Customs Duty vs Sales & Service Tax in Malaysia: Key Differences
Last update:
Expanding your business into cross-border trade is an exciting growth move, but understanding your tax obligations is critical to avoid costly mistakes. When importing goods into Malaysia, you’ll typically encounter two main types of charges: customs or excise duties and the Sales & Service Tax (SST), previously known as the Value-Added Tax (VAT) or the Goods & Services Tax (GST).
Below, we’ll break down what each of these taxes involves, how they differ, and how you can prepare your accounting workflows to stay compliant.
Taxes on Import & Export
When importing goods into Malaysia, several taxes may be applicable. Understanding how customs duty, sales & service tax (SST), and excise duty work together is essential for accurate budgeting and compliance.
Customs Duty
Customs duty is the primary tax imposed on imported goods. It is designed to protect local industries, control import volumes, and generate government revenue.
Key points:
- Rate Range: 0%–50% (ad valorem), but about 75% of imports are duty-free.
- Tax Base: The CIF value (Cost, Insurance, and Freight) plus any related charges.
- Classification: Accurate customs tariff codes are mandatory for determining the rate, documentation, and eligibility for exemptions.
- Exemptions: Lower or zero duty may apply to raw materials used in manufacturing for export, basic foodstuffs, pharmaceuticals, and machinery.
Tip: Before importing, always check your product’s HS code to avoid errors that could result in penalties or shipment delays.
Sales & Service Tax (SST)
SST is Malaysia’s current indirect tax system applied to both goods and services:
- Sales Tax on Imports: Usually 5% or 10%, depending on the product classification.
- Service Tax: 6%, mostly applicable to taxable services rather than physical goods.
- Cumulative Tax: SST is charged on top of customs duty and excise duty (where applicable).
Excise Duty
Excise duty is a special tax applied to specific products considered harmful to health or the environment, or to protect local industries.
Examples of products subject to excise duty:
- Alcohol (beer, wine, spirits)
- Tobacco products and cigarettes
- Sweetened beverages (RM0.50 per litre)
- Motor vehicles and motorcycles
- Certain gaming items (playing cards, mahjong tiles)
How excise duty is calculated:
- Percentage-based: For example, 65% for All-Terrain Vehicles (ATVs), 20% for mopeds, 10% for playing cards.
- Specific amount per unit: E.g., RM450 per litre of sparkling wine or RM400 per cigar unit.
- Check the full list of excise duties here.
When excise duty applies:
- For locally manufactured goods, it is charged before goods leave the factory or bonded warehouse (except motor vehicles, which are taxed when registered).
- For imported goods, it is imposed at the point of entry into Malaysia.
Exemptions:
Certain products are exempt or enjoy reduced excise duty, such as:
- Infant formula and low-sugar food products
- Raw materials for liquor production
- Vehicles for public officials posted abroad (50% exemption)
- Goods brought into designated free zones like Langkawi, Labuan, Pangkor, and Tioman
Important: Excise duty is collected by the Royal Malaysian Customs Department (RMCD) and must be paid before the goods are released.
Pro Tip: Excise duty can substantially increase your landed costs, especially for alcohol, tobacco, and vehicles. Before importing, consult with a customs broker or tax advisor to ensure your pricing and cash flow remain sustainable.
How These Taxes Work Together
When importing goods into Malaysia, your total tax liability typically consists of:
- Customs Duty: Ranges 0–50%, depending on the product’s customs tariff code.
- Sales Tax (SST): 5% or 10% on the combined value of goods + customs duty.
- Excise Duty: Only applies to certain regulated goods (e.g., alcohol, tobacco, motor vehicles).
Example SST Calculation on Imports:
If you import goods valued at RM100,000, subject to a 5% customs duty, the sales tax is calculated this way:
Step 1 – Calculate Customs Duty:
Customs Duty = 5% × RM100,000 = RM5,000
Step 2 – Calculate SST on the combined value:
SST Base = CIF Value + Customs Duty = RM105,000
SST = 5% × RM105,000 = RM5,250
Note:
Certain categories—such as basic foodstuffs, pharmaceutical products, machinery for manufacturing, and other essential imports—are exempt or subject to a reduced rate. Always refer to the Malaysia Sales & Service Tax website operated by the Royal Malaysian Customs Department or consult a tax professional to confirm your product’s status.
Key Takeaway:
Always budget for customs duty + SST + any excise duty when calculating landed costs to ensure your pricing and margins remain sustainable.
One account to manage global payments
Pay your suppliers around the world. Collect payments for free in 20+ currencies. Convert when it suits you. All in one place.
Pitfalls to Avoid
Below are some mistakes that importers make when dealing with customs and tax obligations:
- Misclassifying tariff codes: Using the wrong customs tariff code can lead to overpaying or underpaying duties.
- Ignoring exemptions: Some goods may qualify for relief but require advance approval.
- Missing documentation: Incomplete paperwork can delay customs clearance and trigger penalties.
- Underestimating timelines: Approval of import permits and duty payments can take several days.
How to Be Eligible for Customs Duty Exemption
Malaysia encourages certain types of imports by offering customs duty exemptions under specific conditions. Securing these exemptions can significantly reduce your landed costs and improve your margins.
Here’s what you need to know about eligibility:
Types of Goods Eligible for Exemptions
You may qualify for reduced or zero customs duty if your imports fall into any of these categories:
- Raw materials and components used in manufacturing for re-export
- Machinery and equipment not available locally
- Essential goods, including pharmaceuticals and medical devices
- Basic foodstuffs
- Tourism-related products
- Approved capital goods used in production
Criteria for Tax Exemption
To benefit from exemptions, you typically need to meet all the following requirements:
1. Manufacturing or Processing Purpose:
Goods must be used in your own manufacturing operations or incorporated into finished products for export.
2. Approved Status:
Your company must be granted a Manufacturer’s License (ML) or have Pioneer Status, which are awarded to companies with qualifying investments in Malaysia.
3. Local Unavailability:
You must show that the raw materials or machinery are not available locally in sufficient quantity or quality.
4. Proper Import Documentation:
You must submit all relevant documents, including:
- A valid Import Declaration Form (K1)
- Detailed invoices and packing lists
- Evidence of intended use (e.g., purchase orders, production schedules)
- Any approvals or permits required by other ministries
5. Approval by MITI or RMCD:
Exemptions must be approved by the Ministry of International Trade and Industry (MITI) or the Royal Malaysian Customs Department (RMCD) before import.
How to Streamline Tax and Accounting Workflows
Managing customs, excise, and VAT compliance manually can quickly become overwhelming. The good news is that with the right technology stack and processes, you can save time, reduce errors, and stay fully compliant.
Below are some practical tips to simplify your workflows and improve visibility:
Automate Accounting Processes
Consider using cloud-based platforms that integrate directly with your accounting system. For example, Xero integration enables automatic recording of customs payments and SST entries, so your books stay accurate without hours of manual reconciliation.
Adopt Automatic Invoicing Tools
Invoicing solutions can apply the correct SST and customs duty rates, validate your customs tariff codes, and generate fully compliant invoices in just a few clicks. This is especially important if you operate in sectors subject to excise duties or frequently import regulated goods.
Streamline Business International Transfers
Paying overseas suppliers is often a hidden bottleneck in the import process. Platforms like WorldFirst make it easier to hold balances in multiple currencies, pay international vendors quickly, and access competitive FX rates. This helps you stay on top of cash flow while creating a clear audit trail for compliance purposes.
Tip: Before choosing a payment solution, verify that it integrates seamlessly with your accounting software, ensuring that your payments and tax records are updated automatically. This will save you time reconciling transactions at the end of each month.
Centralise Your Compliance Data
Instead of juggling spreadsheets and disparate records, aim to centralise your customs declarations, invoices, and tax documents. Cloud accounting systems can store all supporting documents in one place, which simplifies audits and improves transparency.
Stay Proactive with Real-Time Monitoring
Taxes and regulations evolve fast, especially with Malaysia’s ongoing shift to e-invoicing. Dashboards and alerts built into modern systems let you spot discrepancies early and adjust before they become costly.
Grow Your Global Business
Compliance is an unavoidable aspect of running an import business in Malaysia. However, with the right preparation, you can avoid compliance issues and keep your costs under control.
Before your next shipment, take time to:
- Review your tariff classifications.
- Confirm any eligible VAT exemptions.
- Ensure your payment workflows are streamlined.
Need a faster way to manage cross-border payments in Malaysia? With the World Account, you can hold and pay in multiple currencies from a single multi-currency account, automate accounting and invoicing end-to-end, and get the best exchange rates for real, tangible savings that you can use to grow your business.
Register for a World Account today to get started.
Reference link (if any):
Duty Exemption
https://www.customs.gov.my/en/ip/Pages/ip_tep.aspx
Continue reading
Subscribe
The Weekly Dispatch
Get the latest news and event invites. Signup for our weekly update from the worlds of fashion, design, and tech.
You might also like
Choose a product or service to find out more
Doing business with China
Global Business Tips
e-Commerce & Online Sellers
Foreign Currency Exchange
International Transactions
Doing business with China
Doing business with China
