Custom Duties and Import-Export Taxes in Malaysia

Malaysia’s customs and taxation framework is primarily governed by the Customs Act 1967, supplemented by modern statutes such as the Sales Tax Act 2018 and the Excise Act 1976.

Contributing Advisor

Quinn Lu

Senior Associate, International Business Advisory

The Royal Malaysian Customs Department (RMCD) administers these laws, overseeing tariffs, duties, and compliance enforcement. The country’s trade policies are shaped to align with regional agreements like ASEAN Free Trade Area (AFTA), Regional Comprehensive Economic Partnership (RCEP), and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which aim to facilitate tariff reductions and streamline customs procedures.

Why import-export taxes matter for businesses and individuals

For businesses, understanding Malaysia’s import-export taxes is vital for cost management, pricing strategies, and compliance. They directly impact the overall cost of goods, competitiveness in regional markets, and eligibility for trade incentives or exemptions. For individuals, especially importers and exporters, these taxes influence purchasing decisions, profit margins, and legal risk management.

The legal backbone consists of:

• The Customs Act 1967 (Act 235), which governs the import and export duties, customs procedures, and enforcement mechanisms.
• The Excise Act 1976, which regulates duties on specific goods like alcohol, tobacco, and vehicles.
• The Sales Tax Act 2018, reflecting Malaysia’s shift towards the Sales and Service Tax (SST) system, supplementing or replacing earlier tax regimes.

What is customs duty in Malaysia?

Customs duty is a tariff imposed on goods imported into or exported from Malaysia. Its primary purpose is to generate revenue for the government, regulate the flow of goods, protect domestic industries, and ensure compliance with trade agreements. Customs duties are calculated based on the customs value, typically the Cost, Insurance, and Freight (CIF) value of goods upon importation.

Difference between customs duty, Sales Tax (SST), and excise duty

While customs duty targets international trade, SST and excise duties are tax components on domestic consumption and specific goods:

• Customs Duty applies at the border during import/export clearance.
• Sales and Service Tax (SST), reintroduced in 2018, applies to goods and services supplied within Malaysia.
• Excise Duty pertains to certain goods like alcohol, tobacco, and luxury automobiles, often with higher rates due to health and social considerations.

When customs duty is imposed (import vs export scenarios)

Customs duty is imposed on:

• Imports: Goods entering Malaysia from abroad, with rates depending on product classification and trade agreements.
• Exports: Generally, Malaysia exempts most goods from export duties; however, certain commodities like palm oil, timber, and minerals may be subjected to export duties to manage resource exports and domestic supply.

Import taxes and charges in Malaysia

Range from duty-free items to high tariffs on protectively sensitive goods, with rates influenced by trade policies and FTAs.

Since September 2018, a 10 percent SST applies on imported goods classified within the standard rate bracket, with some goods exempt or taxed at a lower rate.

High excise duties are imposed on alcohol, tobacco, and motor vehicles, with rates tailored to health policies and industry support. For example, excise duty on cigarettes is significantly higher compared to alcohol or automobiles.

Other import fees

Additional costs include processing fees, inspection charges, and any applicable standards compliance costs such as SIRIM certification.

How import duties are calculated in Malaysia

Malaysia employs two main duty types:

• Ad Valorem Duty: A percentage of the customs value (e.g., 5 % of CIF value).
• Specific Duty: A fixed amount per unit (e.g., RM per kilogram), often used for commodities like alcohol or tobacco.

Total landed cost includes CIF value plus insurance, freight, and currency conversion adjustments. Accurate calculation necessitates including these components in the customs declaration to ensure proper duty assessment.

Import duty exemptions and relief schemes

• Goods under the Free Trade Agreements, raw materials for manufacturing, and items for aid and humanitarian purposes often qualify for exemptions.
• Manufacturing, agriculture, green technology, and strategic sectors benefit from specific exemptions aligned with Malaysia’s national development goals.
• Applications are made through customs online portals, supported by relevant documentation such as invoices, permits, and certificates of origin.

The government periodically reviews exemption orders, with recent updates allowing expanded exemptions under specific schemes, including the De Minimis policy.

In Malaysia, low-value shipments below RM 500 are generally exempted from import duties and SST, facilitating e-commerce and courier parcels.

Export taxes and duties in Malaysia

Export duty in Malaysia is imposed on selected commodities, including palm oil, timber, rubber, and minerals, to regulate resource exports, safeguard domestic supply, and generate government revenue, with rates periodically adjusted in line with global market conditions and national economic objectives.

Duties are generally calculated as a percentage of the Free on Board (FOB) price, and recent policy revisions—such as the reduction of the palm oil export duty from 15 percent to 9.5 percent—reflect efforts to enhance export competitiveness amid volatile demand. To support exporters, Malaysia provides incentive schemes such as duty rebates, duty drawbacks for re-exported goods, refunds on duties paid for production inputs, and streamlined customs procedures, subject to eligibility, registration, and compliance with documentation requirements administered through official trade portals.

Free Trade Agreements (FTAs) and preferential tariffs

Malaysia participates in a range of Free Trade Agreements (FTAs), both regional and bilateral, aimed at reducing tariffs, promoting trade, and strengthening economic ties. Key agreements include the ASEAN Free Trade Area (AFTA), the Regional Comprehensive Economic Partnership (RCEP), and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), as well as bilateral FTAs with major trading partners such as Japan and Australia.

These agreements collectively expand Malaysia’s access to international markets, enhance export competitiveness, and attract foreign investment through preferential trade arrangements.

A central feature of FTAs is the issuance of Certificates of Origin (COs), which serve as official proof that goods originate from member countries eligible for preferential tariff treatment. With these certificates, importers can claim zero or reduced tariffs when goods enter the partner country’s customs territory. This not only lowers trade costs but also improves supply chain efficiency by simplifying import and export processes.

To obtain a Certificate of Origin, exporters must apply through designated Malaysian trade authorities or agencies, providing evidence that the goods meet the rules of origin specified under the relevant FTA. Proper documentation and compliance with origin requirements are essential, as errors or omissions can lead to delays, rejection of tariff benefits, or financial penalties. Common pitfalls include incorrect documentation, misclassification of goods, and failure to secure the appropriate certification. Ensuring accuracy and adherence to trade documentation standards is therefore critical for Malaysian exporters seeking to fully benefit from the advantages offered by FTAs.

Import-export documentation and compliance

In Malaysia, import and export activities are governed by a structured documentation and compliance process to ensure smooth trade operations and adherence to customs regulations. The essential documents required for most transactions include:

• Commercial invoices;
• Packing lists;
• Bills of lading; and,
• Specific customs declaration forms—form K1 for imports and form K2 for exports.

These documents must be submitted to Malaysian Customs to record and approve the movement of goods across borders. These documents serve as the foundation for accurate duty assessment, trade statistics, and compliance verification.

The documentation process typically involves electronic submission through Malaysia’s digital trade platforms, which streamline procedures and minimize delays. Key systems include MyCustoms, DagangNet, and e-Declare, which are integrated platforms that allow traders, forwarding agents, and customs officers to exchange information efficiently.

Once the necessary forms and supporting documents are submitted, customs authorities carry out document verification and, where necessary, physical inspection of goods. Duties and taxes are then assessed based on tariff classifications and declared values, after which final clearance is granted for the release or export of goods.

Penalties and enforcement by Royal Malaysian Customs (RMC)

Offences under Malaysia’s customs regulations cover a wide range of violations, including:

• Under-declaration of goods;
• Smuggling;
• Submission of false invoices; and,
• Misclassification of product categories to evade duties or taxes.

Such offences undermine government revenue collection and disrupt fair trade practices. Under the Customs Act 1967, offenders are subject to severe legal consequences, which may include:

• Substantial fines;
• Confiscation of goods; and, 
• Suspension or revocation of trade licenses.

Recent amendments to the Act have introduced higher penalties and stricter enforcement provisions, reflecting the government’s commitment to combating tax evasion and ensuring greater compliance within the trade sector.

To strengthen enforcement, the Royal Malaysian Customs Department (RMCD) has intensified monitoring and investigation efforts, particularly targeting high-value smuggling and fraudulent declaration cases.

The department now employs advanced surveillance technologies, electronic cargo tracking, and data analytics to detect irregular trade patterns and identify potential risks more effectively. Coordinated operations with other enforcement agencies have also been expanded to curb cross-border smuggling and illicit trade. These measures not only enhance border security but also reinforce Malaysia’s reputation as a compliant and transparent trading hub.

Malaysia Free Trade Zones (FTZs)

Malaysia Free Trade Zones (FTZs) offer businesses exemptions from customs duties and excise duties on goods imported, processed, or manufactured within them, provided those goods are re-exported rather than sold domestically. This directly mitigates the excise duty impacts discussed previously by treating FTZs as areas outside Malaysia's principal customs territory under the Free Zones Act 1990.

Free Industrial Zones (FIZs) support manufacturing and assembly activities, such as electronics or automotive production, with duty-free imports of raw materials and machinery used directly in export-oriented processes. Free Commercial Zones (FCZs), often near ports like Port Klang or Penang, focus on trading, warehousing, and logistics, exempting imports that are repackaged or re-exported from sales, service, and excise taxes.​

Licensed Manufacturing Warehouses (LMWs) function similarly to FIZs, granting exemptions for firms exporting at least 80 percent of output, which helps excise-affected sectors like beverages reduce input costs.​

FTZs lower operational costs by eliminating excise and customs duties on dutiable goods like alcohol or vehicles during storage, processing, or transshipment, improving cash flow and competitiveness. They streamline logistics with minimal customs checks and advanced infrastructure, though goods entering Malaysia's domestic market from an FTZ trigger full duties and taxes.​