of the manufacturer or the importer.
What are the characteristics of the sales tax in Malaysia?
Businessmen interested in starting the procedure of company formation in Malaysia, who will be liable for the payment of the VAT, must consider several aspects in the situation in which they provide goods on the Malaysian market. The SST is applicable to most of the goods that are manufactured in Malaysia or to goods that are imported here.
However, in the case of the products that are manufactured in this country and addressed to export, the SST will not become applicable. As mentioned above, in the case of taxable goods, the tax rates can be applied at the 5% or 10% rates, but several categories of products benefit from an exemption.
In this sense, it is important to know that companies can also be exempted from the payment of the SST for special categories of products that are used for manufacturing purposes, such as raw materials, packaging materials and other components necessary for the manufacture of goods.
What are the characteristics of the services tax in Malaysia?
The other component of the SST in Malaysia defines the manner in which services will be charged for VAT in this country. All services delivered in Malaysia are taxed at a rate of 6%, unless they are exempted from taxation. The services tax will be charged only once and it is applicable to the services provider in Malaysia. It is also important to know that the newly enforced tax is administered by the .
What are the products and services exempted from SST in Malaysia?
Businessmen performing taxable activities in this country should know that the SST legislation provides a wider range of products that are exempted from the payment of the SST, which can be discovered under the “Proposed Goods Exempted from Sales Tax”. As a general rule, the list follows the previous SST exemption system, which follows the Harmonized System Tariff Classification.
Tax regulations for manufacturers in Malaysia
According to the Guide on Manufacturing and Import/Export, issued by the Royal Malaysian Customs Department, companies that operate as manufacturers in this country are required to register for the SST tax following the regulations prescribed by the Section 12 of the Sales Tax Act 2018, which stipulates that all businesses have to register provided that the sales value are above RM 500,000 in a period of one year.
The same section of the Act stipulates that local businesses which operate as subcontractors also have to register for the payment of the SST, in the case that the total value of their subcontract work is above RM 500,000. Manufacturers with sales values below RM 500,000 can register on a voluntary basis, as stipulated by the Section 14 of the document.
It is also necessary to know that manufacturers that develop their business activities in Malaysia in regions which are classified as Designated Areas or Special Areas are not imposed with the sales tax, following the provisions stated under the Sections 49 and 56 of the new tax Act and our team of consultants in company registration in Malaysia can provide more information concerning the new tax regulations.
Persons who are interested in receiving further information on the VAT regulations in this country can address to our team of company formation agents in Malaysia for assistance. Our team of specialists can advise on the manner in which local businesses have to register for the payment of the VAT.