From 1 April 2023, the Royal Malaysian Customs Department will implement a 10% Sales Tax on imports of low value goods (LVG).
It was proposed in the 2022 Malaysian Budget as a way to level the playing field between local and overseas sellers and to encourage locals to buy local products.
This guide will take you through how the extension of the sales tax impacts overseas logistics providers and how you can better prepare for it.
You will learn:
What are low-value goods?
The Royal Malaysian Customs Department defines LVG as any goods from outside Malaysia sold in the online marketplace at a price of not exceeding RM500 and brought into Malaysia via air, sea or land modes.
LVG refers to all goods, excluding:
cigarettes;
tobacco products;
smoking pipes (including pipe bowls);
electronic cigarettes and similar personal electronic vaporising devices;
preparations of a kind used for smoking through electronic cigarettes and electric vaporising devices, in forms of liquid or gel, not containing nicotine; and
intoxicating liquors.
What businesses are affected by the sales tax?
Section 8 of the Act imposes a sales tax on LVG sold by a taxable person, i.e. a registered seller.
Here, a Registered Seller (RS) refers to any person in or out of Malaysia who sells LVG on an online marketplace or operates an online marketplace for the sale and purchase of LVG.
The online marketplace does not include the payment processor/payment gateway or internet service providers.
A seller may apply for registration using the LVG-01 form via MyLVG.
## Which overseas vendors must register for the sales tax?
An overseas seller must register for the sales tax if they meet the threshold for mandatory sales tax registration.
Any seller with a total value of LVG brought into Malaysia in 12 months exceeding RM500,000 is liable to be registered as a Registered Seller (RS).
This means the vendor must register as an RS if the total sales value for LVG for the past 12 months exceeds RM500,000 or is expected to exceed RM500,000 in the next 12 months.
What happens if overseas vendors fail to pay the sales tax?
The late payment penalty is imposed on part or all of the amount of sales tax that remains unpaid after the last day the tax is due and payable. The [penalty](https://globaltaxnews.ey.com/news/2023-5152-malaysia-to-impose-sales-tax-on-imports-of-low-value-goods-from-1-april-2023#:~:text=The%20implementation%20date%20(i.e.%2C%20registration,starts%20on%201%20April%202023.&text=LVG%20applies%20to%20all%20goods,sea%20or%20air%2C%20into%20Malaysia.) is charged as follows:
For the first 30-day period, the rate is 10%
For the second 30-day period, the rate is an additional 15%
For the third 30-day period, the rate is an additional 15%
After 90 days, a maximum penalty rate of 40% is imposed.
You can find more information regarding penalties for not paying the sales tax.
Recommendations for overseas vendors affected by the sales tax
Crowe published an insightful list of recommendations for overseas vendors that we are reproducing here.
Assessment
As a seller, you should evaluate and assess your registration liability based on the threshold outlined above.
Registration
If liable to be registered, you can apply for the Sales Tax registration through the RMCD portal.
Modification
After registration, you can make necessary changes to your website, accounting system, and documents to ensure compliance with the sales tax requirements.
Filing and payment
On a quarterly basis, you are required to file the LVG-02 return and pay the collected sales tax to the RMCD. More information can be found under Section 7 of the Act.
5 ways that Luwjistik makes navigating duties and taxes easier
Luwjistik offers several valuable tools and services for logistics companies to navigate through local rules and regulations across Southeast Asia successfully and with ease.
Node calculator
Our advanced node calculator provides itemised costs of shipments at every stage of the supply chain. After inputting your LVG registration details, it can calculate shipping costs, duties, and taxes before shipping, offering better cost visibility and predictability.
Labelling
Luwjistik automatically prints standardised shipping labels for all goods with sales tax payments clearly marked.
Order management system (OMS)
One of the key features of the Luwjistik platform is the order management system that allows customers to track and trace every order through every leg of the delivery journey, including through customs clearance. It also provides notifications via email if any shipment is delayed at customs in case of tax disputes.
Transparent communication
Within Luwjistik, customers can communicate directly with network partners to make enquiries and manage disputes entirely within the single unified platform.
Expert support services
Luwjistik provides support services by logistics experts to help customers navigate issues and disputes with every leg of the delivery journey, including customs and sales taxes.