February 7, 2023
Malaysia to impose sales tax on imports of low value goods from 1 April 2023
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.
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.
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).
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:
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.
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:
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
After 90 days, a maximum penalty rate of 40% is imposed.
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.
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:
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 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.
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:
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].
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