Malaysia plays a crucial role in trade within Southeast Asia, as a significant portion of its economy relies on imports. The country brings in a variety of products such as machinery, electronics, chemicals, and food. Businesses opportunity for import to Malaysia due to factors like the availability of educated and skilled labor at a lower cost, as well as the opportunity to tap into a market that is rapidly expanding with a population of over 30 million.
The process of importing to Malaysia can be intricate. Gaining a thorough understanding of this process is essential to accurately calculate all associated costs when engaging in price negotiations with international suppliers. Explore further in this article to grasp the essential elements of importing goods for business purposes in Malaysia.
Rules and Regulation Import to Malaysia
When bringing goods into Malaysia, it is essential to have a good grasp of the tax system’s intricacies. There are three primary taxes imposed on import to Malaysia: Import Duty, Sales Tax, and Excise Duty.
This guide will delve into each of these taxes and highlight potential areas where tax exemptions may be granted. Furthermore, we will discuss the advantages of Free Trade Agreements (FTAs), Free Trade Zones (FTZs), and Licensed Manufacturing Warehouses (LMWs), which offer avenues for tax exemptions when importing goods into Malaysia.
1. Import Duty
Import Duty, also referred to as Customs Duty, is a vital tax imposed on goods entering Malaysia from abroad. It is one of the primary taxes levied on imports and plays a fundamental role in regulating international trade. The purpose of Import Duty is to safeguard domestic industries, control the influx of goods, and generate revenue for the government.
The calculation of this tax is based on either the ad valorem basis, which is a percentage of the goods’ value, or the specific basis, which is a fixed amount per unit. The rates of import duty can range from 0% to 60% on an ad valorem basis and can vary for specific goods on a specific basis. These rates are determined by the Malaysian Customs Department and are categorized according to the Harmonized Systems Code (HS Code), which identifies the type of goods.
Certain individuals and goods may qualify for exemptions from import duty, as outlined in the Customs Duties (Exemption) Order 2017. Exemptions can be granted for various reasons, such as promoting specific industries, fulfilling international agreements, or supporting socio-economic development.
Import Duty Rates
Import duty is charged either on an ad valorem basis (as a percentage of the value of the goods) or on a specific basis (as a fixed sum of money per unit). Import duties are calculated as a fixed percentage of the value of the goods, ranging from 0% to 60%. For example, if the rate is 20% and the value is RM 10,000, the duty would be RM 2,000.
| HS Code | Description of goods | Rate of Duty |
| 0810.90.20 00 | Lychees | 30% |
| 1604.31.00 00 | Caviar | 8% |
| 1704.90.20 00 | White chocolate | 15% |
| 2103.90.11 00 | Chilli sauce | 10% |
| 2201.10.10 00 | Mineral waters | 20% |
| 4818.10.00 00 | Toilet paper | 25% |
| 6211.43.10 00 | Surgical gowns | 5% |
2. Sales Tax
Sales Tax is a significant component of Malaysia’s import tax structure, ranking second after Import Duty. It operates within the Sales and Service Tax (SST) system and plays a vital role in regulating the importation of goods into the country.
Within the SST system, Sales Tax is divided into two categories: Sales Tax on Taxable Goods and Sales Tax on Low-Value Goods (LVG). Sales Tax on Taxable Goods applies to both imported and domestically manufactured goods that are sold, used, or disposed of within Malaysia. The tax rate varies based on the Harmonized Systems Code (HS code) assigned to the goods, with rates ranging from 10% or 5% to specific rates for certain products.
Additionally, Sales Tax on LVG is specifically imposed on goods sold online with a value not exceeding RM500, which are delivered from overseas to customers in Malaysia. Starting from January 1st, 2024, a fixed rate of 10% will be applied to LVG for online transactions.
Certain goods listed in the Sales Tax (Goods Exempted from Sales Tax) Order 2022 are eligible for exemptions. Moreover, the Sales Tax (Persons Exempted from Payment of Tax) Order 2018 outlines the eligibility criteria for specific individuals and goods to be exempted from the tax.
To calculate the Sales Tax, importers must determine the HS code of the goods and consider the applicable rates for Import Duty, Excise Duty, and Sales Tax. Payment can be made directly at Customs Import Offices or through third-party platforms such as ePayment and eDagangNet.
In Malaysia, sales tax falls under the Sales and Service (SST) system, which was introduced in 2018 to replace Goods and Services Tax (GST). There are two types of sales tax – sales tax on taxable goods and sales tax on low-valye goods (LVG).
| Sales Tax on Taxable Goods | Sales Tax on Low-Value Goods (LVG) | |
| Applies to | Taxable goods imported into Malaysia or manufactured domestically and subsequently sold, used, or disposed of | Goods with a sales value of RM500 or below delivered from overseas to customers in Malaysia |
| Who has to pay | Importer | Buyer |
| Point of Tax Payment | Upon goods importation | Point of purchase/checkout (at the time when the consumerpurchases the product online) |
| Rates | 10%, 5%, and specified rate | 10% |
| Goods excluded | Goods listed in the Sales Tax (Goods Exempted From Sales Tax) Order 2022 | CigarettesTobacco productsIntoxicating liquorsSmoking pipes (including pipe bowls)E-cigarettes and similar vaping devicesE-cigarettes and vaping liquid or gel (whether it contains nicotine or not) |
| Payment method | Over the Counter (at Customs Import Offices)Third-Party Appointed Platforms | Online marketplace |
3. Excise Duty
Excise Duty, as the final tax among the three taxes imposed on imported goods in Malaysia, functions as a regulatory tool aimed at specific products. Unlike Import Duty and Sales Tax, Excise Duty is not imposed on all imports but rather focuses on particular goods.
The rates of Excise Duty vary based on factors such as the goods’ Harmonized Systems Code (HS code) and their specific characteristics. This tax is implemented to ensure effective control and regulation of specific goods entering the country.
Certain individuals and goods may be eligible for exemptions from Excise Duty, as stated in the Excise Duties (Exemption) Order 2013. These exemptions provide relief for qualifying entities, streamlining the import process.
If Excise Duty is applicable, the calculation involves considering the HS code, import duty rate, and the specific excise duty rate applicable to the goods in question. Payments for assessed excise duties can be conveniently made at Customs import offices or through designated third-party platforms.
Goods Subject to Excise Duty
Excise Duty applies to only 7 categories of goods, particularly, motor vehicles, alcoholic beverages, cigarettes, mahjong tiles, playing cards, sugar-sweetened beverages, and premix preparations:
| Category | Example |
| Motor vehicles | ATVs, vans, cars, motorcycles |
| Alcoholic beverages | Wine, beer, vodka, whiskey |
| Cigarettes include Tobacco and Cigars | Smoking pipes, cheroots, e-cigarettes, vapes, and their liquid/gel |
| Mahjong Tiles | Plastic/wood/paper mahjong tiles |
| Playing Cards | – |
| Sugar-Sweetened Beverages (SSB) | Fruit juices, coconut water, energy drinks, flavoured milk |
| Premix preparations (will be effective on 1st March 2024) | 2-in-1 instant tea, 3-in-1 coffee mix |
Excise Duty Rates
Excise Duty rates are charged either as a percentage of the value of the goods or as a specified sum of money per unit.
| HS Code | Description of goods | Rate of Duty |
| 8703.21.42 00 | All-Terrain Vehicles (ATV) | 65% |
| 8711.20.92 00 | Mopeds or motorised bicycles | 20% |
| 9504.40.00 00 | Playing cards | 10% |
| 9504.90.34 00 | Mahjong tiles, of wood/paper/plastics | 10% |
| 9614.00.90 10 | Smoking pipes (including pipe bowls) | 10% |
4. Free Trade Agreements (FTAs)
Importers in Malaysia can benefit greatly from Free Trade Agreements (FTAs) as they provide tax exemptions and preferential treatment when importing goods. These agreements are crucial in Malaysia’s import tax landscape as they offer advantages that promote international trade and economic growth.
Malaysia has signed a total of 16 FTAs, consisting of 7 bilateral FTAs and 9 multilateral FTAs. These agreements aim to reduce tariffs and introduce measures that are mutually beneficial for the participating countries. By lowering or eliminating customs taxes, FTAs make Malaysian businesses more competitive in the global market.
To take advantage of the tariff preferences offered by FTAs, importers must ensure that their products meet specific criteria. This includes being covered by a specific FTA, complying with the Rules of Origin (ROO) requirements, and having a Certificate of Origin (CO). The ROO criteria may involve being wholly obtained or produced in an ASEAN member country, undergoing a substantial transformation, or containing a certain percentage of ASEAN content.
Importers can qualify for preferential tariff treatment and enjoy tax exemptions by carefully checking the tariff schedules of relevant FTA partners and ensuring compliance with the rules of origin. This allows them to maximize the benefits provided by the FTAs and stay competitive in the market.
Malaysia has signed 16 FTAs, including 7 bilateral FTAs and 9 multilateral FTAs. These agreements provide Malaysian businesses with advantages like lower or zero customs taxes, making them more competitive and contributing to Malaysia’s economic sustainability.
The table below shows the FTAs that Malaysia is participating in according to the country:
| Country | Bilateral | Multilateral |
| ASEAN countries: – Brunei Darussalam – Indonesia – The Philippines – Singapore – Thailand – Vietnam – Laos – Myanmar – Cambodia | ASEAN Trade in Goods Agreement (ATIGA) [from ASEAN Free Trade Area (AFTA)] | |
| Japan | Malaysia-Japan Economic Partnership Agreement (MJEPA) | ASEAN-Japan Comprehensive Economic Partnership (AJCEP)Regional Comprehensive Economic Partnership (RCEP) |
| Pakistan | Malaysia-Pakistan Closer Economic Partnership Agreement (MPCEPA) | |
| New Zealand | Malaysia-New Zealand Free Trade Agreement (MNZFTA) | ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA)Regional Comprehensive Economic Partnership (RCEP) |
| Australia | Malaysia-Australia Free Trade Agreement (MAFTA) | |
| India | Malaysia-India Comprehensive Economic Cooperation Agreement (MICECA) | ASEAN-India Free Trade Agreement (AIFTA) |
| Chile | Malaysia-Chile Free Trade Agreement (MCFTA) | Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) |
| Turkey | Malaysia-Turkey Free Trade Agreement (MTFTA) | |
| China | ASEAN-China Free Trade Agreement (ACFTA)Regional Comprehensive Economic Partnership (RCEP) | |
| South Korea | ASEAN-Korea Free Trade Agreement (AKFTA)Regional Comprehensive Economic Partnership (RCEP) | |
| Hong Kong | ASEAN-Hong Kong Free Trade Agreement (AHKFTA) | |
| Canada | Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) | |
| Peru | Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) | |
| Mexico | Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) |
5. Free Trade Zones (FTZs) and Licensed Manufacturing Warehouse (LMW)
FTZs and LMWs are specific areas that provide reduced customs supervision and tax exemptions for various goods and services, allowing importers to lower their tax liabilities and enhance the competitiveness of their imports in the Malaysian market.
FTZs are categorized into Free Industrial Zones (FIZs) and Free Commercial Zones (FCZs). FIZs concentrate on manufacturing and exporting goods, while FCZs encourage commercial and trade activities. Businesses within these zones enjoy exemptions from duties and taxes, with certain exceptions for specific goods. This is facilitated by Malaysia’s transportation infrastructure, government support for FTZs, and the cost-effectiveness resulting from low operational and labor costs.
To operate in an FTZ, importers must establish a private limited company, fulfill capital and permit requirements, and register as SMK Dagang Net users with Customs. The Free Zone Authority, under the Ministry of Finance, oversees and regulates FTZs in Malaysia. There are 22 FIZs and 24 FCZs spread across the country, including well-known zones like Port Klang Free Zone and Pasir Gudang.
Problem and Challenges When Import to Malaysia
Importing goods into Malaysia can present a myriad of challenges and problems that businesses must navigate to ensure a smooth and successful operation. Below, we outline some of the primary obstacles encountered and provide insights into addressing them.
1. Regulatory Compliance
Challenge: Malaysia has a complex regulatory environment for imports, involving multiple agencies and extensive documentation.
Solution: Businesses need to familiarize themselves with the specific requirements of the Malaysian Customs Department, as well as any other relevant regulatory bodies. Ensuring compliance with the necessary import licenses, permits, and certificates is crucial. Engaging a local customs broker can also facilitate smoother navigation through regulatory hurdles.
2. Tariffs and Taxes
Challenge: Malaysia imposes various tariffs, duties, and taxes on imported goods, which can significantly impact cost structures.
Solution: Conduct thorough research on the tariff schedules and import duties applicable to your products. Utilize tools like the ASEAN Trade in Goods Agreement (ATIGA) which may offer preferential tariff rates for goods originating from ASEAN countries. Additionally, businesses should be prepared to manage the Goods and Services Tax (GST) implications on imports.
3. Non-Tariff Barriers
Challenge: Importers may face non-tariff barriers such as stringent sanitary and phytosanitary measures, technical standards, and labeling requirements.
Solution: Ensure that products meet Malaysian standards by understanding and adhering to local sanitary, phytosanitary, and technical regulations. Engaging in pre-export testing and certification can prevent delays at the border.
4. Logistical Challenges
Challenge: The logistics of transporting goods into Malaysia, especially for small and medium-sized enterprises (SMEs), can be daunting due to infrastructure limitations, port congestion, and high shipping costs.
Solution: Partner with experienced logistics providers who have a robust understanding of Malaysian ports and transportation networks. Leveraging third-party logistics (3PL) services can streamline the import process and reduce potential delays.
5. Cultural and Language Barriers
Challenge: Understanding and navigating the cultural and linguistic landscape of Malaysia can pose challenges for foreign businesses.
Solution: Building relationships with local partners or hiring bilingual staff can bridge cultural and language gaps. It is also beneficial to invest in cultural training for employees to enhance communication and negotiation effectiveness.
6. Intellectual Property Protection
Challenge: Protecting intellectual property (IP) can be challenging, as counterfeit goods and IP infringement remain issues in Malaysia.
Solution: Register trademarks, patents, and other IP rights with the Malaysian Intellectual Property Corporation (MyIPO). Regular monitoring and legal action against infringement can safeguard your products and brand integrity.
7. Customs Procedures
Challenge: Navigating the customs clearance process can be time-consuming and fraught with bureaucratic hurdles.
Solution: Accurate and complete documentation is essential to avoid delays. Utilizing electronic customs clearance systems and maintaining clear communication with customs officials can expedite the process. Again, partnering with a knowledgeable customs broker can be beneficial.
8. Economic Fluctuations and Exchange Rates
Challenge: Fluctuations in the Malaysian Ringgit and economic instability can impact import costs and profitability.
Solution: Hedging against currency risk through financial instruments can provide stability. Keeping abreast of economic trends and adjusting pricing strategies accordingly can also mitigate financial impacts.
9. Security Concerns
Challenge: Ensuring the security of goods during transit is critical to prevent theft and damage.
Solution: Implement robust security measures including tamper-evident seals, GPS tracking, and secure warehousing solutions. Insurance coverage for goods in transit can also provide financial protection against potential losses.
Start Import to Malaysia with AsiaCommerce
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