|Research by Country/Region
January 21, 2018
|MALAYSIA: CUSTOMS, TAXES and DOCUMENTATION REQUIREMENTS for IT PRODUCTS and SERVICES IMPORTS |
A. Is this country a member of the Information Technology Agreement?
B. Customs documentation requirements for IT products
C. Software: duties and taxes, updates, licenses, electronically delivered
D. IT services: tax treatment and other regulations
E. Refurbished, used, or repaired computer equipment imports
A. IS THIS COUNTRY A MEMBER OF THE INFORMATION TECHNOLOGY AGREEMENT?
Signatories to the Information Technology Agreement (ITA) have eliminated their import duties on a wide range of information technology products, including software and computer hardware. For more information on the ITA, and exact tariff elimination schedules of signatories, click here.
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B. CUSTOMS DOCUMENTATION REQUIREMENTS FOR IT PRODUCTS
What are the documentation requirements for the physical import of software? For other information technology products?
The following documents are required for importation of goods, including software: Invoice, packing list, airway bill (if by air), bill of landing (if by sea).
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C. SOFTWARE: DUTIES and TAXES, UPDATES, LICENSES, ELECTRONICALLY DELIVERED
DUTIES AND TAXES ON SOFTWARE IMPORTS
Are duties assessed on the intellectual property of the software or on the medium on which is it presented?
The Royal Malaysian Customs only levies duties on the carrier medium on which it is presented and not on the intellectual property of the software. However, in Malaysia, there is a zero duty on software in general.
Are taxes assessed on the intellectual property of the software or on the medium on which is it presented?
Taxes are assessed on the medium in which it is presented and, for this reason, the intellectual property of the software is not taken into account. No import tax is levied for software, however, in certain cases, there is a sales tax of 10%.
Is customized software treated differently than packaged software?
The treatment for customized and packaged software is the same.
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IMPORTS OF SOFTWARE UPDATES
What are the customs duties and tax implications for software sold with updates when the full sales price, including cost of updates, is shown on the original commercial invoice? Are duties and taxes paid on that amount? What happens when the updates are sent at a later date? Are duties/taxes applied again? If so, based on what value? How should information presented on the commercial invoice for the original and subsequent shipments to avoid paying duties/taxes more than once on a single sale?
Generally speaking, if taxes have been levied on the original shipment, to avoid paying the same taxes again when the update enters the country, the exporter should indicate that taxes have been paid and attach the original invoice and taxes paid to the new importation document.
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SOFTWARE LICENSES: CUSTOMS CLASSIFICATION, IMPORT DUTIES, TAXES, OTHER
Are software licenses classified in Harmonized System 4907?
Are import duties/taxes applied? If so, on what cost/price base are they levied?
Are withholding or other additional taxes applied on software licenses? If yes, how?
To determine whether withholding tax is payable, it must first be decided whether the transaction is an outright sale or the granting of a license. The right to distribute software, albeit electronically, is the granting of a license and not an outright sale of a product. Therefore in the case of income derived from the licensing of intangible property, Malaysian law deems the income as having accrued or derived in the place where the intangible property is used. For example a U.S.-based licensor that licenses its software in Malaysia would have derived its income in Malaysia.
Withholding taxes apply where a non-resident of Malaysia derives income made under any agreement or arrangement in respect of moveable property, of which software would be included. As such a Malaysian-based licensee will be required by law to withhold the prescribed tax sum of 15%. Double Taxation Agreements (DTA) between Malaysia and certain treaty countries may specify a lower rate. DTA between U.S. and Malaysian only applies in certain areas. Shipping and air transport are not taxed.
Withholding tax provisions are provided for under the Income Tax Act 1967 to impose tax on income derived in Malaysia by non-residents. Generally, Malaysian withholding tax is chargeable on a number of payments to non-residents. For example, royalties are subject to a 10% withholding tax and interest is subject to a 15% withholding tax. An applicable double-tax treaty may reduce this rate of withholding.
If a U.S. license agreement is included in the packaging or is part of the installation/registration of shrink-wrapped software imported from the United States, would that agreement be binding on consumers in your market? If so, would U.S. or local laws pertain?
When a consumer purchases and uses shrink-wrapped software, it is usually considered that they have agreed to the terms of the licensing agreement in the package. Therefore, the license would be deemed binding on consumers in Malaysia. Although the agreement is not conclusive, it does carry a lot of weight in Malaysia's court of law.
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SOFTWARE DELIVERED OVER THE INTERNET/ELECTRONICALLY DELIVERED SOFTWARE
Are taxes applied to software delivered to the end-user over the Internet? If so, on what value?
There is no value-added tax in Malaysia. With regard to the Sales and Service Tax, Malaysian tax law does not differentiate between electronic or tangible transactions. The issue would be whether such electronic transactions fall within the purview of the provisions contained in the Sales Tax Act 1972 and Service Tax Act 1975.
A summary of the Malaysian sales and service tax follows:
(a) Sales Tax - imposed on taxable goods manufactured in Malaysia or imported into Malaysia for home consumption. The sales tax does not however apply to intangibles such as professional services. Sales Tax is an ad valorem tax and the rate ranges between 5% to 15%. For example, the manufacture or importation of physical mediums such as diskettes, compact discs, paper or audio and videocassettes may be subject to sales or import duty of 10%.
Generally, a person is required to be licensed prior to charging sales tax, although there are exemptions. Examples include:
(i) manufacturers of taxable goods, not being a "contractor" a person who performs work on taxable materials wholly supplied by another person and whose sale value of taxable goods manufactured or sold by him does not exceed RM100,000 (approx. US$26,312.);
(ii) manufacturers of taxable goods, being a "contractor", whose total amount charged for work done by him does not exceed RM20,000 (approx. US$5263).
(iii) There are also certain types of goods the manufacture of which is exempt from licensing. Examples include development and printing of photographs, production of film slides, preparation of meals, and the repair of second-hand or used goods. Goods exported are exempt from sales tax.
(b) Service Tax - charged and levied on any taxable service provided by any taxable person, except exported taxable service. "Taxable Person" refers to such persons carrying on the business of providing a taxable service. "Taxable Service" means "any service which is prescribed to be a taxable service". Such services are set out in table form and the service industries are divided into 9 general groups i.e. Hotels, Restaurants, Entertainment Outlets, Private Clubs, Golf Courses and Private Hospitals and Other Service Providers.
Notwithstanding the wide definition of services, service tax is not charged on Exportable Taxable Service ("ETS"). In general, ETS relates to taxable service supplied for and to a person in a country other than Malaysia, provided that the service is not supplied in connection with goods or land situated in Malaysia and the person is not in Malaysia at the time the service is performed.
The value on which service tax is assessed is the actual price for which the goods are sold or, where not available or independent, the price at which the goods would have been sold in the ordinary course of business to a person independent of the taxable person.
It should be noted that every taxable person who carries on a business of providing taxable service must apply for a service tax license. The Service Tax Act prohibits the carrying on of any such business without a license. In addition, the business may only be carried out at the place or premises specified in the license.
Would the situation be different if this software were instead delivered to a distributor who has a license to produce (replicate) and sell the software?
What are the documentation requirements for the electronically delivered import of digitized products (i.e. software, movie downloads) over the Internet or other networks?
Since tariffs are not imposed on software, the same applies for electronically delivered software. Therefore, documentation is not required.
Malaysia is a member of the World Trade Organization (WTO) and, according to a temporary moratorium on customs duties among WTO member countries, customs duties will not be imposed on electronic transmissions until the next session in Mexico in the fall of 2003.
Must an electronically delivered software import be accompanied by a physical shipment of the same product?
The practice is not compulsory in Malaysia. However, companies in Malaysia would normally prefer to have a hard copy as back-up.
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D. IT SERVICES: TAX TREATMENT AND OTHER REGULATIONS
Are services (i.e. training, set-up, etc) relating to the sale of software taxed? If so, at what rate and based on what value?
Withholding tax will be imposed on:
i) Payments made for services rendered by the non-resident or his employee in connection with the use of property or rights belonging to, or the installation or operation of any plant, machinery or other apparatus purchased from such non-resident. This includes software.
ii) Payments made for technical advice, assistance, or services rendered in connection with technical management or administration of any scientific industrial or commercial undertaking, venture, project or scheme (e.g. customization services); or
iii) Rent or other payments made under any agreement or arrangement for the use of any moveable property.
In such instances, the Malaysian tax resident is obliged to withhold 10% of the gross payments made to the non-resident.
In accordance with the above provision, payment for services rendered by a non-resident are subject to withholding tax, regardless of whether the services are rendered within or outside of Malaysia.
On 9/21/02 the 10% withholding tax on non-residents for services rendered abroad was abolished in order to reduce the cost of doing business.
In the event of an extension of the duration of the services, withholding tax on non-resident contractors may apply. Currently, any payments to a non-resident contractor for services rendered under a contract is subject to a withholding tax of 15% for businesses’ income tax and 5% for its non-resident employee’s tax. This withholding tax is an advance payment as the actual amount of tax to be paid by the business and its employee is finalized upon completion of the contract.
On 9/21/02 withholding taxes were reduced from 15% to 10% for businesses and from 5% to 3% for their non-resident employees.
Are U.S. IT solution providers permitted to send personnel into the country to set up hardware/software-related systems?
Yes, but they must apply for a Professional Visa Pass.
Are special visa, work permits, and/or professional certification by an accredited body required?
No visa is required for U.S. citizens if their visit does not exceed three months. Below are the various categories of visa passes.
Social Visit Pass
Visit passes (social) are issued solely for the purpose of a social visit. A person holding a social visit pass cannot take up employment, business, or professional work while in Malaysia.
Business Visit Pass
Business visit passes are issued to:
--Owners and company representatives entering Malaysia to attend a company meeting, seminar, inspect the company’s accounts, or to ensure the smooth function of the business.
--Investors or businessmen entering to explore business opportunities and investment potential
--Foreign representatives of companies entering to introduce goods for manufacture in Malaysia, but not to engage in direct selling or distribution
--Property owners entering to negotiate, sell, or lease properties
--Foreign reporters from mass media agencies entering to cover any event in Malaysia
--Participants in sporting events
These passes cannot be used for employment or for supervising the installation of new machinery or the construction of a factory.
Professional Visit Pass
If the U.S. company is sending someone for training or set-up purposes, then they do not fall under the Social Visit Pass or the Business Visit Pass category. They must enter Malaysia under a Professional Visa Pass. To obtain this pass, apply at the nearest Malaysian Embassy or Consulate.
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E. REFURBISHED, USED, OR REPAIRED COMPUTER EQUIPMENT IMPORTS
1. REFURBISHED COMPUTER EQUIPMENT
Is the import of refurbished computer hardware, parts, and accessories (including toner cartridges) permitted?
The import of refurbished computers, although not prohibited the law, is not exactly encouraged, either. There are no laws against it, but most equipment when imported into Malaysia has to be type-approved.
ICT products must be Type-Approved by the Standards and Industrial Research Institute of Malaysia (SIRIM), a government-owned company incorporated under the Ministry of Finance. However, a catch is that SIRIM does not type-approve used goods, only new ones. For more information, see SIRIM's website at http://www.sirim.my .
If so, what are the documentation requirements?
Documentation required will be similar to importation of other products (invoice, packing list, airway bill (if by air), bill of landing (if by sea)).
Is special labeling required?
Special labels are not required for the equipment.
What value should be shown on the invoice?
On the invoice, one must declare the number of units being imported; model of the computer, year and make of the computer; the value of the sale or the purchase price etc. should be noted on the invoice.
How are duties and taxes assessed?
Duties and tax will be assessed according to the equipment. No duty is levied on computers or microprocessors. However, computer cables, speakers, etc. are subject to duty.
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2. USED COMPUTER EQUIPMENT
Is the import of used computer hardware, parts, and accessories (including toner cartridges) permitted?
Same as for refurbished computer equipment. See answers above.
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3. REPAIRED COMPUTER EQUIPMENT
Are duties and taxes assessed on the re-import of repaired computer equipment?
Duties and taxes will not be assessed on the re-import of repaired computer equipment. However, one should make a note of the equipment serial number, as customs will check against this number when the equipment re-enters the country. Indicate/declare on the customs forms that it was sent for repair and the serial number of the equipment being repaired.
How should the commercial invoice appear?
Since duty is not levied on computers, one should indicate that the equipment has no commercial value.
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This response was prepared by the U.S. Department of Commerce/Commercial Service in Kuala Lumpur, Malaysia, iin February 2003. For further clarification please contact:
U.S. Embassy, Kuala Lumpur
Special Notes: The above information is intended to serve only as unofficial guidance. In seeking to obtain government rulings in specific cases, it will often be necessary to refer to special laws, separate regulations and announcements, and case-by-case decisions by the government. Beyond the general guidelines shown above, legal counsel should be retained at an early stage of consummation of a major procurement contract, and before entering into any legal commitments.
This page was last updated on 06/18/2009. This site is operated by the Office of Technology and Electronic Commerce (OTEC) division of the International Trade Administration, U.S. Department of Commerce.