Malaysia to impose sales tax on imports of low value goods from 1 April 2023

• Sales tax on Low Value Goods (LVG) is implemented from 1 January 2023 and will be imposed from 1 April 2023.

   

• The Royal Malaysian Customs Department (RMCD) issued a draft guide followed by legislative and administrative updates.

Legislation pertaining to the imposition of sales tax on LVG imported into Malaysia was introduced via the Sales Tax (Amendment) Act 2022 which was gazetted on 18 October 2022.

Per the RMCD’s announcement on 21 November 2022, the effective date for the imposition of Sales Tax on LVG will be 1 April 2023.

Draft guide for the Sales Tax on Low Value Goods (First Edition)

On 21 December 2022, the RMCD issued a Draft guide regarding the sales tax on LVG (the Draft Guide) dated 1 January 2023, to explain the implementation of Sales Tax on LVG to persons selling LVG via an online marketplace or operating an online marketplace. Subsequently, an update was made to remove certain goods that were previously excluded from LVG:

The key provisions of the Draft Guide are summarized below:

Rationale to implement Sales Tax on LVG

The objective is to create a level playing field for local and imported goods in Malaysia.

Key dates

The implementation date (i.e., registration date) starts from 1 January 2023 and the imposition of Sales Tax on LVG starts on 1 April 2023.

Scope

LVG applies to all goods with a sales value of RM500 or less, brought from outside Malaysia via land, sea or air, into Malaysia. 

For LVG purposes, Malaysia also includes Special Areas (such as free zones, licensed warehouses, licensed manufacturing warehouses, Joint Development Areas, and petroleum supply bases) and designated areas, such as Labuan, Langkawi, Tioman, and Pangkor.

Rate of tax and valuation of LVG

The rate of Sales Tax on LVG is 10%.

The sales value of LVG does not include the following charges: (i) transportation and insurance costs for transporting the goods from overseas to Malaysia; and (ii) any tax or duties, chargeable and payable on the sale of LVG.

Liability to be registered

Registration is mandatory for sellers with a total sale value of LVG imported into Malaysia in a 12-month period, that exceeds RM500,000.

Total sales value is determined, either by using: (i) the historical method – total sales value of LVG in a month and the preceding 11 months; or (ii) the future method – total sales value of LVG in a month and the following 11 months.

Application for registration

An application is made by using the LVG-01 form via the MyLVG portal with effect from 1 January 2023.

The seller will need to register within a month after the seller becomes liable to be registered. The registration date will be on the first day of the following month. 

Upon registration, the LVG Registration Number will be provided and the seller will be known as a Registered Seller (RS).

Accounting basis

Sales tax shall be due and payable at the time when the LVG are sold, i.e., via issuance of the invoice.

Invoicing and adjustment notes

The invoice or any document must state the following information in the national language (Bahasa Malaysia) or English:

• Serial number of invoice or document

• Date of invoice or document

• Name and address of the RS

• RS registration number

• Sufficient description to identify the sale of LVG

• The total amount payable excluding sales tax

• Rate of sales tax

• The total sales tax chargeable shown as separate amount

However, the RS may apply via the MyLVG portal for any information not to be stated on an invoice or any document.

The issuance of credit notes or debit notes does not apply to LVG.

Taxable period

The taxable period is three months ending on the last day of any month of any calendar year.

Payment and submission of Sales Tax

The payment and submission of Sales Tax on LVG is to be made using the LVG-02 return via the MyLVG portal, no later than the last day of the month following the end of the taxable period.

All the transaction values in the LVG-02 return shall be accounted in Ringgit Malaysia (MYR) currency.

Where the RS charges the consumer in currency other than MYR, the RS shall convert the total value of sales tax to MYR according to the following conversion method:

• In the case that the conversion is done on daily basis, the RS shall use the daily conversion rate.

• In the case that the conversion is done at the end of the taxable period, the RS shall use the conversion rate either at: (i) the end of each taxable period; or (ii) the time of furnishing the LVG-02 return.

Once the RS chooses to use the option for conversion from one of the options given above, the RS shall use that method consistently.

Sales tax can be paid either by: (i) the Financial Process Exchange (FPX); or (ii) the Telegraphic Transfer (TT).

Late payment penalty

• For the first 30-day period, the rate is 10%.

• For the second 30-day period, the rate is 15%.

• For the third 30-day period, the rate is 15%.

After 90 days, a maximum penalty rate of 40% is imposed.

Record keeping

Records or books of accounts relating to sales tax on LVG must be maintained in the national language (Bahasa Malaysia) or English for a period of seven years from the latest date to which the record relates.

For records kept in an electronically readable form, the same can be readily accessed and exchanged in written form.

Transitional provisions

• Invoices issued before 1 April 2023 (regardless of when the goods are delivered to the customer) are not subject to sales tax.

• Invoices issued on or after 1 April 2023 are subject to sales tax.

Customs clearance procedures on the importation of LVG

LVG information requirements

The LVG Registration Number must be displayed on all packages exported to Malaysia.

Upon customs clearance in Malaysia, customs agents or courier services are required to provide the following information or documents to the RMCD: (i) the LVG Registration Number; and (ii) any supporting documents (if requested).

This is to ensure that the LVG that have been charged sales tax at the point of sale (i.e., Sales Tax on LVG) will not be charged Sales Tax on import during customs clearance.

Import declaration via air mode

A de minimis threshold applies to LVG imported by air using a courier service. This means that the imported goods are exempted from Import Duties and Sales Tax on Import, which is in line with Item 94 of the Customs Duties Order (Exemption) 2017 and Item 24 of the Sales Tax (Person Exempted from Payment of Tax) 2018.

However, this is subject to the following conditions:

• Goods with Cost, Insurance and Freight (C.I.F.) value not exceeding RM500 per consignment

• Goods are not listed under the existing Customs (Prohibition of Imports) Order, regardless of their value

• Goods that are not subject to any duties (i.e., excise duty)

• Goods that are not subject to Sales Tax on Import

The LVG imported are to be declared using the electronic Pre-Alert Manifest (e-PAM) system.

Import declaration via road and sea mode

The LVG imported via road or sea mode are not eligible for the de minimis threshold and will be subject to import duties and sales tax on import (if applicable) during importation. 

Such importations are to be declared via the Customs No. 1 Form (K1). 

However, the importer or customs agent is required to provide the LVG Registration Number in the K1 to prevent the charging of Sales Tax on Import during customs clearance. 

Import declaration via postal service

Similar to importation via courier service, the importation of LVG via postal service is eligible for the de minimis threshold, subject to conditions. 

Such declaration will be declared via the Consignment Note (CN) 22 or CN 23.

The LVG Registration Number will need to be provided by the exporter or RS in the CN22 or CN23 declaration, to prevent the charging of Sales Tax on Import during customs clearance.

As the Draft guide is not final, it is important to note that the key points mentioned above may be subject to further changes or updates by the RMCD.          

Subsequent developments

Subsequent developments pertaining to the Sales Tax on LVG includes legislative and administrative updates as follows:

The (RMCD) issued Announcement LVG 1/2023 (the Announcement) dated 6 January 2023 that highlights an overview of the implementation of Sales Tax on LVG as well as the corresponding legislation.

Legislative updates

While the Sales Tax (Amendment) Act 2022, gazetted previously on 18 October 2022, introduces the Sales Tax on LVG, the following subsidiary legislation pertaining to Sales Tax on LVG, was gazetted on 31 December 2022 and in turn, came into effect on 1 January 2023:

• Sales Tax (Low Value Goods) Regulations 2022 [P.U.(A) 408/2022] – highlights the regulatory requirements such as registration, display of the LVG Registration Number and information on packages, invoicing and adjustment notes, furnishing of returns and payments, refunds, and other requirements.

• Sales Tax (Total Sale Value of Low Value Goods) Order 2022 [P.U.(A) 409/2022] – highlights that the total sale value of LVG for the purpose of registration is RM500,000.

• Sales Tax (Rate of Tax for Low Value Goods) Order 2022 [P.U.(A) 410/2022] – highlights that the rate of tax is 10%.

• Sales Tax (Determination of Low Value Goods) Order 2022 [P.U.(A) 411/2022] – highlights that LVG comprises goods which are sold at a price not exceeding RM500 and are brought into Malaysia by land, sea or air.

While the implementation date for Sales Tax on LVG is set at 1 January 2023, the imposition of Sales Tax on LVG is on 1 April 2023, which was published by way of gazette on 27 December 2022 via the Appointment of Effective Date for Charging and Levying of Sales Tax on Low Value Goods [P.U.(B) 642/2022].

Administrative updates

Registration of Sales Tax on LVG

Applicants who are required to be registered under the Sales Tax on LVG can start applying to be registered in the MyLVG portal from 1 January 2023.

The link can be accessed via https://lvg.customs.gov.my.

In addition, the RMCD also issued a User Manual for the application to register for Sales Tax on LVG, with the objective of guiding applications when registering for Sales Tax on LVG via the MyLVG portal.

Updates to the Draft Guide for the Sales Tax on Low Value Goods (LVG) (First Edition)

Subsequent to the issuance of the Draft Guide on 21 December 2022, the RMCD issued an updated Draft Guide on 9 January 2023.

Overall, no significant updates were made to the updated Draft Guide on 9 January 2023, with exception to removing some goods that were excluded from LVG.

 

For additional information with respect to this Alert, please contact the following:

Ernst & Young Tax Consultants Sdn Bhd, Indirect Tax, Kuala Lumpur

• Yeoh Cheng Guan, Malaysia Indirect Tax Leader

• Jalbir Singh Riar

• Germaine SL Ong

• Aljo Barias

• Stephen Nguoi

• Poh Ai Yeen

• Aaron Kong

• Wong Jen Shaun

• Sheila Suppiah

• Melissa Goh

• Lee Kitt Mun

• Yeap Wei Ling

• Liew Ruo Ping (Ice)

• Chooi Yee Leng

• Karuna Malhotra

For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.