New 10pc tax: What Malaysians need to know when buying products online below RM500 from overseas

KUALA LUMPUR, Dec 17 — How much more will you need to pay the next time you go shopping online and buy items priced under RM500, once Malaysia starts imposing a new 10 per cent sales tax on such goods delivered from abroad next year?

Here’s everything you need to know as an online shopper in Malaysia, based on the Royal Malaysian Customs Department’s 35-page guidelines and six-page list of frequently-asked-questions released last month:

1. What is this new tax?

It is a 10 per cent sales tax on low value goods (LVG or goods at a price of less than RM500 each) that are sold online and shipped from abroad to customers in Malaysia (including customers in the duty-free islands of Labuan, Langkawi, Tioman, and Pangkor, and in special areas such as free zones or licensed warehouses).

This tax applies to all online sellers (whether the seller is located in Malaysia or overseas) who sell LVG on an online platform or operate an online marketplace where LVG is sold.

This tax applies to everything that is sold online at a price of less than RM500 each that are brought into Malaysia by land, sea, air, except for imported alcohol or smoking products.

This is the list of items where no sales tax on LVG will be collected: intoxicating liquors; cigarettes; tobacco products; smoking pipes (including pipe bowls); e-cigarettes or vaping devices; e-cigarette or vaping liquid or gel (whether it contains nicotine or not).

2. When will Malaysia start imposing this sales tax? What happens if the goods arrive later?

The sales tax will be imposed on January 1, 2024. (It was originally supposed to be imposed on January 1, 2023, but was postponed to April 1, 2023, but was later postponed indefinitely until the latest announcement that it would be implemented on January 1, 2024.)

What does this mean? If you bought any LVG before January 1, 2024, the new 10 per cent sales tax will not be imposed on the items, even if the items are only delivered to you after January 1, 2024.

In other words, if the registered seller confirms the order for the LVG before January 1, the new sales tax will not be imposed, even if the goods are removed by the seller from overseas to the customer in Malaysia after January 1.

But if the registered seller confirms the order for the LVG on or after January 1, the new sales tax on LVG will apply.

3. OK, show me how much I need to pay

The new sales tax of 10 per cent is only charged on the sales value of LVG (goods priced below RM500).

The sales tax will not be charged on other taxes or other charges such as transportation costs, delivery fees, insurance costs.

For example, if you bought a watch online that is priced at RM200, you have to pay an additional RM20 (the 10 per cent LVG sales tax on the price), and the usual delivery fees (no 10 per cent LVG sales tax on delivery fees).

If you thought you could beat the tax by buying a few LVG together so that the total order price exceeds RM500, it will not work.

This is because the sales tax is charged individually on every single piece of LVG that is priced below RM500.

See below for example, where the total order would have been worth RM600, but the LVG is still charged on all three items as they are priced at RM200 each (which is less than RM500):

4. Discount versus voucher: Which one has less tax?

The short answer is: If the seller is offering you a discount, you will pay less for the sales tax on LVG. If you are using a voucher, you will be paying more for the sales tax on LVG.

For the discount scenario: The 10 per cent sales tax will not be imposed on the original selling price, but will be charged on the discounted selling price.

For the voucher scenario: For example, if you apply a RM50 voucher at check out at an online shopping platform, the 10 per cent sales tax will still be imposed on the original selling price (the price before the voucher is applied).

This is because the voucher will not be treated as a discount (although the voucher has a monetary value of RM50), so the sales tax will be charged on the actual sale value (original selling price).

5. What is ‘De Minimis’ and how will it affect the total tax I have to pay for imported LVG?

When goods are imported into Malaysia, the country may collect these three kinds of taxes: Import Duty, Excise Duty, Sales Tax on Imports.

But for goods with a total CIF (cost, insurance, and + freight) value of below RM500 per consignment that are imported into Malaysia by air courier services and postal services, the De Minimis facility would apply (which means Import Duty and Sales Tax on Imports would be exempted).

So, what happens when the new 10 per cent sales tax on LVG begins on January 1, 2024?

Example 1: You buy an LVG valued at RM300 online from a seller outside Malaysia and have already been charged the 10 per cent sales tax on LVG. The LVG will be shipped to Malaysia by air using a courier service.

Answer: You don’t have to pay additional duties or taxes upon importation as the LVG delivered by air is entitled to De Minimis. (That means you don’t have to pay the sales tax twice).

Example 2: You buy an LVG valued at RM460 online from a seller in China and have already been charged the 10 per cent sales tax on LVG. The LVG will be shipped to Malaysia by air using a courier service.

Answer: Upon importation to Malaysia, the declared customs value (CIF value) is greater than RM500, so the De Minimis (exemption of Import Duties and Sales Tax on Import) does not apply. If the importer or custom agent can show documents to Customs to prove that the 10 per cent sales tax on LVG was charged when the item was sold, then only the Import Duties will be charged. Otherwise, both Import Duties and Sales Tax on Imports will be imposed.

Remember, De Minimis does not apply if goods with a total CIF value of below RM500 is brought into Malaysia by land or sea. The De Minimis exemption on Import Duties and Sales Tax on Imports only applies for air courier services and postal services.

Example 3: You buy an LVG valued at RM300 online and it is imported into Malaysia by road.

Answer: This LVG will be subject to both Import Duty and Sales Tax on Imports since De Minimis is not applicable to goods imported by road. But if it can be proven that sales tax on LVG was imposed when the product was sold to the buyer, no Sales Tax on Imports would be imposed.

Read this for more on why the Malaysian government decided to start collecting the new 10 per cent Sales Tax on LVG, including to level the playing field between local and overseas sellers and to encourage Malaysians to buy local products:

To find out more about the new sales tax on LVG, visit the Royal Malaysian Customs Department’s official website dedicated to the Sales Tax on LVG.

Or read the Customs Department’s guidelines as of November 3 or its list of FAQs as of November 6.