VAT Registration in Malaysia

Updated on Thursday 24th November 2022

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In this article, our VAT registration lawyers in Malaysia answer some of the most commonly asked questions, useful for clarifying the need to register for VAT in Malaysia. It is good to note that VAT registration in Malaysia is a process that includes several steps, starting with determining if the company exceeds the applicable threshold and following the standard application process with the Customs Office, matters that can be properly managed by one of our local specialists. 
 
 Quick Facts  
We offer VAT registration services Yes

Standard rate

6%

Lower rates

5% for:

- basic foodstuffs;

- petroleum oils;

- construction materials;

- IT, telecommunications and printing hardware and materials

Who needs VAT registration Companies with an annual turnover over RM 500,000
Time frame for registration 24 hours pre-approval
VAT for real estate transactions

Not applicable

Exemptions available

For:

- export of goods,

- processed foods,

- electrical appliances,

- furniture

Period for filing

Two calendar months

VAT returns support

Yes

VAT refund  Available for natural persons and business entities
Local tax agent required Yes
Who collects the VAT

- retailers,

- manufacturers,

- wholesalers

Documents for VAT registration

 - certificate of incorporation,

- standard forms

VAT number format

MY country code letters followed by 15 digits

VAT de-registration situations

When companies close their operations

 

Malaysian VAT registration for a foreign company


Foreign companies must comply with local rules for VAT registration in Malaysia. There are a number of formalities that can be explained to you by our Malaysian lawyers, and below we review some of them:
 
  • Voluntary Malaysian VAT registration for a foreign company is also allowed if taxable products are below the threshold imposed.
  • The Certificate of Registration, alongside the Articles of Association, is among the necessary documents for VAT registration in Malaysia. A VAT Certificate from the country of origin is also needed.
  • There is no obligation of having a fiscal representative for Malaysian VAT registration for a foreign country, however, it is recommended. He or she can properly manage the formalities, as these might seem complex. One of our local tax advisors can provide support.
  • Once the documents have been sent, the tax authorities proceed to verify them, and then issue the VAT code, if they are in order.

We remind you of the support of our lawyers in Malaysia if you apply for Malaysian VAT registration for a foreign company. It is advisable to request legal advice in this matter to ensure a simple and error-free process.


VAT registration for a local company in Malaysia

 
Our lawyers in Malaysia specialized in VAT registration in Malaysia describe the main steps for local companies:
 
  1. Determine if the business is subject to tax: the first step is to answer the simple question if the business is a manufacturing one that is subject to this tax.
  2. Determine the threshold: this is important as it will dictate whether or not registration is mandatory or voluntary; 
  3. Submit the application: the Registration Application for Sales Tax or Service Tax is filled in and submitted to the authorities;
  4. Verification: the application is subject to verification from a Customs Officer who may request additional supporting documents;
  5. Approval: once the verification is complete, the report is forwarded to the Approval Officer who will issue the “registered” or the “rejected” status.
  6. Receive the result: the result, whether approved or rejected, is transmitted via email or through the online portal.
  7. Subsequent steps: if a company receives its registration, it also received the login information for the MySST portal where the company representative will update the company information. 
 
One of our VAT registration attorneys in Malaysia can assist investors who need to go through this process in 2022. We can provide additional details on the registration procedure and the steps in the event referring to the initial SST registration application is rejected. Investors who need more information about the actual process can reach out to us. Plus, they can also find out information about immigration to Malaysia.
 

How is the VAT applied in Malaysia?


The Malaysian VAT/SST system is largely modeled on the UK VAT. Primarily, the VAT/SST is a consumption tax on goods and services. The main concept of VAT in Malaysia is that only the value added to goods or services is going to be taxed. The VAT system is projected to make sure that the VAT price is ultimately paid by the final consumer and that it is not an additional burden for companies in the value chain.

Mandatory and voluntary registrations are available and the latter applies in case of taxable goods that are below the threshold or in case of persons who were exempt from registration but choose to undergo this step. The turnover for the 12-month period can be calculated based on the past value of the taxable goods or according to a future projection.  We remind the support of our local specialists for VAT registration in Malaysia.

On the other hand, foreigners interested in company relocation can discuss this with our immigration lawyers in Malaysia.
  

What types of businesses are subject to VAT?


The type of supplies which are liable to the standard VAT rate in Malaysia are local supplies of goods and services which are not rated at a zero VAT taxation, exempt or granted relief, as well as imported goods and services. In general, companies are liable for VAT registration in Malaysia, however, in some cases, they are exempt from registration. Businesses to which this rule applies are the following:
 
  • companies that manufacture non-taxable goods;
  • a manufacturing company that is situated below the registration threshold;
  • a sub-contractor manufacturer to which the registration threshold applies;
  • manufacturing companies that are expressly exempt from registration, such as those in the tailoring field, opticians, jewelers, and others.

Our lawyers in Malaysia can offer more information on the general registration requirements as well as the exemption from registration. In some cases, manufacturers who were already registered for GST purposes or those that have been identified as subject to this registration may be subject to an automatic process. This means that they will be automatically registered as a Manufacturer under the Sales Tax. Feel free to talk to our experts about VAT registration in MalaysiaBelow is an infographic with information on this topic:
 

 
How to Register for VAT in Malaysia
 

VAT invoice content in Malaysia


As soon as you have done VAT registration in Malaysia, you can carry out the company's activities and issue invoices. Such an invoice must include the following information:
 
  • The name and business address of the company, as well as the unique identification number.
  • VAT ID issued by the authorities.
  • Invoice number and date.
  • Description of the products and services offered for sale.
  • The price of products and/or services without VAT.
  • The price of products and/or services with VAT included.
  • VAT rate depends on the category of products and/or services.
  • Total amount due.

Tax software is necessary for issuing such an invoice, and any company should implement the necessary systems before starting activities. We emphasize once again that you can benefit from the support of our local specialists for VAT registration in Malaysia and the formalities imposed in this matter.

Would you like to immigrate to Malaysia? We recommend the legal services offered by our local lawyers. They have experience in immigration issues and can take care of visa and residence permit formalities. In addition to presenting a valid passport, health insurance, proof of income, and domicile, applicants must also undergo a medical checkup in Malaysia. Foreign citizens who want to work in Malaysia will receive a work permit in this sense.
 

VAT for digital products and services in Malaysia


The VAT rate for digital products and services in Malaysia is 6%, and those who offer them are required to register to pay this tax. Streaming music, e-books, cloud-based software, site hosting services, and online ads are among the digital products subject to taxation in this country. In other words, if this type of product is sold in Malaysia, then this tax will apply.

However, if the digital products are sold to other companies (B2B), there is the option of reverse-charge in order to no longer impose this fee on customers of this type. We remind you that our tax lawyers in Malaysia can help you with the registration for VAT if you are thinking of opening a business.
 


SST rates and exemptions

Any types of goods manufactured in the country that are intended for export purposes are exempt from the sales tax. In addition to these, certain types of goods are also exempted from SST. These are the following:

 
  • live animals, fish, and seafood as well as essential foodstuffs;
  • books, magazines, periodicals, journals;
  • bicycles, align with some parts and accessories;
  • natural mineral substances, chemicals, pharmaceuticals, fertilizers;
  • articles produced by a goldsmith, among which certain types of jewelry. 

One of our lawyers in Malaysia can give you more information about zero-rating and how these types of companies are still entitled to claim input credit, something that is not available to exempt suppliers of goods and services. There are certain exemptions to VAT in Malaysia. These are the following:
 
  •     financial services;
  •     sale and lease of residential real estate also applied to land;
  •     toll highway;
  •     private education and healthcare;
  •     local public transport;
  •     land for agricultural purposes and land for burial, playground, or religious building purposes.

In Malaysia, there are certain items that a registered business set up in this country is not able to recover VAT on. These items are:
 
  •     supply or import of passenger vehicles;
  •     hiring passenger vehicles;
  •     repairs, maintenance, and renovation costs in connection with a passenger vehicle;
  •     club subscription fee;
  •     medical and personal accident insurance premium;
  •     medical expenses;
  •     family benefits;
  •     entertainment expenses, with the exception of current customers or employees' entertainment ones;
  •     costs connected to effectuating exempt supplies.

Please note that this list of services and goods that are exempt from the SST or subject to lower rates is not an exhaustive one. Likewise, certain types of goods, such as petroleum, may be subject to different rates. We recommend reaching out to one of the VAT experts at our law firm in Malaysia for more detailed information about the applicable rates as per the type of taxable service.

We invite you to watch the following video on VAT in Malaysia:


 

What are the requirements for SST payment and filing?

The taxable period for the SST is bimonthly. The Royal Customs Department is the one in charge of the SST administration in the country. The tax returns are filled in and paid according to the accounting period. The return is submitted electronically and the payments are made in the same portal; there are several options for payment, including bank payments or check payments when these are processed manually and not through the online portal. A maximum amount for payments applies to online submissions.
 
Penalties can be imposed in the following cases: when there are deficiencies on the payable net tax, when no SST return is submitted, when the return is submitted without payment or with insufficient payment, or when the company fails to register. The penalties for late payment are of 10% and 15%, depending on the time that has elapsed since the first 30 days period after the payment was due.
 
Other taxes for companies in Malaysia include the corporate income tax, the real property gains tax, and social security contributions (both on the part of the employer and the employee). The country has a broad double tax treaty network that allows for protection against double taxation on the same type of income (both in Malaysia and in the other signatory state). The withholding tax on dividends is zero percent in Malaysia.
 
There are many registered manufacturing companies in Malaysia to which the SST registration requirements apply. Some of the statistics for the Malaysian manufacturing sector, as released by the Department of Statistics, are the following: 
 
  • 73.5 billion RM: the value of the manufacturing sales in November 2019;
  • 8.9%: the percentage of growth in the food, beverages, and tobacco manufacturing sub-sector in November 2019, on a year-on-year basis.
  • 7.3%: the November 2019 growth percentage in the textile, apparel, leather, and footwear sector, on a year-on-year basis.

We remind you that those interested in relocation can discuss it with our immigration lawyers in Malaysia.


Tax regulations for manufacturers in Malaysia in 2022


According to the Guide on Manufacturing and Import/Export, issued by the Royal Malaysian Customs Departmentcompanies that operate as manufacturers in this country are required to register for the SST tax following the regulations prescribed by Section 12 of the Sales Tax Act 2018, which stipulates that all businesses have to register provided that the sales value is above RM 500,000 in a period of one year. 

The same section of the Act stipulates that local businesses which operate as subcontractors also have to register for the payment of the SST, in the case that the total value of their subcontract work is above RM 500,000. Manufacturers with sales values below RM 500,000 can register on a voluntary basis, as stipulated by Section 14 of the document. 

It is also necessary to know that manufacturers that develop their business activities in Malaysia in regions that are classified as Designated Areas or Special Areas are not imposed with the sales tax, following the provisions stated under Sections 49 and 56 of the new tax Act and our team of consultants in company registration in Malaysia can provide more information concerning the new tax regulations
 

Investing in Malaysia


If Malaysia is your business destination, there are multiple development options for you. With a growing economy and skilled workforce and pro-business, Malaysia is appreciated by many foreign investors who choose this country for consistent profits. Here are some interesting figures:
 
  • The estimated GDP growth rate is approximately 4.5% in 2023.
  • Malaysia's economy was ranked 32nd as a competitive market, according to the Competitiveness Index for 2021.
  • The tourism sector is the third largest income contributor in Malaysia.

For further details about the VAT registration in 2022, we invite you to get in touch with our Malaysian lawyers. We can provide complete services for tax law consultancy as well as guidance according to the type of company and business field. You can also discuss with us all the details about immigration to Malaysia.