From 1 January 2024, Malaysia will impose a 10% sales tax on all low-value goods (LVG) imported into the country for business-to-consumer (B2C) transactions. Here we explain the changes and what you can do if the Malaysian market is important to your online sales.

 

Do your B2C online sales to Malaysia exceed 500,000 MYR on an annual basis?

UK businesses that sell low-value goods to consumers in Malaysia may need to register for, charge and account for goods and services tax (GST). Any goods sold online in Malaysia from overseas retailers with a value of RM500 (approximately £90.00) or less will be subject to the sales tax if you exceed 500,000 MYR (approximately £84,000.00) in LVG orders on an annual basis. If you do, you need to register for a Tax ID with the Malaysian Customs Department and collect and remit the 10 % GST tax on all LVG goods. Then as the “Registered Seller” you need to submit a return in MYR, for sales tax on LVG every three months.

 

Why is the Malaysian Government imposing this tax?

The purpose of this tax is to level the playing field between local and foreign online retailers. Currently, foreign online retailers are not required to collect taxes on sales to Malaysian consumers, which gives them an unfair advantage over local businesses that must pay taxes.

The sales tax will be collected by overseas retailers that sell LVG to Malaysian consumers. These retailers will be required to register with the Royal Malaysian Customs Department (RMCD) and collect the sales tax from their customers at the time of purchase. The retailers will then be responsible for remitting the collected sales tax to the RMCD on a regular basis.

 

How will it change your sales process?

1. Register for a Tax ID with the Malaysian Customs Department and collect and remit the 10 % GST tax on all LVG goods
2. As the “Registered Seller” you need to submit a return in MYR, for sales tax on LVG, every three months.
3. Registered sellers outside Malaysia must keep records related to sales tax on LVG, which should be kept seven years from the last date related to the records.
4. New customs requirements mean upon import of the LVG, the LVG registration number information must be provided by the importer/customs agent in the import declaration (e.g. Customs form No.1, e-PAM or CN22/CN23). If not provided, the goods will be charged with sales tax on imports during import.
5. For commercial clearance, the LVG registration number is to be logged in the SST/LVG data field in the system.
6. For postal clearance, include the number in the Consignor column / data field of the CN22/CN23

 

What if you fail to comply?

To ensure that overseas retailers comply with the sales tax requirements, the RMCD will implement several measures, including:

• Monitoring online marketplaces: The RMCD will monitor online marketplaces to identify overseas retailers that are selling LVG to Malaysian consumers.
• Issuing notices to non-compliant retailers: The RMCD will issue notices to non-compliant retailers, informing them of their obligation to register and collect sales tax.
• Taking enforcement action: If overseas retailers fail to comply with the sales tax requirements, the RMCD may take enforcement action, which may include fines and penalties.

The Malaysian government has stated that it is committed to ensuring that the sales tax is implemented smoothly and fairly. The government has also stated that it will provide support to overseas retailers to help them comply with the new requirements.

 

Is the Malaysian online market worth it?

The Malaysian online market is growing rapidly and is expected to reach a value of $11.7 billion by the end of 2023. This represents a growth rate of 16.9% from 2022. The growth is being driven by several factors, including:

• Increasing internet and smartphone penetration
• Rising disposable incomes
• Growing popularity of e-commerce
• Convenience of online shopping

Malaysians are increasingly turning to online shopping for a wide range of products, including electronics, fashion, beauty products, and groceries. They are also comfortable shopping from overseas retailers, with the UK being a particularly popular source for goods.

Here are some additional statistics on the Malaysian online market:

• There are over 30 million internet users in Malaysia, representing 90% of the population.
• Over 80% of Malaysians have a smartphone.
• The average Malaysian spends over $1,000 per year on online shopping.

The Malaysian online market is expected to continue to grow in the coming years, as more and more Malaysians adopt online shopping. This presents a significant opportunity for overseas retailers, including those in the UK, to expand their reach into the Malaysian market.

 

What can you do if the Malaysian market is important to your online sales?

If you are an online retailer in the UK who sells goods to Malaysia, the imposition of a 10% sales tax on low-value B2C imported goods from January 2024 is likely to have a significant impact on your sales. It’s likely to make your goods less competitive compared to local retailers who do not have to pay the sales tax.

To keep your prices competitive for Malaysian consumers, you could absorb the cost of the sales tax by reducing your profit margins. It’s probably the least favourite option, but here's a few examples of other actions you can take to mitigate the new Tax:

Increase your shipping charges: You could increase your shipping charges to Malaysia to offset the cost of the sales tax. However, you will need to be careful not to make your shipping charges too high, as this could deter Malaysian consumers from purchasing from you.

Work with a Malaysian partner: You could partner with a Malaysian company to help you with the sales tax compliance process. This could help to reduce your administrative costs and compliance risks.

Focus on high-value goods: You could focus on selling higher-value goods to Malaysia, as the impact of the sales tax will be less significant on these goods.

Despite the challenges, there are still opportunities for online retailers in the UK to sell goods to Malaysia. The Malaysian e-commerce market is growing rapidly and there is a demand for a wide range of goods from overseas retailers. By taking the right steps, you can mitigate the impact of the sales tax and continue to grow your sales in Malaysia.

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