Trade and Tariffs in Malaysia
Tariffs are the main border measure affecting the import of goods, but various non-tariff border measures are also used as a tool of Malaysia’s trade and industrial policy. Some tariff lines in Malaysia require an import license. As a prerequisite for the issuance of an import license, the import of certain tariff lines is also subject to technical standards and approval. Malaysia has initiated multiple anti-dumping actions against other countries and economies, and Malaysian products have also been subject to multiple anti-dumping actions.
As part of its industrial policy, Malaysia imposes export taxes and adopts export promotion measures. Export duties or export licenses apply to certain goods of national interest. Export promotion measures include export processing zones and guarantees.
Pursuant to the provisions of the Tariff Order 2017, a subsidiary regulation enacted under the principal Act, the Tariff Act 1967, import duties are levied on all types of imported goods (ranging from agricultural products and processed materials to manufactured goods) in various tariff lines. When determining the amount of tariffs payable on imported goods, the following factors need to be considered:
- Tariff classification; • Origin of goods; and • Value of dutiable goods.
Goods imported into Malaysia are classified according to the Harmonized System of Commodity Description and Coding (“HS Code”), which is a global standardized system implemented by the International Customs Organization and used by all WTO members, including Malaysia. The origin of goods is another relevant factor as goods may be entitled to different tariff rates or preferential rates under free trade agreements (“FTA”) which are entered into by Malaysia or which are entered into as members of the various ASEAN economies. Agreements and free trade agreements promote the free movement of goods in the region.
Valuation of imported goods must be carried out in accordance with the Customs Duties (Valuation Rules) Regulations 1999, which stipulate transaction value, i.e. the price paid or payable for the goods, as the primary method of valuation. Notwithstanding this provision, if Customs has reason to doubt the authenticity or accuracy of the transaction value (i.e. the declared value), it may use other valuation methods to value the goods, such as the value of the same or similar goods, the inversion of the goods. discount value (i.e., its sales price minus reasonable profits and other expenses), or calculate the value of the goods based on its known cost price plus a reasonable amount of profits and other expenses. Finally, Customs may also use a reasonable alternative method that combines all of the above methods or a derived value method.
As Malaysia aims to make its exports internationally competitive, the types of products subject to export taxes are extremely limited (such as crude oil, palm oil). Export duties are levied on the price received by the exporter for the exported goods at the time of customs release.
In addition, excise tax is also levied on certain goods imported into Malaysia or produced in Malaysia (such as cars, tobacco and alcohol, casino accessories, billiards, playing cards, mahjong tiles and other items). The rate of excise tax varies according to the nature of the goods, and is either a specific rate or an ad valorem tax. The types of goods subject to excise tax and the applicable tax rates are stipulated in the Excise Tax Act, 1976 and the Excise Tax Regulations and Excise Tax Orders promulgated in accordance with the Excise Tax Act.
There are several designated free zones in Malaysia. Two categories of freedom are distinguished: free industrial zones (“free industrial zones”) and free commercial zones (“free commercial zones”). Only manufacturing activities are allowed in free industrial zones. The types of activities permitted within the Free Business Zone are limited to commercial activities, including trading (other than retail), dismantling, grading, repackaging, relabeling and transport. The purpose of these free zones is to allow companies to enjoy minimal customs controls and procedures in importing raw materials, parts, machinery and equipment.
A company eligible to enter a free zone must be a company that exports all its imported items and uses imported materials/components. Under special circumstances, companies that export no less than 80% of their products are also considered for admission to the free zone (although the Malaysian government encourages companies in the free zone to use local raw materials or components whenever possible).
Within a free zone, goods and services of any kind may be imported, produced, manufactured or supplied without paying any customs duties, excise taxes, sales taxes or service taxes. Companies in the free zones that wish to sell their products in the Malaysian domestic market can apply to the Ministry of Finance to be exempted from paying import duties on those products.
Because free zones are specifically designated geographical areas, it may not be appropriate for all companies to operate within those geographical areas. In order to expand the scope of benefits and exemptions enjoyed by manufacturers located in free zones, the Malaysian Government has introduced the Approved Manufacturing Warehouse Scheme (“Approved Manufacturing Warehouse”) in accordance with the provisions of Sections 65 and 65A of the Companies Act, which enables Manufacturers can choose their facility location after taking into account factors such as labor supply, land costs and support services.
Approved manufacturing warehouses are basically bonded warehouses where goods imported for manufacturing purposes are exempted from customs duties and sales tax in order to be included in the finished goods to be exported. Customs strictly supervises licensed manufacturing warehouses and requires manufacturers to maintain a comprehensive documentation system to record all inflows and outflows of goods into and out of licensed manufacturing warehouse facilities to prevent tax evasion. Any movement of goods must be documented and/or approved by the relevant customs officials. In addition, there is an obligation to maintain daily records for the preparation and submission of monthly records and audited annual reports to Customs. Any shipment whose destination is not specified will be subject to customs duties and sales tax at the discretion of Customs.
If a manufacturer is neither located in a free zone nor applies to become an approved manufacturing warehouse, there is a clawback mechanism that allows for a full refund of duties and taxes paid on components re-exported as part of a finished product manufactured in Malaysia. Duties can be refunded upon application to Customs, who will then decide whether the parts for which the refund is requested are actually used as components in finished goods that will subsequently be exported.
With the enactment of the Strategic Trade Act 2010, Malaysia currently implements export control laws that require the export, transportation and transshipment of any strategic items to require a license issued by the Ministry of Trade and Industry. Although the Act and its accompanying regulations entered into force on 1 January 2011, only the licensing obligations and restrictions on the shipment of nuclear material to prohibited and restricted end-users were effective immediately. On April 1, 2011, the final part of the law came into effect, requiring licenses for military items and other non-nuclear dual-use items and technology. A three-month grace period is given for compliance with the law, whereby military and dual-use items should obtain the necessary licenses before July 1, 2011.
The Strategic Trade (United Nations Security Council Resolutions) Regulations 2010 actually adopts all United Nations Security Council resolutions on the non-proliferation of weapons of mass destruction and provides an update to the Strategic Trade (Restricted End-Users and Prohibited End-Users) Order 2010 ( A comprehensive embargo is imposed on persons and entities listed in Schedule 2 of the “Strategic Trade Order” (mainly located in the Democratic People’s Republic of Korea and Iran), prohibiting the export, transshipment and transportation of all strategic commodities.
Schedule 1 of the Strategic Trade Order sets out a list of restricted end-users who are required to obtain export, transshipment and transport licenses from the Department of Trade and Industry. These countries include Congo, Côte d’Ivoire, Lebanon, Sudan, Libya, Afghanistan, Iraq, Liberia, Rwanda, Somalia and Eritrea.
The intermediary provisions under the Strategic Trade Act are very broad and include any person who negotiates, arranges or facilitates the purchase, financing, transfer, sale or supply of strategic items for himself or as an agent for another person, or purchases, sells or supplies Human activities of such strategic items. Strategic goods intermediaries are obliged to register annually.
The Strategic Trade Act also has extraterritorial effect and can arrest anyone regardless of their nationality or citizenship. Therefore, any offense under the Strategic Trade Act committed outside Malaysia will be deemed The crime was committed in Malaysia.
Malaysia currently has 7 bilateral free trade agreements in effect (with Australia, Chile, India, Japan, New Zealand, Pakistan and Turkey) and 6 ASEAN-related free trade agreements (with Australia, New Zealand, China, India, Japan, South Korea and Hong Kong) and 2 other multilateral free trade agreements (Framework Agreement on the Preferential Trade System of Member States of the Organization of the Islamic Conference (PTS-OIC) and Developing Eight (D-8) Preferential Tariff Agreement).
On February 4, 2016, Malaysia signed the Trans-Pacific Partnership Agreement (“TPPA”) with 11 other countries, including the United States, Canada, Chile, Mexico, Peru, Australia, New Zealand, Vietnam, Singapore, Brunei and Japan. ). Following the United States’ withdrawal from the TPPA in January 2017, the remaining 11 TPPA members agreed in November 2017 to move forward with implementation of a revised version of the TPPA, the renamed Comprehensive and Progressive Agreement for Trans-Pacific Partnership (“CPTPP”). The CPTPP will absorb most of the original text of the TPPA and suspend the application of a small number of provisions.
It is expected that the CPTPP will continue to maintain the high standards and comprehensive features of the TPPA, incorporating many “WTO-plus” chapters such as competition policy, state-owned enterprises, government procurement, e-commerce and environmental standards, which Malaysia signed with the freedom of This is usually absent from trade agreements.
In addition, Malaysia has participated in negotiations on the Regional Comprehensive Economic Partnership (“RCEP”) since early 2013. RCEP is a consolidated free trade agreement between the 10 ASEAN member states and six other countries that currently have free trade agreements with ASEAN (Australia, China, India, Japan, South Korea and New Zealand). Negotiations between participating countries are expected to be completed in 2018.
The FTA aims to (but is not limited to) reduce tariffs payable on goods originating from other countries with which Malaysia has FTAs. In turn, export goods produced in Malaysia also benefit from lower tariffs in importing countries with which Malaysia has free trade agreements. Under different free trade agreements, there are specific regulations and conditions for eligibility to enjoy preferential tariff treatment, such as rules of origin and operational rules for the certification process of obtaining a certificate of origin from the issuing authority of the exporting country. Companies wishing to take advantage of these free trade agreements are advised to first review their existing supply chain structures to ensure compliance with the necessary rules of origin or operating rules to enjoy preferential tariffs under the relevant free trade agreements.